TaxTMI 
TaxTMI 
2026 (8) TMI 1575
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....and are being disposed of by this common order. 2. In the quantum appeal, the substantive controversy concerns the validity of the reassessment proceedings on the ground that approval under section 151 was obtained from the Principal Commissioner of Income Tax under section 151(i), whereas, according to the assessee, approval was required to be obtained from the Principal Chief Commissioner of Income Tax under section 151(ii). 3. In the penalty appeal, the substantive controversy is whether penalty under section 271B could have been levied by relying upon the aggregate figure of Rs. 5,26,08,859/- mentioned in the order under section 148A(d), without reconciling that figure with the assessee's actual transactions. The assessee has contended that he was not carrying on any business, had disclosed the share transactions under the head "Capital Gains" and was, therefore, neither required to maintain books of account under section 44AA nor to obtain an audit under section 44AB. 4. The assessee has also challenged the action of the AO and the CIT(A) in treating the share transactions as business activity merely on the basis of their alleged magnitude. According to the assessee, ....
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.... section 148A(b) was issued on 27.05.2022, in response to which the assessee furnished his reply on 08.06.2022. Thereafter, an order under section 148A(d) was passed on 28.07.2022 and a notice under section 148 was issued on 28.07.2022/29.07.2022. The assessment order records the date of notice under section 148 as 29.07.2022, whereas the grounds before us state that the notice was issued on 28.07.2022. 6.4. In response to the notice under section 148, the assessee filed his return of income on 10.08.2022, declaring the same total income of Rs. 3,16,340/-. Notice under section 143(2) was issued on 24.01.2023. A notice under section 142(1) was thereafter issued on 01.02.2023, in response to which the assessee furnished his reply on 03.02.2023. The AO subsequently issued a final show-cause notice dated 25.04.2023. The assessee sought an adjournment on 01.05.2023 and furnished a further reply on 03.05.2023. A personal hearing through video conference was afforded on 04.05.2023. 6.5. The dispute on merits concerns the purchase and sale of 1,34,000 shares of Greencrest Financial Services Limited. The transaction particulars recorded by the AO are as follows: Particular Detai....
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....us operandi had been communicated to the assessee. The assessee also challenged the reassessment on the grounds of limitation, validity of sanction under section 151, overlapping reassessment proceedings and initiation of the inquiry by the jurisdictional AO instead of through the faceless mechanism. 6.10. The AO ultimately held that Greencrest Financial Services Limited was a penny-stock company used for providing accommodation entries. The exemption claimed under section 10(38) was withdrawn and long-term capital gains of Rs. 84,13,337/- were treated as income of the assessee under section 69A. 7. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). The CIT(A), by order dated 30.10.2025, rejected the assessee's challenge to the reassessment proceedings. The CIT(A) held that the original notice dated 14.06.2021 stood converted into a notice under section 148A(b) pursuant to the judgment in Ashish Agarwal and that the subsequent order under section 148A(d) and notice under section 148 represented a continuation of the same proceeding rather than two independent or parallel reassessment proceedings. 8. On the question of sanction, the asses....
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....It was contended that the figure of Rs. 5,26,08,859/- had been taken from the order under section 148A(d) without matching or reconciling it with the assessee's actual transactions. According to the assessee, he had specifically clarified through his reply dated 08.06.2022 that he had not undertaken any futures and options transactions and that his actual share transactions were substantially lower than the figure alleged. 10.4. The assessee also contended that the purchase value of shares could not constitute turnover for the purpose of section 44AB. In relation to futures and options transactions, it was submitted that only the aggregate of the absolute values of profit and loss could be considered for determining turnover and not the gross contractual value. It was further pointed out that no addition was made in the reassessment order with reference to the alleged transactions of Rs. 5,26,08,859/- and that the only substantive addition was of Rs. 84,13,337/- under section 69A in relation to the alleged bogus long-term capital gains. 10.5. The AO rejected the assessee's explanation. The AO observed that significant share-trading activity, including day trading or regular t....
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....d under section 271B was confirmed. 16. The assessee is, therefore, in further appeal before us. 17. Before us the learned Authorised Representative (AR), with the help of detailed grounds, submitted that the reassessment proceedings were without valid sanction under section 151 of the Act. He submitted that the notice under section 148 was issued on 28.07.2022 for Assessment Year 2016-17, by which time more than three years had elapsed from the end of the relevant assessment year. Therefore, according to him, the specified authority competent to grant approval was the Principal Chief Commissioner of Income Tax under section 151(ii) and not the Principal Commissioner of Income Tax under section 151(i). He contended that the approval obtained from the Principal Commissioner of Income Tax-17, Mumbai, was contrary to the statutory requirement and, consequently, the notice issued under section 148 and the reassessment proceedings founded thereon were invalid and liable to be quashed. 18. The learned AR furnished the following particulars in support of the jurisdictional challenge: Sr. No. Particulars Remarks 1 Assessment Year under consideration Assessment Ye....
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.... turnover. He contended that the purchase value of shares did not constitute turnover for the purpose of section 44AB. He further submitted that the statement included an alleged futures or derivatives transaction of Rs. 2,91,90,106/-, although the assessee had specifically denied having undertaken any futures and options transactions. According to him, this denial had been made in the reply dated 08.06.2022, but neither the AO nor the CIT(A) identified any contract note, broker statement or other primary evidence establishing that the assessee had undertaken such transactions. 22. The learned AR submitted that the assessee was an individual investor and was not carrying on any business or profession. The return of income was filed in ITR-2, and income from the sale of shares was disclosed under the head "Capital Gains". No income was offered under the head "Profits and gains of business or profession". Therefore, according to him, the assessee was not required to maintain books of account under section 44AA or obtain an audit under section 44AB. 23. It was further submitted that neither the returned characterisation of the transactions as capital gains was rejected in the as....
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.... CIT(A) had accepted that the purchase value by itself could not constitute turnover but nevertheless sustained the penalty without determining the correct turnover after excluding purchases and without examining the assessee's denial of futures and options transactions against the primary evidence. He contended that the statutory condition precedent for applying section 44AB, namely, that the assessee must be carrying on a business whose turnover exceeds the prescribed limit, was not established. 28. Without prejudice, the learned AR submitted that the assessee had consistently and bona fide treated the shares as investments and the resultant income as capital gains. The return was filed accordingly, and no business income was declared or ultimately assessed. These circumstances, according to him, constituted a reasonable cause within the meaning of section 273B for the assessee's belief that he was not required to obtain an audit under section 44AB. He, therefore, prayed that the penalty of Rs. 1,50,000/- levied under section 271B and confirmed by the CIT(A) be deleted. 29. The learned Departmental Representative, per contra, relied upon the orders passed by the authorities....
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....on 151(ii) requires approval from a higher-level authority. Non-compliance with this requirement affects the jurisdiction of the AO to issue notice under section 148. 35. In paragraph 77, the Hon'ble Supreme Court considered the effect of TOLA upon the period available for obtaining approval under section 151. The Court held that where the period of three years from the end of an assessment year fell between 20.03.2020 and 31.03.2021, the authority specified under section 151(i) was given extended time until 30.06.2021 to grant approval. The effect of TOLA was, therefore, to extend the period during which that authority could grant approval. It did not dispense with the requirement of obtaining approval from the authority specified under section 151, nor did it indefinitely preserve the competence of the authority mentioned in section 151(i) beyond 30.06.2021. 36. Paragraph 78 illustrates the operation of this principle in relation to Assessment Year 2017-18. The three-year period for that assessment year expired on 31.03.2021 and, since that date fell within the period covered by TOLA, the authority specified under section 151(i) could grant approval until 30.06.2021. The il....
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.... required to be identified with reference to the statutory position prevailing when the order under section 148A(d) and notice under section 148 were issued. 41. The requirement of approval from the specified authority is a substantive condition precedent and cannot be treated as a curable procedural irregularity. Approval by an authority other than the authority specified by section 151(ii) cannot amount to substantial compliance. The satisfaction required to be recorded by the higher authority cannot be substituted by the satisfaction of the Principal Commissioner. The defect concerns the very assumption of jurisdiction and is, therefore, beyond the curative scope of section 292B. 42. We, therefore, hold that the order under section 148A(d) and the consequential notice under section 148 were issued without approval from the competent specified authority under section 151(ii). The assumption of jurisdiction under section 147 was consequently invalid. The reassessment order dated 09.05.2023 and the impugned order of the CIT(A), insofar as it upholds that reassessment, cannot be sustained. 43. Ground No. 2 is accordingly allowed. The reassessment order and the addition of R....
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....rder proceeds on the general observation that significant share trading, such as day trading or regular trading in futures and options, is ordinarily treated as business activity. However, the order does not identify any intraday transaction, any contract relating to futures or options, the number or frequency of trades, their holding periods, deployment of borrowed funds, maintenance of a trading portfolio or any other feature demonstrating an organised and systematic business activity. 48. The AO observed that the assessee failed to substantiate that he was not engaged in day trading. In our considered view, this reverses the statutory burden. Before calling upon the assessee to explain the absence of a tax audit, the Revenue was required to establish from the primary material that the assessee carried on business and that the turnover of such business exceeded the prescribed limit. A business activity cannot be presumed merely because an aggregate figure appearing in the information database is substantial. 49. The aggregate figure of Rs. 5,26,08,859/- combines purchases, delivery-based sales and an alleged gross contractual value of futures or derivative transactions. The....