Reassessment on penny stock information upheld, but section 68 addition deleted after primary share-trade evidence was produced.

Reassessment under sections 147 and 148 was treated as valid where the return had only been processed under section 143(1), the Assessing Officer relied on specific Investigation Wing information about alleged penny stock transactions, and the recorded reasons showed a live link to escapement of income. The proviso to section 147 was held inapplicable, Explanation 2(b) applied, and the delay objection based on the four-week rule failed on the facts. On the merits, a section 68 addition for share-sale proceeds could not be sustained once the assessee produced contract notes, demat and bank statements, and trading records showing stock exchange transactions and no section 10(38) claim; the burden then shifted to the Revenue, which lacked independent material to treat the consideration as unexplained cash credit.

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Issues: (i) Whether the reassessment proceedings initiated under sections 147 and 148 were valid in law; (ii) whether the addition under section 68 on account of sale consideration from share transactions could be sustained.

Issue (i): Whether the reassessment proceedings initiated under sections 147 and 148 were valid in law.

Analysis: The return had been processed under section 143(1) and no regular scrutiny assessment had been framed. The Assessing Officer acted on specific information from the Investigation Wing that the assessee had traded in identified penny stock scripts and, on that basis, recorded reasons that income had escaped assessment. The assessee did not file a return in response to the notice under section 148 within time and furnished objections later. In these circumstances, the proviso to section 147 was held inapplicable, clause (b) of Explanation 2 to section 147 was attracted, and the recorded reasons were found to disclose the necessary live link between the information and the belief of escapement. The objection founded on the four-week rule was also rejected on the facts.

Conclusion: The reassessment proceedings were upheld and this issue was decided against the assessee.

Issue (ii): Whether the addition under section 68 on account of sale consideration from share transactions could be sustained.

Analysis: The assessee showed that no exemption under section 10(38) had been claimed and produced contract notes, demat statements, bank statements and financial records evidencing transactions through the stock exchange. The assessee was a regular trader in shares and had undertaken large-volume trading in numerous scripts. Once this material was produced, the initial burden under section 68 stood discharged and the onus shifted to the Revenue. The Revenue did not bring sufficient material to sustain the inference that the entire sale consideration represented unexplained cash credit merely because the scripts were alleged to be penny stocks.

Conclusion: The addition under section 68 was deleted and this issue was decided in favour of the assessee.

Final Conclusion: The challenge to reassessment failed, but the addition on merits was set aside, resulting in a partial success for the assessee.

Ratio Decidendi: Where reassessment is based on specific third-party information and no regular scrutiny assessment exists, clause (b) of Explanation 2 to section 147 can justify reopening, but an addition under section 68 cannot be sustained without independent material after the assessee produces primary evidence showing genuine share transactions and absence of the claimed exemption.

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