AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1558
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....s i.e. bogus LTCG, STCG and STCL. It was found that name of the assessee was also found in the list of beneficiaries for a trade value amounting to Rs. 2,14,59,066/-. Accordingly, the case of the assessee was reopened on the basis of information that assessee has taken fictitious transactions in equity/derivatives amounting to Rs. 2,14,59,066/- from the sale of penny scrip of PMC Fincorp Ltd.. Based on the above, the AO recorded the reasons that income to the extent of Rs. 2,14,59,066/- for the current assessment year had escaped assessment owing to failure on the part of the assessee to disclose fully and truly all material facts for assessment within the meaning of section 147 of the Act. Accordingly, notice u/s 148 was issued and served on the assessee after duly recording the reasons and obtaining sanctions of the PCIT, Central 3, New Delhi in accordance with section 151 of the Act. Based on the above information, AO issued notice u/s 142(1) of the Act and furnished the following statement and directed the assessee to provide details and documents relating to the following transactions :- Details of Trade in scrip of PMC Fincorp Ltd. by M/s. Hector Enterprises Pvt. Ltd. for ....
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....s of its income and hence, it is a fit case for initiation of penalty proceedings u/s 271(1) (c) of the Act. Penalty proceedings u/s 271 (1) (c) of the Act is initiated separately." 5. He further disallowed 4% on the loss claimed by the assessee as unexplained expenditure on the investment u/s 69 of the Act to the extent of Rs. 5,17,063/-. 6. Aggrieved with the above order, assessee preferred an appeal before the NFAC, New Delhi and also filed detailed submissions. After considering detailed submissions of the assessee, ld. CIT (A) sustained the addition made by the AO. 7. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- "1. On the facts and circumstances of the case and in law, the notice u/s 148 issued in this case is bad-in-law, illegal without jurisdiction and barred by limitation and, therefore, the said notice u/s 148 along with assessment order passed on the foundation of such notice are liable to be quashed and CIT (A) erred in not holding so. 2. On the facts and circumstances of the case and in law, the reassessment proceedings initiated are contrary to the provisions of law including the spec....
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....s under section 147 of the Act only if he has "reasons to believe" that any income of the assessee has escaped assessment. In terms of section 148 of the Act, the assessing officer is required to record the reasons on the basis of which proceedings under section 147 of the Act are initiated. The reasons recorded must show application of mind by the assessing officer to come to the belief that any income of the assessee had escaped assessment, and thus acts as the stepping stone in initiation of proceedings under section 147 of the Act. The validity or otherwise of the proceedings initiated under section 147 is adjudged on the basis of such reasons recorded. The reasons recorded must, therefore, show application of mind by the assessing officer. If the reasons recorded are vague or ambiguous, the proceedings initiated under section 147 of the Act are liable to be held as invalid and bad in law. 1.1. The reasons recorded by the assessing officer are reproduced as under: - Information has been received in the case of assessee M/s Hector Enterprises Pvt. Ltd. for AY 2013-14 from CRUI Module of Insight portal of Income Tax Department, details of which are as follows:- ....
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....eve" about any alleged escapement of income. - The reasons recorded are totally vague. - There is no date mentioned on the reasons recorded. - The amount of alleged income escaping assessment amounting to Rs. 2,14,59,066/- as mentioned in the reasons recorded is non-existent. From where, the A.O. has taken the figure is known to A.O. only. The clearly shows that reasons have been recorded without application of mind. - The reassessment proceedings have been initiated by the A.O. on basis of borrowed satisfaction. No independent verification has been made by A.O. - The appellant has not earned any profit of Rs. 2,14,59,066/- as is alleged in the reasons recorded. The appellant has not earned any long term capital gain as alleged/doubted by the assessing officer 1.3. In the case of Pr. CIT v SNG Developers Ltd. (2018) 404 ITR 312 (Del) assessment was reopened u/s 147 of the Act. The A.O. recorded the reasons that as per information received from investigation wing, the assessee had taken accommodation entries to the tune of Rs. 95,65,510/-. The figure of Rs. 9565510/- itself was wrong. On appeal, the CIT(A) quashed the re....
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....CIT v Meenakshi Overseas Pvt. Ltd. (2017)(5) TMI 1428, Delhi, reopening u/s 148 was made on the basis of information received form investigation wing. The Hon'ble High Court held that such reopening which was based merely on the information received from Investigation. Wing without independent application of mind by A.O. amounted to "borrowed satisfaction" and such reopening was liable to be quashed. 1.7. In the headnote of case of Jurisdictional Delhi High Court Abha Gupta v. Income Tax Ward 35(5) Delhi 2025 (5) TMI 34 - Delhi High Court it was held as under: - Reopening of assessment u/s 147 - reason was recorded on the information received from investigation wing wherein it was held that assessee was one of the beneficiary to claim bogus LTCG through fabricated contract notes shares sale purchase - HELD THAT:- AO in order to justify the invocation of Section 148 was undoubtedly obliged to allude to the material facts that may have formed part of the report of the Investigation Wing and which would have given at least a broad indication of the involvement of the petitioner in the alleged manipulation of the 19 penny scrips and thus rendering support to the alleg....
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....h respect to Revenue's ground of appeal regarding non-adjudicating the issue of bogus LTCG on merits, we find that once the vary basis of proceedings i.e. re-opening of the assessment is hereby quashed - Decided in favour of assessee. 1.10. In the headnote of case of Sapna Nainesh Jatania Versus Income Tax Officer, Ward 1 (1), Jamnagar2026 (1) TMI 353 - ITAT Rajkotit was held as under: - Validity of reopening of assessment u/s 147 - reason to believe OR reason to suspect - assessee has claimed exemption u/s 10(38) - assessee has raised the contention that the assessing officer was not having any material information to form "a reason to believe" that there was an escapement of income - HELD THAT:- The assessee is engaged in trading activity of shares on regular basis. Therefore, the reasons recorded by the assessing officer, is based on borrowed satisfaction. In addition to this, in the reasons recorded, it is mentioned that assessee has claimed exemption u/s 10(38) however, the fact is that assessee has never claimed the exemption u/s 10(38) of the Act. Besides, no primary enquiry was conducted by the assessing officer before issuance of notice u/s 148 of the Act. Hence, ....
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....business loss of Rs. 1,29,26,576/-. In the reasons recorded there is no mention of figure of Rs. 1,29,26,576/-. There is no addition made by the A.O. for the figure and issue of alleged long term capital gain which were mentioned in the reasons recorded as they were factually erroneous. Once the reasons recorded are found to be erroneous and the A.O. has not made the addition for the alleged income escaping assessment as mentioned in the reasons recorded, he was not entitled to make any other addition. The addition made by the Assessing Officer is beyond the scope of jurisdiction of provisions of section 147/148 of Income Tax Act, 1961. 2.1 The Hon'ble Rajasthan High Court in the case of CIT vs Shri Ram Singh (2008) 306 ITR 343 held as under :- ". . . it is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then, only in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of pr....
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....ements. The assessing officer has not pointed out any discrepancy in the details/documentary evidences furnished by the appellant. The A.O. has acted merely on conjecture and surmises. There is no evidence brought on record by A.O. in support of the addition made by him. The AO has not provided any adverse material. The A.O. has also not provided statement of Raj Kumar Modi( referred to in the reasons u/s 148 and the assessment order) nor opportunity of his cross examination In view of the above, the addition of Rs. 1,29,26,576/- made by the assessing officer and confirmed by CIT(A) is liable to be deleted. 4. Ground No. 6 This ground relates to addition of Rs. 5,17,063/- made by the assessing officer on account of alleged expenditure u/s 69C of the Act. The assessing officer has made the addition of alleged commission paid@4% on the amount of loss on sale of shares amounting to Rs. 1,29,26,576/-. In view of our submission made in respect of ground no. 5, the addition of Rs. 5,17,063/- made by the assessing officer and confirmed by CIT(A) is not sustainable and same is liable to deleted." It is, therefore, prayed to your honour to allow the appea....
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....stock exchange and the assessee has purchased scrip and also sold the scrip through D.Mat account. In support of the same, various documentary evidences like purchase and sale bills, bank statement and D.Mat statement were submitted by the assessee during assessment proceedings. There was no adverse evidence brought on record by the AO against the various documents submitted before him which clearly shows that AO has proceeded to initiate the proceedings by recording vague reasons, merely relied on the investigation report. 13. On the above factual matrix, we noticed that Hon'ble Delhi High Court in the case of Abha Gupta (supra) has held as under :- "11. Having heard learned counsels for respective sides, we find that the disclosures and allegations which are made in the counter affidavit clearly travel far beyond the skeletal allegations which came to be recorded by the AO in support of formation of an opinion that income liable to tax had escaped assessment. We are constrained to observe that the validity of an action referable to Section 148 would have to be examined and evaluated basis the reasons assigned in the order framed by the AO as opposed to what may be ave....
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....old the action of reassessment. 15. We, accordingly, allow the present writ petition and quash the impugned notice dated 31 March 2021 referable to Section 148 of the Act as well the order dated 06 March 2022 disposing of objections." 14. Further Hon'ble Calcutta High Court in the case of M/s. Alosha Marketing Private Limited (supra) has held as under :- "10. Further there is no exemption claimed under section 10(38) of the Act atRs.5,47,749/- in the income tax return. Furthermore, the learned Tribunal perused the profit and loss account, net income from sale of investment and found the same only to be Rs. 12,500/-. Further, with regard to short term capital loss which wasRs.35,31,930/-, it was brought to the notice of the tribunal that during the year the assessee purchased 30,000 shares of JMD Telefilm for consideration of Rs. 35,36,867/- and the same was sold at Rs. 5,46,663/- incurring a loss of Rs. 29,90,203/-. Thus, ongoing through the profit and loss account the tribunal found that assessee has not shown any long term/short term capital gain/loss and purchases and sales of such shares are treated as stock in trade. Hence, the loss in such scrips were cla....
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....ndisclosed income invested to earned bogus Long Term Capital Gain or investment which this assessee has used to suppress her income. By going through the complete information, I by independent reason have reason to believe that there has been escapement of income on this account." On going through the reasons recorded it was observed that there was information available with the AO pushed on the Insight Portal as "potential case" for escapement of income as per the provisions of section 147 of the Income Tax Act, 1961. As per the information, the assessee has suppressed her Income by booking fictitious profit in equity/ derivative trading as bogus Long Term Capital Gain through reputed stock by issuing ante dated forged contract note for a value of Rs. 2,28,22,400/- as detailed In the flagged report from Investigation Wing Rohtak and Delhi. During the course of reassessment proceedings, before proceeding further, the AO recorded his reasons to believe that income has escaped assessment. The reasons recorded were provided to the appellant. The appellant raised her objections against the reasons recorded. The AO disposed of the objections by passing an order. In response to ....
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.... modus operandi recorded on which the AO has relied upon, the AO couldn't bring on record corelation with the income escaped in the hands of the appellant and if the name of appellant was explicitly surfaced from the statements. Even the figure of escapement of income Rs. 2,28,22,400/- as flagged in the investigation report was not found correct. The correct figure of long term capital gain claimed by the appellant in the return of income filed for the relevant assessment year was Rs. 3,55,88,404/-. This shows that the AO has not applied his mind and not conducted independent inquiry before drawing his reason to believe that income has escaped assessment. Further, the appellant requested AO to provide copy of report received from Investigation Wing on which the AO has relied up on. The AO didn't provide the underlying material relied up on to the appellant. It is a settled law that in the absence of tangible material and without conducting any independent inquiry, reasons recorded on the basis of borrowed satisfaction, the reasons recorded and the assessment proceedings reopened thereon are invalid, 6.4.2. Further, reliance has been placed on the following decision....
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....0 (Delhi)/[2017] 395 ITR 677 (Delhi) [26-05-2017), it was held that ... Thus, the crucial link between the information made available to the Assessing Officer and the formation of belief is absent. The reasons must be self-evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. [Para 23] The reopening of assessment under section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the Assessing Officer that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of th....
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....bove conspectus of law, the entire exercise of re- opening would depend upon the reasons recorded by the Assessing Officer and therefore the reasons recorded to re-open the assessment by the Assessing Officer must disclose all relevant facts to the assessee so as to refute the reasons by filing objections. Unless the Assessing Officer records his independent satisfaction in the reasons recorded on the basis of the information received and communicates the same to the assessee, right of the assessee to file objections would remain an empty formality. [Para 13] Therefore, recording of reasons in the facts of the case not disclosing the nature of the transactions, date of transactions and other relevant details would render the entire exercise of reopening vitiated as the respondent-assessing officer has failed to record independent Page | 10 reason to believe that income chargeable to tax has escaped the assessment [Para 14] Tata Capital Financial Services Ltd. vs. Assistant Commissioner of Income-tax [2022] 137 taxmann.com 315 (Bombay)/[2022] 287 Taxman 1 (Bombay)/[2022] 443 ITR 127 (Bombay) [15-02-2022], it was held that In the circumstances, the Revenue is direct....
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.... Court in the case of Sanjay Kaul (supra) dealing with identical facts has held that assessment cannot be re-opened merely based on suspicion without having any tangible material to form the belief of escaped income. 11. In view of the above discussion and by respectfully following the judgements of Hon'ble Supreme Court (supra) and Hon'ble High Court (supra), we are of the view that in the instant case, re-opening of the assessment was done by the AO on incorrect appreciation of facts as he has failed to provide any link between the material available on record and the information received and solely proceeded on the basis of information so available in the Insight Portal. Accordingly, we find no infirmity in the order of ld. CIT(A) in holding the initiation of reassessment proceedings as invalid and quashing the consequent reassessment order passed u/s 147 of the Act which order is hereby upheld. With respect to Revenue's ground of appeal regarding non-adjudicating the issue of bogus LTCG on merits, we find that once the vary basis of proceedings i.e. reopening of the assessment is hereby quashed, there is no reason to going further to decide the merits of th....