ACIT-24(1), MUMBAI, MUMBAI V. DIPTI SURESHCHANDRA BAJAJ, MUMBAI

ITA 3767/MUM/2024

AI Insights

The case involves appeals by the Revenue against the order of the CIT(A) which quashed the reassessment orders issued to Dipti Sureshchandra Bajaj for the assessment years 2014-15 and 2015-16. The reassessment was based on allegations of involvement in fictitious transactions and tax evasion through trading in currency derivatives and other financial instruments. The AO had initially reopened the case citing information from SEBI and other investigative bodies about the use of certain scripts for providing bogus long-term capital gains and losses. However, the CIT(A) found the AO's reasons for reopening the assessment to be vague and not substantiated by concrete evidence, leading to the quashing of the reassessment orders. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of specific and correct facts in the AO's reasons for reopening the assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126331 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Other Referred Cases: Rakhi Trading Pvt Ltd vs. SEBI
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R.R. MAKWANA
• Assessee Lawyers: NISHIT GANDHI
• Keywords: Reassessment proceedings; Accommodation entries; Transactions in derivatives; Reason to believe; Bogus; Syndicate; Dismissed; Disallowance of expense; Exempt LTCG; Transactions; Exempt; Affirmed; Suspicious
• Section: 147; 148; 144; 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.3767/Mum/2024 & 3769/Mum2024 (Assessment Year :2014-15 & 2015-16) ACIT-24(1), Mumbai 601, 6th Floor, Piramal Chambers, Lalbaug, Parel Mumbai – 400 012 Vs. Dipti Sureshchandra Bajaj B-3/603, Greenlan Apartment, JB Nagar Andheri East, Mumbai- 59 PAN/GIR No.AGHPB1548D (Appellant) .. (Respondent) Assessee by Shri Nishit Gandhi Revenue by Shri R.R. Makwana, Addl. CIT Date of Hearing 21/01/2025 Date of Pronouncement 21/04/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeals have been filed by the Revenue against order dated 30/05/2024 passed by NFAC/ CIT(A) for the quantum of assessment passed u/s.147 r.w.s. 144 for the A.Y.2014-15 and A.Y. 2015-16. 2. In both the appeals common grounds which have been raised by the Revenue are as under:- ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 2 “1. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in holding that the initiation of reassessment proceedings was based on vague and incorrect facts and therefore, the order is void ab-initio without appreciating the fact that the case was reopened on the basis of the concrete information in the form of transaction details and statement of Mr. Bharat Bansal, MD of broker be. M/s Ashlar Securities Pvt Ltd that the said company is engaged providing entry of fictitious transaction, and after following due procedures for reopening. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in cancelling the order without appreciating the fact that the assessee has traded in Currency derivative through the broker viz. Ashlar Securities Pvt Ltd. to book bogus loss and not in the share of Ashlar Securities Pvt Ltd. as observed by the Ld. CIT(A) 3. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in cancelling the order without appreciating the fact that the case of the assessee was part of PROJECT FALCON which was carried out by the Investigation Wing/BSE/SEBI to unearth tax evasion scam in F&O derivative segment. 4. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in cancelling the order without appreciating the fact that in the case of Rakhi Trading Pvt Ltd, the Apex Court has rendered the decision in favor of SEBI and held that such transactions have been done mainly to avoid taxes.” 3. Exactly similar grounds have been raised in A.Y. 2015-16 also. We will first discuss the appeal for the A.Y.2014-15. 4. The assessee had filed her return of income on 28/08/2014 declaring total income of Rs.8,30,970/-. In the computation of income assessee had shown income from business, short term capital gain and income from other sources. In the profit and ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 3 loss account, assessee declared profit from derivative trading at Rs.10,13,658/- which was shown after deducting loss from currency derivatives of Rs.92,53,287/- and loss from F & O of Rs.7,69,328/- from the profit of Rs.1,10,36,274/- on commodity derivatives. The assessee had also filed copy of profit and loss account on the currency derivatives trading alongwith the computation of income. All these details and computation was subject to scrutiny during the course of original assessment proceedings and assessment order was passed u/s. 143(3) on 22/12/2016 determining the total income at Rs.9,91,480/- after making disallowance of expenses u/s.14A. 5. Later on, assessee’s case was reopened u/s.147 and notice u/s.148 was issued on 27/05/2021 based on following ‘reasons recorded’:- 1. In this case, the information has been uploaded that the assessee has done the high volume/value transactions i.e. Fictitious Profits in Equity/Derivative Trading and bogus LTCG U/S 10(38) /and STCL cases in the shares of M/S ASHLAR SECURITIES PVT.LTD. - AAHCA9621P. 2. The information value of total transactions is Rs. 68,40,660/- USE Currency Derivative-Loss/ 3. However, it has been found and proved by the SEBI and Investigation that the scrip has been used by the broker and the syndicate members for providing bogus LTCG and loss to the beneficiaries by inflating the share price through doctored transactions made between the syndicate members. The taxpayer is one of the beneficiaries and has claimed exempt LTCG. This/these concerns is/are involved into activity of providing accommodation entries of various kinds such as unsecured loans, ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 4 share premium, bogus gains, contrived losses etc. Various concerns were found to be non-existent at their addresses. 4. It is found from the details provided that the assessee has resorted to suspicious mode of obtaining the gains and not offering the income to tax by not showing the details of income or claiming non allowable deduction. Thus, the income related to the above mentioned transactions remains undisclosed and the same are required to be considered in computing total income of the assessee, 5. As a outcome of enquiry/perusal and analysis of details available on records, it is noticed that the genuineness of the said transactions is not conclusively proved. Hence, I have reasons to believe that income chargeable to tax more than Rs. 1,00,000/-has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year i.e. for the subject A.Y. within the meaning of section 147 of the Income-tax Act, 1961. 6. In response to the notice, assessee has filed her objection which has been disposed of by the AO. Again assessee submitted a detailed reply vide letter dated 15/03/2022 which has been incorporated in the assessment order from pages 2-5. The ld. AO however, rejected the same and has discussed history and background of practices carried out for tax evasion through trading illiquid derivatives. He has quoted some SEBI order dated 28/09/2017 wherein SEBI has imposed some kind of penalty. Nowhere, from the assessment order it is seen that for which scrip and on what issue SEBI had imposed penalty whether it had some kind of connection with the assessee, because ld. AO has quoted the SEBI order through some internet search. After ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 5 discussing some general modus operandi, he disallowed the currency derivatives loss of Rs.68,40,660/-. 7. Similarly, in A.Y.2015-16 based on exactly same reasons, he has disallowed the currency derivatives loss of Rs.51,28,985/-. 8. The ld. CIT (A) has quashed the reasons and also the additions on merits. The relevant finding of the Ld. CIT (A), we will discuss in forthcoming paragraphs. 9. After hearing both the parties and on perusal of the relevant facts and material on record especially with regard to the validity of proceedings u/s.147, we find that entire premise of the ld. AO for recording the reasons is based on some uploaded information that assessee has done some high volume / value transactions and fictitious profits in equity / derivative trading and bogus long term capital gain/ short term capital loss in the shares of M/s. Ashlar Securities Pvt. Ltd., From the bare perusal of the reasons, it is seen that;  In first para, ld. AO has quoted that assessee has earned –  fictitious profits in equity,  fictitious profits in derivative trading  bogus long term capital gain, and bogus short term capital gain in the shares of ASPL,  the value of total transactions in USE currency derivative loss is Rs. 51,28,985/-  In second para, he mentions about SEBI and Investigation Wing have proved that scrip of M/S ASHLAR SECURITIES ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 6 PVT. LTD. has been used for providing bogus long term capital gain and losses and some of the concerns are involved in providing accommodation entries of unsecured loans, share premium, bogus gains, contrived losses and that various concerns were found to be non-existent at their addresses and that various concerns were found to be non- existent at their addresses.  And in third para, ld. AO states that assessee has earned suspicious gains which have not been offered to tax. 10, Reasons recorded clearly shows that, firstly, ld. AO is not certain about what is the nature of escapement and whether gain is short term or long term dehors the facts of the assessee’s case; and secondly, he states that assessee has been benefitted by inflation of share price through doctored transaction but yet he is not sure if there is a gain or loss shown by the assessee. In his reason to believe, he is not sure what is the nature of accommodation entry which assessee might have taken and what is the basis to entertain his belief that assessee has resorted to some suspicious mode of obtaining the gains and not offering the income to tax by not showing the details of income or claiming non allowable deduction. How he has arrived at conclusion that the income related to some kind of transactions remains undisclosed which is required to be considered in computing total income of the assessee. All this are his bald allegation and complete non-application of mind on the information coming on record and the facts and material of the assessee already on record, that, firstly, already assessment u/s. ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 7 143(3) was completed and the computation of income and nature of income already stood scrutinized; secondly, neither the assessee has shown any long term capital gain or loss which has been claimed as exempt; and lastly, there was no such suspicious mode adopted of obtaining the gains which has not been offered to tax. Assessee has disclosed profit and loss from derivative trading, currency derivatives, commodity derivatives and F & O done in regular course of business which she is carrying out year after to arrive her computation of income. AO did not even verify the profit and loss account or computation of income as to which of the transaction was tainted or was in the nature of accommodation, before recording the reasons. 11. It is when assessee filed petition/ objections against reasons recorded and in response to notice u/s.148 that she has not carried out any such alleged transaction, then in his order disposing of the objection AO has stated that escapement related to some fictitious BSE currency derivative loss from an entity engaged in providing accommodation entries of fictitious loss. Thus, at the time of recording the reasons the ld. AO did not even perused the material or the computation of income of profit and loss account. His reasons to believe are predicated entirely on surmise drawn from vague and general information. AO has failed to appreciate that the assessee had in fact incurred has incurred loss from trading in currency derivatives, a fact which was duly disclosed in the computation of income and duly subjected to scrutiny. This glaring omission reflects non ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 8 application of mind which undermines the legitimacy to reopen the assessment. 12. This aspect of deficiency in reasons and non-application of mind by the ld. AO on the facts and material on record has been discussed in detail by the ld. CIT (A). For the sake of ready reference certain excerpts of his relevant finding are reproduced hereunder:- “Later on, when the appellant filed objections to notice issued u/s 148 of the Act, the AO disposed of them by order DIN & Letter No. ITBA/AST/F/17/2021-22/1040581788(1) dated 11.03.2022 and made his intention clear that the escapement was related to fictitious BSE currency derivative loss of Rs. 68,40,660/- from an entity engaged in providing accommodation entries of fictitious losses. The addition on this ground was also made in the Order. The AO did not go through the records which show that the appellant earned loss of Rs. 92,53,287,70/- from trading in currency derivatives, as shown by her in computation of income chart and not Rs. 68,40,660/-, as recorded by him in the reasons. He also failed to demonstrate as to how the difference being Rs. 24,12,627.70/- (Rs. 92,53,287 70-68.40,660) was genuine loss despite the entity i.e. ASPL being the same. From above, it is clear that the AO while recording the reasons was not certain about the nature of escapement. He mentioned almost all the possible reasons which might be relevant for escapement of income and recording of reasons and used template/proforma.” Thereafter, ld. CIT (A) has quoted several decisions and finally concluded as under:- “From the above discussed judicial pronouncements, it is clear that there must be opaque and correct facts in the reasons for ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 9 reopening the assessment. In this case, the reasons are not only vague but also incorrect. Though the AO proceeded on vague facts, as is noticed from the reasons, he disposed of the objections, raised by the appellant against the reasons by mentioning specific facts related to income escapement due to fictitious loss by trading in currency derivatives. He did not submit different proposal to his higher authorities by mentioning specific reasons and obtained their sanction before issue of notice u/s 148 of the Act. He just revised the reasons while disposing objections of the appellant. This vitiates the reassessment proceedings. When initiation/start is wrong what follows is also wrong. Since initiation of reassessment proceedings was based on vague and incorrect facts, the Order is void ab-initio. The Order is, therefore, cancelled.” 13. Since there was no co-relation between the reasons to believe as recorded by the ld. AO and the live link nexus with the facts of the assessee’s case, therefore such reason to believe falls in the realm of conjectures and borrowed. It is a well settled law that ‘reasons’ which has been recorded and duly approved by the higher authorities, ld. AO cannot change the reasons later on as it is on his reasons recorded approval has been granted to acquire jurisdiction to reopen the case and issue notice u/s 148. Thus, we do not find any infirmity either on facts or in law in the finding given by the ld. CIT (A). Accordingly, we uphold the order of the ld. CIT (A) holding that entire re-assessment order is bad in law as the reasons recorded do not clothe the AO with jurisdiction to reopen the case u/s.148. Accordingly, the grounds raised by the Revenue are dismissed. ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 10 14. Since similar reasons have been recorded by the ld. AO, and ld. CIT (A) too has given the same reasoning, therefore, our finding given above will apply mutatis mutandis here in this case also. The reasons recorded by the ld. AO for A.Y.2015-16 are as under:- “1. In this case, the information has been uploaded that the assessee has done the high volume/value transactions Le. Fictitious Profits in Equity/Derivative Trading and bogus LTCG U/S 10(38) /and STCL cases in the shares of M/s ASHLAR SECURITIES PRIVATE LIMITED.-AAHCA9621P The information value of total transactions is Rs. 51,28,985-USE Currency Derivative-Loss, 1,42,500-USE Currency Derivative-Profit/- 2. However, it has been found and proved by the SEBI and Investigation that the scrip has been used by the broker and the syndicate members for providing bogus LTCG and loss to the beneficiaries by inflating the share price through doctored transactions made between the syndicate members. The taxpayer is one of the beneficiaries and has claimed exempt LTCG. This/these concerns is/are involved into activity of providing accommodation entries of various kinds such as unsecured loans, share premium, bogus gains, contrived losses etc. Various concerns were found to be non-existent at their addresses. 3. It is found from the details provided that the assessee has resorted to suspicious mode of obtaining the gains and not offering the income to tax by not showing the details of income or claiming non allowable deduction. Thus, the income related to the above mentioned transactions remains undisclosed and the same are required to be considered in computing total income of the assessee, 4. As a outcome of enquiry/perusal and analysis of details available on records, it is noticed that the genuineness of the said transactions is not conclusively proved. Hence, I have reasons to believe that income chargeable to tax more than Rs.1,00,000/-has escaped assessment by reason of the failure on the part of the ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 11 assessee to disclose fully and truly all material facts necessary for that assessment year i.e. for the subject A.Y. within the meaning of section 147 of the Income-tax Act, 1961.” 15. Here also, same reasons recorded are divorced from the facts and material on record and is in realm of conjectures without ascertain the fact that assessee has not entered into any kind of bogus long term capital gain or loss or beneficiary of any kind of accommodation entry on any of the points mentioned in the reasons to believe. Accordingly, the order of the ld. CIT (A) quashing the reopening is affirmed and the appeal of the Revenue is dismissed. 16. In the result, both the appeals of the Revenue are dismissed. Order pronounced on 21st April, 2025. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 21/04/2025 KARUNA, sr.ps ITA No.3767 & 3769/Mum/2024 Dipti Sureshchandra Bajaj 12 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "