Hector Enterprises Pvt. Limited vs DCIT, Central Circle 29

Details of Trade in scrip of PMC Fincorp Ltd. by M/s. Hector Enterprises Pvt. Ltd. for AY 2013-14

Sl. No.

Date of purchase

Quantity

Rate

Value

Date of sale

Quantity

Rate

Value

1 21.02.2013 50,000 178.18 89,09,245 14.03.2013 11,498 113.58 13,05,912

2 22.02.2013 50,000 173.35 86,67,726 15.03.2013 40,000 110.57 44,22,837

3 25.02.2013 99,500 168.65 1,67,81,102 18.03.2013 50,000 106.68 53,33,892

4 28.03.2013 40,000 105.89 42,35,501

5 28.03.2013 58,002 105.74 61,33,355

Total 1,99,500 3,43,58,073 1,99,500 2,14,31,497

“8.

It is explicitly clear from the above discussion that the scrip of M/s PMC Fincorp earlier known as Priti Mercantile is a bogus penny stock company managed and operated by Sh. Raj Kumar Modi. This scrip was used by Sh. Modi as a conduit to provide bogus accommodation entry of LTCG/STCG to the beneficiaries in lieu of converting their unaccounted cash. On the other end of this conduit he had managed to provide entry of LTCL/SCTL/Loss to the beneficiaries in lieu of bank transfer and paying cash in return, such beneficiaries claims this bogus STCL/ILTCL/Business loss against their income from other scrips or income under other heads of income. Likewise in the case of the assessee company, it had managed to get bogus entry of Business loss from sale of M/s PMC Fincorp Ltd. amounting to Rs. 1,29,26,576/- and claimed adjustment of the same against the income from house property. Hence, the claim of the assessee company of having suffered business loss is rejected and the loss claimed by the assessee reduced by an amount of Rs.1,29,26, 576/-. Further, in light of the reply furnished by the assessee, the Assessing Officer (AO) is satisfied that the assessee has furnished inaccurate particulars 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.”

“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 specific provisions of section 147 to section 151 of Income Tax Act, 1961 and therefore, the reassessment proceedings initiated along with assessment order passed are liable to be quashed and CIT (A) erred in not holding so.\

3.

On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is bad in law without jurisdiction and barred in limitation and CIT (A) erred in not holding so.

4.

On the facts and circumstances of the case and in law, the additions made fo Rs.1,29,26,576/- and Rs.5,17,063/- made by the assessing officer is beyond the scope of provisions of section 147/148 of the Act.

5.

On the facts and circumstances of the case and in law, the CIT (A) erred in confirming the addition made by the ld. Assessing Officer to the extent of Rs.1,29,26,576/- on account of disallowance of loss on sale of shares.

6.

On the facts and circumstances of the case and in law, the CIT (A) erred in confirming the addition made by the Ld. Assessing Officer to the extent of Rs.5,17,063/- on account of alleged commission paid u/s 69C of the Act.

7.

On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is contrary to the provisions of section 153D of the Income Tax Act, 1961 and CIT (A) erred in not holding so.”

1. Ground No. 1 to 3

1.

It is the respectful submission of the appellant that assessment initiated under section 147 and the impugned assessment order under sections of the Act is without jurisdiction, illegal and bad in law. Section 147 of the Act authorizes and permits an assessing officer to assess or reassess income chargeable to tax if and only if he has `reason to believe’ that any income for any assessment year has escaped assessment. Section 147 of the Act empowers the assessing officer to initiate proceedings under that section to assess or reassess any income of the assessee that escapes assessment. The powers to initiate proceedings under section 147 of the Act are, however, not unfettered and unrestricted. In order to initiate proceedings under section 147, the assessing officer has to comply with the provisions of section 148 to 153 of the Act. Under the scheme of the Act, the assessing officer can initiate proceedings 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:-

"The assessee has fictitious profits in equity/derivate-PMC Fincorp Ltd., amount of which was Rs.2,14,59,6066/-,"

2.

From the efiling portal of income Tax Department it was observed that the assessee field return of income on 25.09.2013 at an income of Rs. 1,75,34,830/-. The return was processed u/s 143 (1) of Income Tax Act,1961 on 12.11.2014. The undersigned has clearly analysed the ITR of the assessee for A.Y 2013-14, the assessee has not declared any capital gain in its return of income. Further it is also relevant to mention that PMC Fincorp Ltd. (formerly known as Priti Mercantile Limited) is a well known penny stock. It is included in 84 BSE listed scripts which has been used to provide by Mr. Raj kumar Modi. A search action u/s 132 of the IT Act, 1961 in the case of M/s PMC Fincorp group was conducted on 11.10.2018. During the course of search Mr. Raj kumar Modi, direction cum operator of the company M/s PMC Fincorp Ltd. admitted on oath u/s 132 (4) of the IT Act, 1961 that the script price was rigged and managed by him to provide accommodation entry of LTCG to various beneficiaries in lieu of commissions. An opportunity of being heard was provided by this office on 25.03.2021 before reopening of case u/s 147/148 of income Tax Act, 1961. In response to which assessee has failed to furnish satisfactory reply.

3.

Therefore, on the facts of case as stated above, I have reason to believe that income of Rs. 2,14,59,066/- has escaped assessment. Therefore, I propose to reassess the aforesaid income chargeable to tax which has escaped assessment.

1.2.

The notice u/s 148 has to stand or fall based on the reasons recorded. From the persual of aforesaid reasons, it is evident that assessing officer has reopened the case on the reasons to believe that: -1) The assessee has fictitious profit in equity/derivative PMC Fincorp Ltd. 2) The amount of such profit was Rs. 2,14,59,066/-3) The scrip PMC Fincorp Ltd is a penny stock and has been used to provide accommodation entry of LTCG.

The assessing officer, while issuing notice u/s 148 has not applied his own mind. The notice u/ s 148 has been issued in mechanical manner. Without examining the so called information and without bringing on records the evidence / rationale from the information, the A.O. could not have formed any “reason to believe” 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 reopening as the reasons were held to be recorded without application of mind. On appeal by revenue, the ITAT confirmed the order of CIT(A). On further appeal by ITAT, the Hon’ble High Court uphold the order of CIT(A) and ITAT quashing the reopening. Applying the facts of aforesaid case law to the appellant’s case before your honour, in the appellant’s case also the figures mentioned in the reasons is itself wrong and thus the reasons recorded are without application of mind and therefore, the reopening in the appellant’s case is also liable to be quashed.

1.4.

In the case of Pr. CIT RMG Polyvinyl (I) Ltd (2017) 83 taxmann.com 348 (Del), the case was reopened u/s 147/148. The reasons recorded stated that as per the information received from Investigation Wing, the assessee had received accommodation entries of Rs.15600000/-. The actual amount received was Rs.7800000/-. The Hon’ble High Court upheld the quashing of reopening on the ground that the figures stated in the reasons was erroneous.

1.5.

The Hon’ble Delhi High Court in the case of Sabh Infrastructure Ltd. Versus Asstt. Commissioner of Income Tax its decision dated 25/09/2017 has held as under :-

(ii)

the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof;

(iii)

where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons;

In the case of Pr.CIT v SNG Developers Limited (2018) 404 ITR 312 (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 examination and verification by the A.O. was liable to be quashed. It is worthwhile to point out that the Hon’ble Apex Court has dismissed special leave petition filed by the Department against this decision (2018) 402 ITR (st.) 4 (SC)

1.6.

In a recent case of Pr. 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 allegation of a wrongful claim of Long Term Capital Gains. Since the reasons which were recorded by the AO in this respect were gloriously silent and failed to make even a rudimentary disclosure on the basis of which we could have examined whether the formation of opinion even on a prima facie basis would sustain, we find ourselves unable to uphold the action of reassessment. Assessee appeal allowed.

1.8.

In the case of PCIT v. Alosha Marketing Pvt. Ltd.2025(6) TMI 1414 – Calcutta High Court it was held as under: -

10.

Further, there is no exemption claimed under section 10 (38) of the Act at Rs. 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 was Rs. 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, on going 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 claimed as business loss and not capital loss.

1.9.

In the headnote of case of ACIT, Circle 1(1)(1), Meerut v. Nita Rastogi 2026 (1) TMI 871 –ITAT Delhi it was held as under: -

Reopening of assessment u/s 147 - reasons to believe - borrowed satisfaction v/s independent application of mind - bogus LTCG - link between the material available on record and the information received - information so available in the Insight Portal relied upon HELD THAT:- 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. 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, the re-assessment proceedings initiated by the assessing officer is bad in law, therefore, reassessment order may be quashed.

1.11.

In the headnote of case of Jaibhagwan Banarasidas Jindal v. ITO, Ward - 1, Jalna 2025 (2) TMI 1237 – ITAT Pune it was held as under: -

Reopening of assessment u/s 147 - Addition u/s 68 - bogus LTCG - Borrowed satisfaction - information received in insight portal from DDIT (Inv) Wing, Unit-3, Delhi that the assessee has traded in the scrips of shell company which is proved to be a penny stock company listed on BSE and which has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain - HELD THAT:- Reopening on the basis of report of the Investigation wing and non application of independent mind by the Assessing Officer which amounts to borrowed satisfaction supports his case to the proposition that the reopening of the assessment merely on the basis of report of Investigation Wing and without independent application of mind by the Assessing Officer is void ab initio.

Since admittedly in the instant case the assessment has been reopened on the basis of the information received through insight portal from DDIT (Inv), Delhi and without independent application of mind by the Assessing Officer, therefore, such reassessment proceedings being not in accordance with law, have to be quashed -Assessee appeal allowed.

In view of the above, it is submitted that notice u/s 148 issued in this case is bad -in-law.

Another reasons which shows that the reasons recorded are mechanical is that in the Performa of recording of reasons and Sl. No. 14 it has been mentioned proviso to section 147 is applicable. However, there is no applicability of proviso to section 147 to the case of the appellant. At Sl. No. 18 of this Performa (as to whether sub-section (1) or sub-section 2 of section 151 is applicable) it has been stated that sub-section (2) is applicable whereas, in the case of appellant sub-section (1) was applicable.

Conclusion

For the reasons discussed hereinabove, it is respectfully prayed that the assessment order passed by the assessing officer under section 147of the Act calls for being quashed.

2. Ground No. 4

In the assessment order, the A.O. has made the addition on account of disallowance of 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 proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."

2.2

The issue of taxability of any other income (other than referred to in notice of reassessment) came up for consideration before Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd (2011) (331 ITR 236), where the Hon’ble Court after detailed discussion on the matter held that the assessing officer has power to assess income (other than those referred to in notice u/s 148) only if the income referred to in notice of reassessment has been assessed. The head note of the judgement read as under :-

Reassessment – Scope of power of assessing officer - law applicable – effect of amendment of section 147 w.e.f. 1-4-1989 – Assessing Officer can also assess other incomes not referred to in notice of reassessment – power of assess such other income only if income referred to in notice of reassessment has been assessed – Income-Tax Act, 1961, s. 147.

2.3

The aforesaid issue is also covered in favour of the assessee by the jurisdiction Delhi High Court judgment in the case of Ranbaxy Laboratories Ltd v CIT (2011) 336 ITR 136. The aforesaid case laws squarely apply to the facts of the assessee’s case and accordingly the addition of Rs.1,29,26,576 /- made by the assessing officer is not sustainable and the same is liable to be deleted.

3. Ground No. 5

Without prejudice to ground no. 4, it is submitted that even otherwise on merits, the A.O. has erred in making disallowance of loss of Rs. 1,29,26,576/-.The appellant has furnished the complete details and documentary evidences of the aforesaid loss such as purchase and sales bills, bank statements, D-MAT statements. 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 appeal”

“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 averred and alleged in a counter affidavit which comes to be subsequently filed in proceedings before this Court. It is the reasons as recorded by the AO which alone can be countenanced in order to evaluate whether circumstances warranted the invocation of Section 148. The formation of opinion thus cannot be sought to be bolstered or given flesh by way of an affidavit which may come to be subsequently filed.

12.

When we revert to the reasons that were recorded and disclosed, it becomes ex facie apparent that the allegations were levelled solely against Dayand Singh. The AO, while conveying the reasons forming the basis for reassessment, has failed to allude to any material or information that the Investigation Wing may have gathered in the course of its inquiry and which may have implicated the writ petitioner in the alleged manipulation of 19 penny scrips. While the respondents do allude to a large number of beneficiaries, and which it pegs at 2404, suffice it to note that even the counter affidavit fails to disclose material particulars which could have been countenanced as germane to the formation of an opinion that income taxable in the hands of the writ petitioner had escaped assessment.

13.

In fact, as we read paragraph 26(xi) of the counter affidavit, we find that the respondents assert that they were not even obliged to disclose the material information which had been gathered by the Investigation Wing. In the very same breath, they also assert that the petitioner never sought a copy of the report submitted by the Investigation Wing. The stand as taken is thus clearly self-contradictory.

14.

In any event, we are of the firm opinion that the 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 allegation of a wrongful claim of Long Term Capital Gains. Since the reasons which were recorded by the AO in this respect were gloriously silent and failed to make even a rudimentary disclosure on the basis of which we could have examined whether the formation of opinion even on a prima facie basis would sustain, we find ourselves unable to uphold 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.”

“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 perusedthe 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 ofRs.35,36,867/- and the same was sold at Rs.5,46,663/- incurring a loss ofRs.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 andpurchases and sales of such shares are treated as stock in trade. Hence, the loss insuch scrips were claimed as business loss and not capital loss.

11.

Thus, we find that apart from the jurisdictional error which was pointed out bythe learned Tribunal, the factual decision has also been discussed by the learnedTribunal. Thus, we find no ground to interfere with the impugned order. Accordingly,the appeal fails and the same is dismissed. The questions of law are answered against the revenue.”

“8.

Heard the contentions of both the parties and perused the material available on record. In the instant case, it is seen that AO has re-opened the assessment of the assessee by alleging that the assessee has disclosed LTCG of INR 2,28,22,400/- and finally the assessment was made by making addition towards the LTCG of INR 3,55,88,404/- holding the same as fictitious. Ld. CIT(A) appreciated these facts and further appreciated that the AO has proceeded with borrowed satisfaction without independent application of mind on the material available on record and held the re-opening as invalid by making following observations in para 6.4.1 to 6.4.3 which are reproduced as under:-

6.4.1.

On perusal of assessment order dated 24.03.2022 passed by the AO u/s. 147 of the Act, it was found that the AO has reproduced the reasons recorded before reopening of assessment. Same are reproduced as follows.

"Vide Instruction F.No. 225/40/2021/ITA-II dated 04.03.2021 of CBDT and Instruction No. 28 dated 23.03.2021 of Directorate of Income Tax (System), the case of the assessee has been 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. The information was perused along with the profile and other records available on the system and other wise. An independent opinion was formed after going through the whole records on the modus operandi by which the income was not assessed and hence the provision of the section 147 was attracted.

2.

In this case, the assessee has suppress 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, The same has been used for undisclosed 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 various notices, the appellant filed her submission before the AO and asked for the relevant report and documents on the basis of which the reasons to believe were recorded by the AO. However, the relevant documents and reports were not supplied to the appellant by the AO as evident from the assessment order and submission of the appellant. Ongoing through the reasons recorded by the AO which are reproduced in the assessment order, it was found that the AO has recorded the reasons only on the basis of information received in the "Insight Portal" as a potential case for escapement of income. The AO has simply recorded that the assesses has suppress 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. However, the AO has not mentioned any details of transactions claimed to be forged by the appellant, like name of the shares, quantity, name of the broker, date of transaction. There was no any reference of tangible material or any concrete or cogent material to link the allegation with the appellant with the conclusions. The reasons recorded were also found very vague, incomplete and without any application of mind. It is not sufficient for the AQ to mention that he has applied his mind and formed his independent opinion. It should be reflected in the reasons recorded by bringing all the relevant tangible material and findings of independent inquiries conducted by AO on record which I believe is missing in the reasons recorded. Further, in the assessment order, para 4 onwards, the AO has reproduced the report of investigation wing received by him explaining the modus operandi of some of the brokers and exit providers raided by investigation wing. However, on verification of the report and modus operandi discussed by the AO the assessment order, AO couldn't establish that the appellant was part of this modus operandi. The AO has not conducted any independent inquiry to corelate the information in his possession with the transactions of the appellant. The AO failed to establish the nexus between the tangible material available and the reason to believe that income has escaped the assessment. Even the statements of the persons involved in the 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 decisions:

Well Trans Logistics India (P.) Ltd. v. Addl. Commissioner of Income- tax [2024] 166 taxmann.com 72 (Delhi), in which it was held that.... there is no close nexus" or live link between tangible material and the reason to believe that income has escaped assessment. The information received from the Investigating Unit of the revenue cannot be the sole basis for forming a belief that income of the assessee has escaped assessment. Having received information from the Investigating Wing, it was incumbent upon the Assessing Officer to take further steps, make further enquiries and garner further material and if such material indicate that the income of the assessee has escaped assessment and then form a belief that the income of the assessee has escaped assessment. [Para 25]

Clearly, in this case, the Assessing Officer has not acquired any material to form such belief. There is not even a line of reason which may justify the formation of the belief. Consequently, reopening of assessment for the assessment year in question by the Assessing Officer does not satisfy the requirement of law in terms of sections 147 and 148." [Para 26]

Movish Realtech (P.) Ltd. vs. Deputy Commissioner of Income-tax [2023] 152 taxmann.com 666 (Delhi)/[2023] 294 Taxman 353 (Delhi)/[2024] 460 ITR 334 (Delhi) [08-05-2023], in the head note of the decision it was held that "Where reassessment proceedings, was initiated against assessee pursuant to a search conducted at AFL Ltd. whereby it was alleged by revenue that bogus accommodation entry was provided by AFL Ltd. to assessee and said fact was confirmed by accommodation entry provider, 'R', since foundation for triggering reassessment proceedings qua assessee was statement of 'R' and said statement, by itself did not lend any clarity as to whether Assessing Officer had underlying material available with him for reaching a conclusion that income chargeable to tax qua assessee had escaped assessment, reassessment proceeding was to be set aside"

"The statement, by itself, does not lend any clarity as to whether the Assessing Officer had underlying material available with him for reaching a conclusion that income chargeable to tax qua the petitioner had escaped assessment. [Para 15.1]"

Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. [2017] 82 taxmann.com 300 (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 the first part of section 147 (1). [Para 24]

The first part of section 147(1) of the Act requires the Assessing Officer to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe Page | 9 that is subject-matter of examination. The Assessing Officer being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe, the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre-condition to the assumption of jurisdiction under section 147 The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment [Para 26]

In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the Assessing Officer one after the other and there was no independent application of mind by the Assessing Officer to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the Assessing Officer are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between tangible material and the formation of the reason to believe that income had escaped assessment." [Para 36]

Bharat kumar Nihalchand Shah vs. Assistant Commissioner of Tax Circle - 1(2) [2021] 128 taxmann.com 228 (Gujarat)/[2021] 281 Taxman 521 (Gujarat)/[2021] 434 ITR 621 (Gujarat) [19-03-2021], it was held that "... There was no basis or material placed on record by department to prima facie show that profit was earned by assessee with regard to transactions and there was no live link between information received and reasons recorded so as to enable Assessing Officer to form a reason to believe that income had escaped assessment."

Paresh Babubhai Bahalani vs. Income-tax Officer [2023] 156 taxmann.com 517 (Gujarat)/[2024] 296 Taxman 324 (Gujarat)/[2024] 463 ITR 103 (Gujarat)(20-10-2023], it was held that "... in view of the above 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 directed to adhere to the following

(a)

While communicating the reasons for re-opening the assessment, a copy of the standard form/request sent by the Assessing Officer for obtaining approval of the Superior Officer should itself be provided to the assessee. This would contain comment or endorsement of the Superior Officer with his name, designation and date. The Assessing Officer shall not merely state the reasons in the letter addressed to the assessee.

(b)

If the reasons make reference to any other document or a letter or a report, such document or letter or report should be enclosed to the reasons. Such portion as it does not bear reference to the assessee concerned could be redacted.

(c)

The order disposing the objections should deal with each objections and give proper reasons for the conclusion.

(d)

A personal hearing shall be given and minimum seven working days advance notice of such personal hearing shall be granted.

(e)

If the Assessing Officer is going to rely on any judgment/order of any Tribunal or Court reference/citation of these judgment/orders shall be provided alongwith notice for personal hearing so that the assessee will be able to deal with/distinguish these judgments/orders.

6.4.3.

In view of the above discussion and respectfully following the above-mentioned decisions, it has been held that the reasons recorded by the AO are vague, incomplete and are without spelling out basic details of transaction and also based on incorrect facts and figures. The Ao failed to disclose the nature of transactions, date of transactions and other relevant details in the reasons recorded. The AO has also failed to establish the nexus between the tangible material available and the reason to believe that income has escaped the assessment. Accordingly, the reasons recorded by the AO are declared as invalid and accordingly the subsequent reassessment proceedings are liable to be set aside and quashed. Hence, the ground of appeal No. 2 and additional grounds of appeal No. 3, 4 and 5 are allowed."

9.

Further, Hon'ble Supreme Court in the case of Rakesh Ramanlal Shah (supra) has held that the action of the AO in acting in borrowed satisfaction without live link between the information and material available on record and thus, re-opening is bad in law.

10.

The Hon'ble Jurisdictional High 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. re-opening of the assessment is hereby quashed, there is no reason to going further to decide the merits of the issue and the same became academic. Accordingly all the grounds of appeal taken by the revenue are dismissed.”