ARYAN SHARE AND STOCK BROKERS LIMITED,CHENNAI vs. ITO, CORPORATE WARD 1(1) CHE, CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the

Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter

referred to as ‘Ld.CIT(A)‘), Delhi, dated 23.09.2025 for the Assessment

Year (hereinafter referred to as ‘AY‘) 2017-18.

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jurisdiction of Assessing Officer (AO) to reopen the assessment for AY

2017-18, without satisfying the condition precedent as stipulated u/s.147

of the Income Tax Act, 1961 (hereinafter referred to as "the Act”).

return of income (RoI) for AY 2017-18 on 09.09.2017, declaring total

income at ₹48,04,981/-. The assessee is a registered SEBI Stock-Broker

company. The AO has issued notice u/s.148 of the Act on 18.03.2021

expressing his desire to reopen the assessment for AY 2017-18. Pursuant

thereto, the assessee is noted to have filed the RoI reiterating the return

filed originally. The AO is noted to have issued statutory notices,

pursuant to which, the assessee brought to his notice that it is a SEBI

Stock-Broker which performs buying & selling of shares on stock-

exchange for its clients and that for the purchase/sales made by the

clients, necessary debits/credits are received from/to the clients. It was

clarified that the transaction mentioned in respect of M/s. Orange Mist

Productions Pvt. Ltd., (hereinafter referred to as ‘M/s. Orange‘) pertains

to buying & selling of shares on stock-exchange for which payments and

receipts are done by/to M/s. Orange. However, the AO was not satisfied

with the reply given by the assessee and was of the view that the

assessee company is a beneficiary of receiving bogus accommodation

entry of ₹7,15,11,173/- from M/s. Orange during the relevant year and

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 3 ::

made addition u/s.69A of the Act to the tune of ₹7,15,11,173/- u/s.69A of

the Act. Aggrieved, the assessee is noted to have preferred an appeal

before the Ld.CIT(A) who was pleased to dismiss the appeal of the

assessee.

Advocate, challenges the jurisdiction of AO to reopen the assessment on

the ground that he didn’t satisfy the condition precedent as stipulated

u/s.147 of the Act. The Ld AR submitted that ‘the concept of assessment’

is governed by the time barring rule and the assessee acquires a right as

to finalities of proceedings. According to him, quietus of the completed

assessment can be disturbed only when the AO has satisfied the

requirement of law as spelled out in section 147 of the Act. According to

the Ld.AR, as per Section 147 of the Act, the AO should record the

‘reason to believe escapement of income’ which is an essential condition

precedent for invoking jurisdiction to reopen the assessment. Shri Bansal

explained, “reason to believe, postulates foundation based on

information’’ and ‘belief based on reason”. According to him, after

foundation based on information is made, there still must be some reason

which warrants the holding of belief that income chargeable to tax has

escaped assessment, which is absent in this case. The Ld AR further

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 4 ::

wants us to appreciate that information adverse (against assessee) may

trigger ‘reason to suspect’, then the AO to make reasonable enquiry and

collect material which would make him believe that there is in fact an

escapement of income. According to him, in the present case, a reading

of the reasons recorded would reveal that the AO had only reason to

suspect and not reasons to believe escapement of income. Hence,

according to him, the essential condition precedent has not been satisfied

before the AO had assumed the jurisdiction to reopen the assessment.

Hence, according to him, the impugned action of the AO reopening the

assessment is wholly without jurisdiction and cited several case laws

including the decision of the Hon’ble Supreme Court in the case of ITO v.

Lakhmani Mewal Das reported in 103 ITR 437. Drawing our attention to

the reasons recorded by the AO which is placed at page no.56 of the PB

he submitted that a bare reading of the same would reveal that he (AO)

received information that assessee had received fund to the tune of

₹7,15,11,173/- from M/s. Orange during the financial year under

consideration. And as per such information, M/s. Orange was not

involved in genuine business activities and has made suspicious

transaction with various parties including the assessee company.

According to the AO, on analysis of the return of income (RoI), the

turnover accepted by the assessee was only ₹4,01,42,244/- as per Form

3CD and other documents (Form 26AS), therefore, he had formed his

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 5 ::

reason to believe that income as escaped assessment. On the strength of

this vague reason, according to Ld AR, the AO has erroneously assumed

the jurisdiction to reopen the assessment. Therefore, he wants us to

uphold the legal issue and quash the notice issued u/s 148 of the Act.

the assessee and submitted that a reading of reasons recorded would

reveal that even though the assessee had received fund from M/s. Orange

to the tune of ₹7.15 Crs. but the assessee has only shown turnover at

₹4.01 Crs. which fact according to the Ld.DR shows that there is a

suppression of income which tantamounts to escapement of income.

According to Ld DR, the department had information that M/s. Orange

was involved in providing bogus accommodation entries and since the

assessee company was a beneficiary of receiving bogus accommodation

entries amounting to ₹7.15 Crs, hence, the AO rightly had reason to

believe escapement of income. Thus, according to Ld DR, the AO has

satisfied the requirement of law, by recording the reasons for reopening

of assessment; and therefore the AO had satisfied the condition precedent

stipulated u/s 147 of the Act, for reopening of assessment in this case,

and hence, the reopening should not be disturbed.

submitted that the reasons recorded by the AO are fundamentally flawed.

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Explaining the same, he submitted that the AO erred in finding fault with

the assessee receiving funds ₹7.15 Crs. from M/s. Orange but still having

shown the turnover only ₹4.01 Crs. [as per RoI and Form 26AS], the

Ld.AR pointed out that the assessee is a recognized stock-broker of the

SEBI, who maintains two separate bank accounts, one for its clients and

other for own transactions. Drawing our attention to Page No.12 of Paper

Book where assessee has enclosed the RoI from Page Nos.1-52 of Paper

Book, he showed that the total credit in the P&L a/c is to the tune of

₹4,01,42,244/- which consists of brokerage, transaction charges, Demat

charges & interest income along with gain on mutual funds on the

redemption and the income was declaring was ₹48,04,979/- [refer to

Page No.1 of Paper Book]. Further, it was shown that actual transaction

(accumulative) of the said client [M/s. Orange] for the year under

consideration was ₹31.02 Crs. [refer to Page No.204 of the Paper Book]

which includes by receipt of ₹7.15 Crs. [refer to Page No.223 of Paper

Book]. According to Ld AR, basis for alleging income escaping

assessment itself is flawed and erroneous, in as much as the AO erred in

comparing the turnover of the assessee with the funds transferred for

buying & selling of stocks & shares by the client [M/s. Orange]. According

to him, the clients account is being maintained by the assessee/stock-

broker as a custodian and doesn’t apply to the assessee. According to Ld

AR, from a reading of the satisfaction note, it reveals that the AO

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wondered ‘as to when’ M/s. Orange given funds to the tune of ₹7.15 Crs.

to the assessee, how come the assessee is showing only a turnover of

₹4.01 Crs, such a doubt itself is flawed. He reminded us that the

transaction which had taken place in the client accounts can’t be termed

in the hands of the assessee and hence, couldn’t have been compared

with either the turnover or the income of the assessee. Thus, according

to Ld AR, the AO misdirected himself by considering the funds transferred

by M/s. Orange for buying & selling of stocks & shares through the

assessee acting as a stock-broker as the turnover/income of the assessee

and thus, confused himself with the nature of the business carried on by

the assessee, as if he was a normal trader without appreciating that the

assessee is a stock-broker, whose turnover is only brokerage &

commission on transaction of buying & selling of stocks & shares of his

clients and one of the client being M/s. Orange. Thus, Ld AR submitted

that it is evident that the AO on wrong assumption of facts has usurped

jurisdiction prematurely on the basis that despite M/s. Orange has given

funds of ₹7.15 Crs. to the assessee still assessee has shown only ₹4.01

Crs. and that M/. Orange was not involved in genuine business activities

which according to the AO are suspicious and therefore, he formed the

reason to believe the income as escapement of income. The Ld AR

reminded us that, ‘reason to suspect’ is not jurisdictional requirement of

law to reopen. Without the AO to have reason to believe the escapement

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 8 ::

of income, the action of the AO will fall short of the requirement of law to

reopen the assessment. Adverse information against assessee only

triggers ‘reason to suspect’ and in such an event, he should enquire and

collect material and thereafter form belief that income has escaped

assessment. Thus, according to Ld AR, without satisfying the condition

precedent, the attempt made by the AO to reopen the assessment has to

be held to be wholly without jurisdiction and has to be quashed.

jurisdiction of the AO to reopen the assessment, let us have a look at the

provision of law governing the same and the well settled principles

regarding reopening of assessments. The AO in order to validly assume

reopening jurisdiction has to satisfy the requirement of law as stipulated

u/s. 147 of the Act. As per section 147 of the Act, the AO should record

the satisfaction spelling out the "reason to believe" that the income

chargeable to tax for that assessment year has escaped assessment. If

this essential condition is not satisfied, it cannot be said that AO has

validly assumed jurisdiction u/s. 147 of the Act. Further, it is well settled

that reasons, as recorded for reopening the assessment, are to be

examined on a standalone basis. Nothing can be added to the reasons

recorded, nor anything can be deleted from the reasons recorded. The

Hon’ble Bombay High Court, in the case of Hindustan Lever Ltd. vs.

R.B. Wadkar [(2004) 268 ITR 332], has, inter alia, observed that

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 9 ::

"……….It is needless to mention that the reasons are required to be read

as they were recorded by the AO. No substitution or deletion is

permissible. No additions can be made to those reasons. No inference can

be allowed to be drawn on the basis of reasons not recorded. It is for the

AO to disclose and open his mind through the reasons recorded by him.

He has to speak through the reasons." Their Lordships added that "The

reasons recorded should be self-explanatory and should not keep the

assessee guessing for reasons. Reasons provide link between conclusion

and the evidence….". Therefore, the reasons are to be examined only as

they were recorded by the competent officer before the issue of the

notice.

may not necessarily prove escapement of income at the stage of

recording the reasons, such reasons must point out to an income

escaping assessment. The reasons should not merely disclose need for an

inquiry which may result in detection of an income escaping assessment.

Undoubtedly, at the stage of recording the reasons for reopening the

assessment, all that is necessary is the formation of prima facie belief

that an income has escaped the assessment and it is not necessary that

the fact of income having escaped assessment is proved to the hilt. What

is, however, necessary is that there must be something tangible which

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 10 ::

indicates even if not establishes, the escapement of income from

assessment. It is only on this basis that the Assessing Officer can form

the belief that an income has escaped assessment. Merely because

detailed investigation was not carried out and if so, could have led to

detection of income escaping assessment, cannot be the reason enough

to hold the view that income has escaped assessment. It is also important

to bear in mind the subtle but important distinction between factors which

indicate an income escaping the assessments and the factors which

indicate a legitimate suspicion about income escaping the assessment.

The former category consists of the facts which, if established to be

correct, will have a cause and effect relationship with the income escaping

the assessment. The latter category consists of the facts, which, if

established to be correct, could legitimately lead to further inquiries which

may lead to detection of an income which has escaped assessment. There

has to be some kind of a cause and effect relationship between reasons

recorded and the income escaping assessment. While dealing with this

aspect of the matter, it is useful to bear inmind the observations made by

Hon’ble Supreme Court in the case of ITO Vs LakhmaniMewal Das

[(1976) 103 ITR 437] that,“……the reasons for the formation of the

belief must have rational connection with or relevant bearing on the

formation of the belief. Rational connection postulates that there must be

a direct nexus or live link between the material coming to the notice of

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 11 ::

the ITO and the formation of this belief that there has been escapement

of the income of the assessee from assessment in the particular year

because of his failure to disclose fully and truly all material facts. It is no

doubt true that the Court cannot go into sufficiency or adequacy of the

material and substitute its own opinion for that of the ITO on the point as

to whether action should be initiated for reopening assessment. At the

same time, we have to bear in mind that it is not any and every material,

howsoever vague and indefinite or distant, remote and farfetched, which

would warrant the formation of the belief relating to escapement of the

income of the assessee from assessment.”

a watertight compartment and scope and applicability may vary from case

to case, depending upon the facts and circumstances. The power under

sections 147 / 148 comes into existence if he had reason to believe that

income has escaped assessment. Formation of reason to believe that

income escaped assessment has to be that of a prudent person. The

reasons for such belief have to be recorded in writing on the basis of

material in the possession of AO. While the words “reason to believe” are

wide in their import, it cannot include a mere suspicion or ipse dixit of the

AO. The belief of the AO should lead him to form an honest and

reasonable opinion based on reasonable grounds. This proposition has

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 12 ::

been laid down by the Hon’ble Supreme Court in the judgments of ITO vs.

Lakhmani Mewal Das (supra)and Navinchandra Mohanlal Parik vs. WTO

(124 ITR 68). The reasonability of the grounds which led to the formation

of belief warranting reopening is tested from the point of view whether or

not they are germane to the formation of belief that income escaped

assessment. The Hon’ble Supreme Court endorsing the Full Bench

decision of the Hon’ble Delhi High Court in CIT vs. Kelvinator of India

Ltd. (320 ITR 561) held in its order, “…..that Assessing Officer has

power to reopen, provided there is “tangible material” to come to the

conclusion that there is escapement of income from assessment. Reasons

must have link with the formation of belief.” Therefore, if the fresh

tangible material which the AO has in his possession is relevant to have

nexus to the formation of belief then, of course, the AO would have the

necessary jurisdiction to take action under the Act. What is required to be

examined is not the adequacy or sufficiency of the grounds but the

existence of belief. In our view, all that one has to examine is that

whether there was some material which, gave rise to prima facie view

that income has escaped assessment and the belief was formed in good

faith or was it mere pretense for initiating action u/s 147/148 of the Act.

Having taken note of the above legal position of law, now let us look into

the facts pertaining to the legal grounds involved in the present appeal.

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For this, we need to look into the reasons recorded by the AO before

proposing to reopen the assessment which is reproduced as under:-

“M/s. Aryan Share and Stock Brokers Ltd, PAN: AADCA1233H) had received fund to the tune of Rs.7,15,11,173/- from M/s. Orange Mist Productions Pvt. Ltd. During the Financial Year 2016-17. M/s. Orange Mist Productions Pvt. Ltd. Was not involved in genuine business activities and has made suspicious transactions with various parties including M/s. Aryan Share and Stock Brokers Ltd.

After the analysis of the Return of Income (T.O admitted Rs.4,01,42,244/-), Form 3CD and other documents (26AS) available on record, I have reason to belief that the income has escaped assessment.”

before us whether the AO validly assumed jurisdiction as contemplated by

law to issue notice u/s 148 of the Act and thereafter make an order of

assessment u/s. 147 of the Act; and for that it is necessary to examine

whether the AO has satisfied the condition precedent as stipulated under

the said section viz., AO has recorded "reason to believe" that the income

chargeable to tax for that assessment year has escaped assessment. If

this condition is not satisfied at the first place, then it cannot be said the

AO has validly assumed jurisdiction u/s. 147 of the Act. Therefore, the

question for consideration is whether on the basis of the reasons recorded

by the AO to reopen the assessment, it can be legally held that AO on the

basis of whatever material before him, had reasons (which he had

indicated in his "reasons recorded") which warrant holding a belief that

income chargeable to tax has escaped assessment. The reasons recorded

by AO to reopen has to be evaluated on a stand-alone basis and no

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 14 ::

addition/extrapolation can be made or assumed while adjudicating the

legal issue of AO's usurpation of jurisdiction u/s. 147 of the Act. From the

reasons already set out above, it emerges that, the AO had taken note of

receipt of funds of Rs.7.15 crores by the assessee from M/s Orange Mist

Productions Pvt Ltd during the year. According to AO, M/s Orange Mist

Productions Pvt Ltd was not involved in genuine business activities and

that it had made suspicious transactions with various parties including the

assessee. After purported analysis of the return of income, 3CD etc. of

the assessee and taking note of the admitted turnover of Rs.4.01 crores,

the AO formed his belief that income had escaped assessment and, hence

required to be reopened u/s. 147 of the Act and consequently issued the

impugned notice u/s 148 of the Act.

of Section 147 of the Act. The reasons and the information referred to is

extremely scanty and vague. There is no reference to any document or

statement, or any tangible material or evidence that prima facie shows or

establishes nexus or link which discloses escapement of income. Rather, it

appears that the reasons were recorded by the AO on his own subjective

notions and opinion. The AO has not adduced any material basis which he

suspected that M/s Orange Mist Productions Pvt Ltd was involved in non-

genuine business transactions or that its transactions with M/s Orange

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 15 ::

Mist Productions Pvt Ltd was suspicious. The AO has mechanically averred

that the assessee had received funds from M/s Orange Mist Productions

Pvt Ltd which he suspected to be involved in non-genuine activities and

thus straightaway concluded that income chargeable to tax had escaped

assessment. There is no reason or basis whatsoever stated for arriving at

such a belief. The AO has also not examined the nature of receipt of funds

from M/s Orange Mist Productions Pvt Ltd by the assessee and only

because there was a receipt from M/s Orange Mist Productions Pvt Ltd he

suspected that it may represent income escaping assessment, an action

we are unable to countenance.

foundation based on information and belief based on reason. Even if there

is foundation based on information there must be some reason warrant

holding the belief that income chargeable to tax has escaped assessment.

It has to be kept in mind that the Hon'ble Supreme Court in Ganga

Saran & Sons P. Ltd. Vs. ITO (1981) 130 ITR 1 (SC) held that the

expression "reason to believe" occurring in sec. 147 "is stronger" than the

expression "if satisfied" and such requirement has to be met by the AO in

the reasons recorded before usurping the jurisdiction u/s. 147 of the Act.

It must be kept in mind that information adverse against the assessee

may trigger "reason to suspect" then the AO is duty bound to make

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 16 ::

reasonable enquiry to collect material which would make him belief that

there is in fact an escapement of income which requirement of law has

not been fulfilled in this case by the AO.

the AO formed his opinion that M/s Orange Mist Productions Pvt Ltd was

involved in suspicious transactions with the assessee. Apparently there

appears to be no basis for this conclusion arrived at by the AO in the

reasons recorded. The Ld. DR however sought to defend the action of the

AO by submitting that, the AO had compared the receipt of funds of

Rs.7.15 crores with the turnover of assessee of Rs.4.01 crores and since

the turnover was not commensurate with the amount received from M/s

Orange Mist Productions Pvt Ltd, the AO had formed his belief that income

had escaped assessment. According to the Ld. DR, the AO after verifying

the ITR and Form 3CD of assessee was of the view that, if the assessee

was in receipt of Rs.7.15 crores from M/s M/s Orange Mist Productions Pvt

Ltd, then correspondingly its turnover ought to have been higher than

such receipt of funds. He submitted that, because the turnover reported

in P&L A/c of assessee was only Rs.4.01 crores, which was lower than the

amount transacted with M/s Orange Mist Productions Pvt Ltd, the AO

formed a belief that income chargeable to tax would have escaped

assessment.

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 17 ::

appreciate the basic fact that, the assessee was a stock-broker, who was

maintaining two separate bank-accounts viz., one for its proprietary

business transactions and second one for his clients for their trading. The

Ld. AR submitted that, the transactions involving receipt and payment of

funds from the bank account maintained for the client did not constitute

its turnover and that assessee was only entitled to derive brokerage for

the transactions conducted on their behalf. The Ld. AR showed us that,

the assessee had conducted stock market transactions aggregating to

Rs.31.02 crores for and on behalf of M/s Orange Mist Productions Pvt Ltd

which included the impugned sum of Rs.7.15 crores. He submitted that,

the AO acted on an erroneous assumption that, the bank credit in said

client account ought to correlate with the turnover of the assessee. It was

brought to our notice that, the assessee being a broker was only a

custodian of clients’ monies transacted on their behalf on the stock

exchange and therefore the turnover reported in P&L A/c would not

comprise of these transactions. The Ld. AR submitted that the turnover

would only comprise of the brokerage derived from such transactions,

which usually ranged between 0.1% to 0.75%. The Ld. AR illustrated

that, in the present case, since the monies transacted through the bank

account maintained for client included Rs.7.15 crores of M/s Orange Mist

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 18 ::

Productions Pvt Ltd, then the approximate commission derived by the

assessee there from would be Rs.3-4 lacs, which would form part of the

aggregate turnover of Rs.4.01 crores credited in P&L A/c and not the

transacted value of Rs.7.15 crores. The Ld. AR showed us that, the

turnover reported in P&L A/c comprised of brokerage, transaction

charges, demat charges, interest income, gain from proprietary trades

etc. He thus argued that the AO had misdirected himself on a wrong

assumption of fact that the monies paid by M/s Orange Mist Productions

Pvt Ltd to the assessee-broker for buying and selling stocks on their

behalf, should comprise as turnover/income of the assessee. The Ld. AR

emphasized that, the AO had confused the nature of assessee’s business

as a trader of general goods & services instead of a registered stock-

broker, and failed to appreciate the basic fact that, being a broker, the

assessee’s turnover only comprised of the brokerage element embedded

in the monies transacted on client’s behalf viz., M/s Orange Mist

Productions Pvt Ltd and not the entire transacted value itself.

in principle, are firstly unable to countenance the plea of the Ld. DR for

the reason that, the reasons recorded by the AO nowhere expressly

discloses his mind that his formation of belief that the receipt of funds of

Rs.7.15 crores from M/s Orange Mist Productions Pvt Ltd represented

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 19 ::

income escaping assessment was due to the fact that such receipt did not

commensurate with the turnover of the assessee for the relevant year.

For this, we gainfully refer to the principles laid down bythe Hon'ble

Bombay High Court in the case of Hindustan Lever Ltd., Vs.

R.B.Wadkar (supra) already discussed above. According to us, the

reasons recorded should be clear and unambiguous and should not suffer

from any vagueness. The reasons recorded must disclose his mind.

Reasons are the manifestation of mind of the AO. The reasons recorded

should be self-explanatory and should not keep the assessee guessing for

the reasons. The AO, in the event of challenge to the reasons, must be

able to justify the same based on material available on record. He must

disclose in the reasons as to which fact or material was not disclosed by

the assessee fully and truly necessary for assessment of that assessment

year, so as to establish vital link between the reasons and evidence. That

vital link is the safeguard against arbitrary reopening of the concluded

assessment. The reasons recorded by the AO cannot be supplemented by

filing affidavit or making oral submission, otherwise, the reasons which

were lacking in the material particulars would get supplemented by the

time the matter reaches to the Court, on the strength of affidavit or oral

submissions advanced.

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 20 ::

this purported comparison sought to be made by the Revenue before us

was also factually misplaced. It is seen that, the assessee is engaged in

the business of stock broking being registered member of stock exchange,

who conducted transactions on its own account as well as on clients’

behalf. Being an active broker of shares, securities, futures & options

traded in various capital market segments, the assessee regularly

conducts high value transactions for and on behalf of its clients and the

only consideration involved for the assessee in this chain of transactions

was ‘brokerage’. It is observed that, M/s Orange Mist Productions Pvt Ltd

was one of the assessee’s registered client on whose behalf the assessee

had undertaken transactions in various segments of capital markets. The

relationship between the assessee and M/s Orange Mist Productions Pvt

Ltd was that of broker-principal. The assessee in its capacity of being a

stock broker, had provided stock broking services to its customers

including M/s Orange Mist Productions Pvt Ltd. It is a well-settled

mechanism by way of which investors willing to trade on the stock market

can execute their trades through a stock broker. Investors are required to

place an order with the stock broker and transfer the requisite payment,

for executing such order of purchase or sale, to the broker. The broker,

after receiving the payment for a trade by way of margin posting, is

bound/required to execute the trade on behalf of its client. Neither does

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 21 ::

the broker have any right on the monies received by it from its clients for

executing trades on their behalf nor does the broker have any right on the

shares purchased by it through trades executed on behalf of the client.

We thus observe that, the assessee broker was only acting as an

intermediary in the transaction involving receipt of Rs.7.15 crores which

was paid/discharged to the stock exchange on behalf of M/s Orange Mist

Productions Pvt Ltd and the assessee was only entitled to the brokerage

upon the execution of the trade. Thus, any or all monies received from

the clients including M/s Orange Mist Productions Pvt Ltd was held by the

assessee in its fiduciary capacity and did not constitute its own

proprietary receipt and thus, could not, by any stretch of imagination, be

construed to be its turnover or for that matter income escaping

assessment.

banking channel from M/s Orange Mist Productions Pvt Ltd. But these

monies were never received nor they were intended for the proprietary

use by the assessee. It is evident from the contemporaneous facts placed

before us that the payment of Rs.7.15 crores was made by M/s Orange

Mist Productions Pvt Ltd to meet its own contractual obligation with the

Exchanges against their own proprietary trades and the monies collected

by the assessee was in its capacity as Member-broker of the Exchange.

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 22 ::

The only consideration involved qua the assessee was the brokerage for

facilitating this transaction on stock-exchange. We thus are in agreement

with the Ld. AR that, the impugned receipt of funds from the principal-

customer, M/s Orange Mist Productions Pvt Ltd by the assessee in its

fiduciary capacity of Member-broker of the stock exchange could not

possibly be alleged as the income of the assessee escaping assessment.

specific allegation against the assessee and as to what was the specific

nature of the receipt basis which it was suspected to have impact on the

income of the assessee for AY 2017-18. There is force in the submission

of the Ld. AR that, in the assessee’s line of business i.e. share broking,

the assessee only acts as an intermediary between the investor/trader in

securities and the Stock Exchange. Ultimately, it is the customer alone

who is both liable to pay the monies for the transactions carried out by

the assessee on its behalf and enjoy the shares purchased by the

assessee on its behalf. The assessee, being a broker had no material

interest in the monies given by the customer. It is also not in dispute that

the assessee could not have legally utilized the impugned sum for its own

proprietary trading. On these facts and circumstances, it was incumbent

on the AO to speak through his reasons as to how did he form his belief

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 23 ::

that the payments collected and disbursed on customer’s behalf had any

bearing on the total income of the assessee.

of business of the assessee, there could not possibly be any correlation

between its turnover and the receipt of funds from the customers.

According to us, the AO erred in comparing the turnover of the assessee

with the funds transacted between the customers and stock exchange, for

the reasons that the funds received and paid were towards the value of

stocks or securities purchased or sold on clients’ behalf, whereas the

turnover of the assessee qua such transactions would only comprise of

brokerage of 0.01% to 0.75% of the value transacted. For instance, the

receipt of funds of Rs.7.15 crores from M/s Orange Mist Productions Pvt

Ltd to buy/sell securities on its behalf would result in brokerage of

Rs.70,000/- to Rs.1,40,000/- approx. and only the brokerage would form

part of the turnover of Rs.4.01 crores. The transaction of Rs.7.15 crores

conducted by the assessee on client’s behalf could not possibly form part

of its own proprietary turnover and therefore the purported comparison

sought to be made by the Revenue was extraneous having no coherent

logic to it.

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 24 ::

Orange Mist Productions Pvt Ltd, conducted trade on its behalf, credited

their account with shares & securities in their demat account, and its role

was only that of an intermediary in the capacity of a stock broker

rendering its share broking services for earning income by way of

brokerage. On these admitted facts therefore, the AO was unjustified in

alleging that the impugned receipt of Rs.7.15 crores by the assessee-

broker from M/s Orange Mist Productions Pvt Ltd in its fiduciary capacity

represented assessee’s income escaping assessment.

reasons recorded as set out above, had initiated a roving enquiry to

examine the veracity of his own subjective notions, in as much as, there

was no tangible material or evidence in possession demonstrated through

his recorded reasons which could have validly led him to believe that

income of the assessee had escaped assessment. The reasons recorded

were scant and vague, as already held above, and therefore does not

stand the test as laid by plethora of judicial precedence (supra) which is

necessary to assume jurisdiction u/s 147 of the Act. Therefore, in the light

of the aforesaid facts and circumstances of the case as discussed, we find

that the reasons recorded by the AO to justify reopening the assessment

u/s. 147 fails and, therefore, the very assumption of jurisdiction to

ITA No.2756/Chny/2025 (AY 2017-18) Aryan Shares & Stock Broker :: 25 :: reassess the assessee fails. Since the assumption of jurisdiction by him to reopen itself is corum-non-judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by him.

Order pronounced on the 02nd day of February, 2026, in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (ABY T. VARKEY) (S.R.RAGHUNATHA) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 02nd February, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF