2026 (5) TMI 86

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....ssment is not justified. 2. The Commissioner of Income Tax (Appeals) erred in confirming that the assessee had claimed deduction under section 10(38) of Rs. 28,66,235/-. There was no such income. 3. The Commissioner of Income Tax (Appeals) erred in confirming that the assessee was liable to be taxed under section 115BBE of the Act" 3. Succinctly, the factual panorama of the case is that assessee before us is an Individual and filed return of income on 02-10-2016, with a returned income of Rs. 3,18,730/-, for the assessment year (AY) 2016-17. The return of income was processed u/s 143(1) of the Act. In the assessee's case, no assessment was made u/s 143(3) of the Act. Later on, the assessing officer noticed that in the case of the assessee, income has escaped assessment, therefore, assessing officer recorded the reasons for reopening. The reasons for reopening in the case of the assessee, are as follows: "During the course of enquiry in the case of M/s. Stampede Capital Limited, it is noticed that the company is a penny stock and involved in providing accommodation entries i.e. bogus LTCG, STCL etc to beneficiaries. It is noticed that the assessee is tr....

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....modation entries in lieu of trading in penny stocks. Therefore, the amount earned to the extent of Rs. 28,66,235/- by sale of shares was disallowed and brought to tax u/s 68 of the Act. 7. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has confirmed the order of the assessing officer. The ld.CIT(A) noted that the facts of the assessee's case clearly reveal that the transactions of purchase and sale of shares had been affected to create bogus profit under the head long term capital gain (LTCG). The assessee resorted to a readymade scheme for purchase and sale of shares which was floated by some Entry Operators. Such transactions are not genuine and natural transactions, but preconceived transactions, resulting in creation of bogus profits which are tax exempt. Such transactions are mutually self-serving to the parties to the transactions. The ld.CIT(A) noted that on the basis of above analysis, documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities that what is apparent in this case is not real, that these financial transactions were sham ones and that this entire edif....

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....f of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that ld. Counsel for the assessee, took us through the Paper-Book page no. 38, wherein the computation of total income of the assessee, is placed, we have examined the said computation of total income of the assessee and noticed that the assessee has never claimed the Long Term Capital Gain, (LTCG) in the scrip of M/s Stampede Capital, therefore, the reasons recorded by the assessing officer are bad in law. We note that the assessee, under consideration, is a sub-broker and getting commission income, which has been shown in the computation of total income and in the income tax return (ITR). We note that the impugned addition of Rs. 28,66,235/- made by the assessing officer, belongs to the assessee's client, and the addition made by the assessing officer does not belong to the assessee (sub-broker) under consideration. 12. We also find from the Paper-Book page. no.40, wherein the tax audit report is placed, wherein we noticed that tax auditor did not report any transaction in lon....

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....rmation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words "reason to believe" did not mean a change of opinion. The Hon'ble Supreme Court in ITO vs Lakhmani Mewal Das [1976 ]103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147 of the Act. The Hon'ble Court first held that the section provides that there must exist "reasons to believe" and not "reasons to suspect". The following were the relevant observations: "The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere presence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after t....

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....ic and infructuous. 17. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 15/04/2026. ============= Document 1 MAHESHBHAI PHERUMAL BALCHANDANI - RAJKOT ( PROP. SHRI MAHESHBHAI P. BALCHANDANI ) PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2016 DEBIT-EXPENSES AMOUNT RS. CREDIT-INCOMES AMOUNT RS. AUDIT FEES 6,000.00 BUSINESS INCOME BANK CHARGES 3,409.46 BROKERAGE INCOME COMM. 4,16,090.08 BANK INTEREST 1,08,770.00 CABLE RENT 3,300.00 OTHER INCOME DEMAT EXP. 1,952.09 FOR INTEREST INCOME 78,761.00 DEPRECIATION EXP. (AS PER AN.I) 81,286.14 SB INTEREST INCOME 3,408.47 ELECTRICITY CHARGES 25,941.00 DIVIDEND INCOME 40,039.59 LD.CHARGES 4,800.00 PROFIT ON SALE OF VEHICL. 20,506.15 INTEREST EXP. 5,000.00 P.P.F. INTEREST INCOME 52,041.00 KASAR VATAV EXP 41.52 INTEREST ON I.T. REFUND 3,490.00 LEGAL& PROFESSIONAL FEES 11,200.00 RENT INCOME 5,01,000.00 OFFICE MISC. EXP 2,300.00 SHARE TRADING PROFIT 12,882.00 OFFICE SALARY EXP 89,500.00 PRINTING & STATIONERY EXP 1,840.00 REPAIRS & MAINTENANCE 2,600.00 STAMP CHARGES EXP. 20.35 TELEPHONE & MOBILE EXP 29,448.00 VEHICLE INSURANCE ....