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Judgment
PER S.RIFAUR RAHMAN,AM:
This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals)-30, New Delhi [for short ‘ld. CIT (A)] dated 23.05.2025 for the Assessment Year 2015-16.
Brief facts of the case are, the case of the assessee was reopened u/s 147 of the Income Tax Act, 1961 (in short ‘Act’) by issue of notice u/s 148 of the Act for the reason that assessee had sold shares of penny stock during the year for Rs.24,33,546/- under consideration and claimed huge loss. It is observed that the assessee had filed the return of income of her late husband Shri D K Jain in the capacity of legal heir even though Shri D.K. Jain had expired on 18.03.2014. She had filed the ROI for AY 2014-15 as well as 2015-16 on behalf of her husband and claimed the above loss. Further it is also observed that the assessee had also filed her own return of income.
During reassessment proceedings, the AO observed the above facts on record and treated the ROI filed by the assessee on behalf of late Shri. D K Jain as non-est and proceeded to treat the above income declared as the income of the assessee. While considering the sale of above disputed sale as the transaction belongs to the assessee, he observed that the assessee had sold the above penny stock and had not declared the relevant profit earned in the above transaction, he proceeded to add the sales proceedings in the hands of the assessee u/s 68 of the Act treating the same as bogus penny stock transaction by heavily relying on the investigation report.
Aggrieved with the above order, the assessee filed an appeal before the Ld first appellate authority and Ld CIT(A) after considering the submission of the assessee, sustained the additions made by the AO.
Aggrieved with the above order, the assessee is in appeal before us raising following grounds of appeal :-
“1.That on the facts and circumstances of the case, the appellate order passed by the learned Commissioner of Income Tax (Appeals) (hereinafter referred as "CIT(A) thereby confirming Rs.959168 addition of Rs.28,21,913/-(i.e. Rs.24,33,546 + Rs.3,88,367) under the Income Tax Act, 1961 [hereinafter referred as "Act"] is bad both in the eyes of law and on facts.
2.That on the facts and circumstances of the case, initiation and completion of re-assessment proceedings u/s 147 of the Act in |the name of appellant is bad in law as shares of M/s SVC Resources Limited have been purchased by Late Sh. D.K. Jain (husband of the appellant) during the F.Y. 2011-12 and 2012-13 and upon sale of shares, long term capital loss was duly disclosed in the income tax return of Late Sh. D.K. Jain for the assessment year 2015-16.
3.That on the facts and circumstances of the case, initiation and completion of re-assessment proceedings /s 147 of the Act is bad in law as reopening of assessment proceedings u/s 147 of the Act merely on the basis of change of opinion, as the case of the appellant have already been assessed u/s 143(3), is in violation of law settled by the Hon'ble Supreme court in the case of Income Tax Officer v TechSpan India (P.) Ltd [2018] 92 taxmann.com 361 (SC).
4.That on the facts and circumstances of the case, the Ld. AO erred in law in initiating re-assessment proceeding w/s 147 merely relying upon information received from Investigation wing without having any cogent, definite material on record in support of his reason to believe that certain income has escaped assessment.
5.That on the facts and in the circumstances of the case, the Ld. A0 erred in law in initiating and completing re-assessment proceedings under section 147 of the Act by not following the due procedure as per law settled by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd v ITO (2003) 259 ITR 19 which should be strictly adhered to proceedings initiated under section 147 of the Act.
6.That on the facts and circumstances of case, the Ld. AO erred in law in initiating and completing re-assessment proceedings under section 147 of the Act on the basis of reason to believe that income has escaped assessment without providing the relied upon information and documents to the appellant and without providing copy of approval as per the provisions of section 151 of the Act.
7.That on the facts and in the circumstances of the case, the Ld. AO erred in law in initiating proceedings under section 147 of the Act on the basis of reason recorded which are incorrect on facts and thus, bad in law. Hence, reason has not been recorded in terms of section 147 of the Act which is sine qua non for assumption of jurisdiction under section 147, therefore assessment so framed is without jurisdiction and is bad in law and assessment order so passed, is liable to be quashed.
8.That on the facts and in the circumstances of the case, the Ld. AO erred in law and fact in adding the income of Rs 3,88,367/- of her husband Late Sh. D.K. Jain with the income of the appellant without considering the fact that separate income tax return was filed of Late Sh. D.K. Jain and also tax was duly paid.
9.That on the facts and in the circumstances of the appellant case, the Ld. AO erred in law and fact in initiating proceedings us 147 of the Act on the basis of reason to suspect instead of reason to believe as there is no nexus between material and belief being no relevant, specific material brought on record by Ld. AO except generalizing the modus operandi based on his own assumption and presumption that appellant has earned non genuine long term capital gain on sale of shares of M/s SVC Resources Limited without considering the fact that appellant has incurred long term capital loss instead of long term capital gain.
10.That on the facts and circumstances of case, the learned CIT(A) erred in confirming addition of Rs. 24,33,546/- u/s 68 of the Act made by the Ld. AO being long term capital gain on sale of shares of M/s SVC Resources Limited as non-genuine/ undisclosed income by wrongly invoking provisions of section 68 of the Act without considering the fact that pre-requisite condition for invoking provisions of section 68 has not been met being no such amount was credited in the books of accounts and bank accounts of appellant.
11.That on the facts and circumstances of case, the learned CIT(A) erred in confirming addition of Rs.24,33,546/- u/s 68 of the Act made by the Ld. AO being long term capital gain on sale 9of shares of M/s SVC Resources Limited as non-genuine/undisclosed income without considering the fact that long term capital loss of Rs 1,02,39,859/- was incurred on sale of said shares which could not be set off against any income.
12.That on the facts and circumstances of case, the learned CIT(A) erred in confirming addition of Rs. 24,33,546/- u/s 68 of the Act made by the Ld. AO being long term capital gain on sale of shares of M/s SVC Resources Limited as non-genuine/undisclosed income without appreciating the explanation and documentary evidence viz. contract notes of the registered brokers submitted to prove genuineness of transaction of sale and purchase of such shares in which no defect had been pointed out by Ld. AO.
13.That on the facts and circumstances of the case, Ld. AO erred in fact and law in making addition of sale consideration of sale of shares of M/s SVC Resources Limited of Rs 24,33,546/- u/s 68 of the Income tax Act without giving benefit of purchase cost of shares of Rs.1,26,73,405/-.
14.That the grounds of appeal are independent and without prejudice to each other.”
At the time of hearing, Ld AR of the assessee brought to our notice the peculiar facts on record and submitted as under:
“The appellant aggrieved by the additions sustained by the Hon'ble CIT(A)-30, New Delhi of Rs.28,21,913/- (i.e. Rs.24,33,546 + Rs.3,88,367) has filed an appeal before your honor and would like to submit as under:
The Ld. Assessing officer has made addition of entire sale consideration of Rs.24,33,546/- without allowing deduction for cost of acquisition amounting to Rs.1,26,73,405/-. After considering the cost of acquisition, there is long term capital loss of Rs 1,02,39,859/- and the appellant had not claimed such long-term capital loss arising from sale of shares of MIs SVC Resources Limited alleged as penny scrip in her return of income. Hence, addition of entire sale consideration of Rs.24,33,546/- u/s 68 of the Act by treating the same as long-term capital gain without giving the benefit of cost of acquisition amounting to Rs. 1,26,73,405/- is bad in law and liable to be deleted.
Further, the Ld. Assessing Officer" relied upon certain information explaining the alleged modus operandi adopted for generating bogus Long Term Capital Gains (LTCG), Short Term Capital Losses (STCL), and business losses through penny stock transactions. However, the said modus operandi is wholly inapplicable to the facts of the present case, as the appellant has not earned any Long-Term Capital Gain from the sale of the alleged scrip. On the contrary, the appellant has incurred Long Term Capital Loss, and even the same was not claimed by the appellant as the same was a dead loss. Therefore, the information relied upon by the Ld. Assessing Officer for reopening the case of appellant and for making allegation that appellant has earned long term capital gain from sale of alleged penny scrip is totally irrelevant, misconceived, and had no nexus with the facts of the appellant's case.
Documentary Evidence Establishes Genuineness of Share Transaction
•During the course of assessment proceedings, the appellant has furnished complete documentary evidences including contract notes issued by registered stock brokers; Demat statements; Bank statements and relevant supporting documents relating to purchase and sale of shares of MIs SVC Resources Limited (Pages 51 to 122 of Paper Book).
Addition of income of Rs.3,88,367/- already declared in income tax return of Late Sh. O.K. Jain husband of the appellant tantamount to double taxation
•Income amounting to Rs. 3,88,367/- had already been disclosed in the return of income of Late Sh. O.K. Jain filed for AY 201'5-16 and taxes due thereon had been duly paid.
•The same income could not again be added in the hands of the appellant, as the same tantamount to double taxation and is bad in law.
Reassessment Proceedings are bad in law.
•The impugned shares of MIs SVC Resources Limited were purchased by Late Sh. D.K. Jain during Financial Years 2011-12 and 2012-13. The resultant long term capital loss on sale of such shares was duly disclosed in the return of income of Late Sh. D.K. Jain for AY 2015-16.
•Since the transactions did not pertain to the appellant, initiation and completion of reassessment proceedings under section 147 in the hands of the appellant are wholly without jurisdiction and bad in law.
•The appellant's original assessment had already been completed under section 143(3). Therefore, reopening of assessment merely on the basis of change of opinion is invalid and contrary to the law laid down by the Hon'ble Supreme Court in the case of Income Tax Officer v. TechSpan India (P.) Ltd reported in [2018] 92 taxmann.com 361 (SC).
On the other hand, Ld DR submitted ground wise as under :-
That on the facts and circumstances of the case, initiation and completion of reassessment proceedings u/s 147 of the Act in the name of appellant is bad in law as shares of M/s SVC Resources Ltd. have been purchases by Late Sh. D.K. Jain (Husband of appellant) during the FY 2011-12 and 2012-12 and upon sale of shares, long term capital loss was duly disclosed in the ITR of Late of Sh. D.K. Jain for the AY 2015-16.
Comments: This ground is misconceived. It is an admitted fact that Late Sh. D.K. Jain expired on 18.03.2014 (i.e. during FY 2013-14). The sale of shares took place in FY 2014-15. As per Section 159 of the IT Act, 1961, legal representatives can file return only for income accrued till the date of death. Any income or loss arising post death is taxable in the hands of the legal heir. Filing return in the name of deceased for AY 2015-16 is void ab initio. Hence, reassessment in the hands of the assessee is perfectly valid.
Ground No. 3:
That on the facts and circumstances of the case, initiation and completion of reassessment proceedings u/s 147 of the Act is bad in law as reopening of assessment proceedings u/s 147 of the Act merely on the basis of change of opinion, as the case of the appellant have already been assessed u/s 143(3), is in violation of law settled by the Hon'ble Supreme Court in the case of Income Tax Officer vs. Techspan India (P) Ltd. [2018] 92 taxmann.com 361 (SC).
Comments: The ground raised by the assessee alleging that reassessment proceedings u/s 147 are bad in law on account of change of opinion is factually incorrect and legally unsustainable, even considering the fact that the original assessment u/s 143(3) was completed. The reassessment proceedings were initiated subsequent to completion of assessment u/s 143(3), on the basis of specific, credible and actionable information received from the Investigation Wing, Mumbai. The Investigation Wing information, supported by SEBI findings, constituted new tangible material which was not available on record nor examined at the time of original assessment. Therefore, the AO formed a bona fide belief that income chargeable to tax had escaped assessment. It is settled law that where an issue has not been examined or adjudicated in the original assessment, reopening on such issue cannot be treated as a change of opinion. Further, the reliance placed by the assessee on ITO vs. Techspan India (P) Ltd. [2018] 92 taxmann.com 361 (SC) is misplaced.
Ground No. 4:
That on the facts and circumstances of the case, the Ld. AO erred in law in initiating reassessment proceeding u/s 147 merely relying upon information received from Investigation Wing without having any cogent, definite material on record in support of his reason to believe that certain income has escaped assessment.
Comments: The ground raised by the assessee is not tenable. The reassessment proceedings were initiated on the basis of specific, credible and actionable information received from the Investigation Wing, Mumbai. The information received was specific, credible, and assessee-centric. The AO independently examined the material, recorded detailed reasons, and established a live nexus between information and escapement of income. Thus, reopening satisfies the jurisdictional requirements of section 147.
Ground No. 5:
That on the facts and circumstances of the case, the Ld. AO erred in law in initiating and completing reassessment proceedings u/s 147 of the Act by not following the due procedure as per law settled by the Hon'ble Supreme Court in the case of GKN Driveshafts (Indio) Ltd. vs. ITO (2003) 259 ITR 19 which should be strictly adhered to proceedings initiated u/s 147 of the Act.
Comments: The ground raised by the assessee is not tenable and devoid of merit. The assessee participated in reassessment proceedings and filed submissions from time to time. No evidence has been produced to show that objections were raised and not disposed of. Mere bald allegation without showing prejudice cannot invalidate reassessment proceedings.
Ground No. 6:
That on the facts and circumstances of the case, the Ld. AO erred in law in initiating and completing reassessment proceedings u/s 147 of the Act on the basis of reason to believe that income has escaped assessment without providing relied upon information and documents to the appellant and without providing copy of approval as per the provisions of section 151 of the Act.
Comments: The ground raised by the assessee is not tenable. The reassessment proceedings were initiated after duly recording reasons based on credible information received from the Investigation Wing. The assessee was made aware of the reasons for reopening and the basis thereof. Approval under section 151 was duly obtained. Non-furnishing the copy of approval does not vitiate proceedings unless prejudice is shown, which has not been demonstrated.
Ground No. 7:
That on the facts and in the circumstances of the case, the Ld. AO erred in law in initiating proceedings under section 147 of the Act on the basis of reason recorded which are incorrect on facts and thus, bad in law. Hence, reason has not been recorded in terms of section 147 of the Act which is sine qua non for assumption of jurisdiction under section 147, therefore assessment so framed is without jurisdiction and is bad in law and assessment order so passed, is liable to be quashed.
Comments: The reasons for reopening were properly recorded on the basis of specific and credible information received from the Investigation Wing, Mumbai, identifying the assessee as a beneficiary of non-genuine penny stock transactions in the scrip of M/s SVC Resources Ltd., duly supported by SEBI findings. The reasons recorded clearly mention penny stock transactions, sale consideration, and Investigation Wing findings. The reasons recorded clearly established a live nexus between the material available and the formation of belief that income chargeable to tax had escaped assessment. Jurisdiction under section 147 requires only a prima facie belief, not conclusive proof. Hence, assumption of jurisdiction is valid.
Ground No. 8:
That on the facts and in the circumstances of the case, the Ld. AO erred in law and fact in adding the income of Rs. 3,88,367/- of her husband Late Sh. D.K. Jain with the income of the appellant without considering the fact that separate income tax return was filed of Late Sh. D.K. Jain and also tax was duly paid.
Comments: The ground raised by the assessee is not tenable. Late Sh. D.K. Jain had expired on 18.03.2014, and therefore the return filed in his name for AY 2015-16 is non est in law. The assessee admitted filing return of deceased husband even after his death. Any income wrongly declared therein is rightly assessable in the hands of the assessee as legal heir. Hence, the addition is legally justified.
Ground No. 9:
That on the facts and in the circumstances of the appellant case, the Ld. AO erred in law and fact in initiating proceedings u/s 147 of the Act on the basis of reason to suspect instead of reason to believe as there is no nexus between material and belief being no relevant, specific material brought on record by Ld. AO except generalizing the modus operandi based on his own assumption and presumption that appellant has earned non genuine long term capital gain on sale of shares of M/s SVC Resources Limited without considering the fact that appellant has incurred long term capital loss instead of long term capital gain.
Comments: The ground raised by the assessee is not tenable. The reassessment proceedings were not initiated on mere suspicion or general assumptions, but on the basis of specific and credible information received from the Investigation Wing, Mumbai, identifying the assessee as a beneficiary of non-genuine penny stock transactions in the scrip of M/s SVC Resources Ltd., corroborated by SEBI findings. The Investigation Wing has established that penny stock transactions are used to generate both bogus gains and artificial losses. The existence of loss does not negate applicability of section 68. The AO's belief is based on tangible material and, not suspicion.
Ground No. 10:
That on the facts and circumstances of case, the learned CIT(A) erred in confirming addition of Rs. 24,33,546/- u/s 68 of the Act made by the Ld. AO being long term capital gain on sale of shares of M/s SVC Resources Limited as non-genuine / undisclosed income by wrongly invoking provisions of section 68 of the Act without considering the fact that pre-requisite condition for invoking provisions of section 68 has not been met being no such amount was credited in the books of accounts and bank accounts of appellant.
Comments: The ground raised by the assessee is without merit. The addition of Rs.24,33,546/- u/s 68 was made on the basis of specific and credible information received from the Investigation Wing, Mumbai, and corroborated by SEBI findings. In the present case, the assessee failed to establish the genuineness of the transactions or the identity and creditworthiness of the counterparties, which is a mandatory pre-requisite under section 68. The sale consideration was credited to the assessee's trading / bank account. Trading account constitutes books of account for section 68 purposes. Hence, this ground is untenable.
Ground No. 11:
That on the facts and circumstances of case, the learned CIT(A) erred in confirming addition of Rs. 24,33,546/- u/s 68 of the Act made by the Ld. AO being long term capital gain on sale of shares of M/s SVC Resources Limited as non-genuine / undisclosed income without considering the fact that long term capital loss of Rs. 1,02,39,859/- was incurred on sale of said shares which could not be set off against any income.
Comments: The Ld. CIT(A) has passed a detailed, reasoned, and speaking order after appreciating the facts and law. Once the transaction itself is held to be non-genuine, the question of allowing capital loss does not arise. A sham transaction cannot give rise to genuine loss. The AO rightly ignored the artificial loss and taxed the unexplained credit.
Ground No. 12:
That on the facts and circumstances of case, the learned CIT(A) erred in confirming addition of Rs. 24,33,546/- u/s 68 of the Act made by the Ld. AO being long term capital gain on sale of shares of M/s SVC Resources Limited as non-genuine / undisclosed income without appreciating the explanation and documentary evidence viz. contract notes of the registered brokers submitted to prove genuineness of transaction of sale and purchase of such shares in which no defect had been pointed out by Ld. AO.
Comments: The ground raised by the assessee is not tenable. In penny stock cases, mere production of contract notes, demat statements, and banking channels does not establish genuineness. The claim of a long-term capital loss of Rs. 1,02,39,859/- does not alter the fact that the sale transactions in M/s SVC Resources Ltd. were non-genuine and arranged for accommodation purposes, as established by the Investigation Wing, Mumbai and SEBI findings.
Ground No. 13:
That on the facts and circumstances of case, the Ld. AO erred in fact and law in making addition of sale consideration of sale of shares of M/s SVC Resources Ltd. of Rs. 24,33,546/- u/s 68 of the IT Act with giving benefit of purchase cost of shares of Rs. 1,26,73,405/-.
Comments: The ground raised by the assessee is without merit. The addition of Rs.24,33,546/- u/s 68 relates to the sale consideration of shares of M/s SVC Resources Ltd., which were found to be non-genuine. The claim of purchase cost of Rs. 1,26,73,405/- is irrelevant because the transactions
Considered the rival submissions and material placed on record. We observed that Late Shri D K Jain purchased and held the shares of SVC Resources (alleged penny stock) through the stock exchange and through the stock broker Religare Securities Ltd as under:
From the above statement, we observed that the assessee as a legal heir of Shri D K Jain held shares of 1394000 shares at the cost of Rs. 151,13,916.32/- as on 31.03.2014 (technically inherited from D K Jain after his demise on 18/03/2014). The assessee sold the part of the holding to the extent of 1337000 shares during the year under consideration for Rs. 24,33,546.37/- and claimed the difference of cost of purchase as long term loss in the return of income filed on behalf of her late husband. We noticed that the AO had noticed the same and treated the ROI filed on behalf of late D K Jain as non-est and treated the same as belongs to the assessee. While doing so, he proceeded to treat the sale proceeds alone as bogus transaction and did not consider the actual transactions. It is fair to treat the above transactions as the transaction of the assessee, for the year under consideration treating the ROI filed as non-es but, in our view, the AO should have analyzed and investigated the whole transaction instead of treating the disputed transaction alone merely relying on the investigation report.
We observed that Late Shri D K Jain had purchased all the shares from the stock market with the assistance of the broker. The AO had not proved that the assessee had involved or brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. We observed that Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: -
“2.We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
3.Therefore we find nothing perverse in the order of the Tribunal.”
Further, Hon’ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 had expressed similar views. Therefore, the above transaction cannot be treated as penny stock in isolation.
Further we observed that the AO had treated the above transaction as the transaction of the assessee, he should have allowed the assessee to carry forward the cost of acquisition of the late D K Jain to the assessee as the cost of earlier owner. We noticed that the cost of purchase of the above shares is Rs.126,73,405.99/- and the assessee had actually realised on the above sale transaction of Rs.24,33,546.37/- and the difference of Rs.102,39,859.62/- was not allowed as long term capital loss. It is also observed that the above loss was claimed in the ROI filed on behalf of late Shri D K Jain and did not claim the same in his return of income also. That being the case, we do not recommend allowing the above unabsorbed long term capital loss in the hands of the assessee.
In short, we direct the AO to delete the additions made and sustained by the Ld CIT(A) of both the additions made u/s 68 and the relevant profit added in the given case.
In the result, appeal filed by the assessee is allowed.