JAGDISH MALHOTRA,NEW DELHI V. ACIT, CIRCLE-16(1), JHANDEWALAN

SA 429/DEL/2025

AI Insights

The case involves Jagdish Malhotra, who was accused of benefiting from bogus long-term capital gains (LTCG) through transactions involving penny stocks. The Income Tax Department reopened his assessment for the year 2012-13 based on a report from the DDIT (Investigation), Unit 2(4), Kolkata, which alleged that Malhotra had earned LTCG on the sale of shares of 'Konark', a penny stock identified by SEBI. The Assessing Officer (AO) added the LTCG as unexplained cash credit under Section 68 of the Act. Malhotra contested the reopening and the subsequent additions, which were upheld by the CIT(A). The Tribunal, however, found procedural lapses and incorrect factual basis in the reopening and the additions made, leading to the quashing of the reassessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773599 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 7 day(s)
• Appeal Type: Stay Application
• Pronouncement Date: 26-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 19-08-2025
• Other Referred Cases: CIT v Nova Promoters & Finlease (P) Ltd, Phoolchand Bajrang Lal v. ITO, Raymond Woollen Mills Ltd. v. ITO, Sanjay Kaul Vs. ITO, Ward 24(4) New Delhi, CNB Finwiz Ltd. Vs. DCIT, Circle 6(1)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDEO
• Assessee Lawyers: GAURAV JAIN; TARUN CHANANA
• Keywords: Condonation of delay; Unexplained cash credit; Reopening of assessment; Earning of tax free income; Assessment record; Avoidance of tax; Reason to believe; Application of stay; Tangible material; Borrowed satisfaction; Penny stocks; Bogus
• Section: 148; 143(3); 142(1); 68

Judgement Text

"P a g e | 1 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER & SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.4546/Del/2025 S.A. No.429/Del/2025 (Assessment Years: 2012-13) Jagdish Malhotra 69/2A, Najafgarh Road, New Delhi, Delhi New Delhi – 110015 Vs. ACIT, Circle 16(1) E-2, ARA Centre, Jhandewalan Extension, New Delhi – 110055 \u0001थायीलेखासं./जीआइआरसं./PAN/GIR No: AAIPM9318D Appellant .. Respondent Appellant by : Sh. Gaurav Jain, Adv. & Sh. Tarun Chanana, Adv. Respondent by : Sh. Shrikant Namdeo, CIT, DR Date of Hearing 02.09.2025 Date of Pronouncement 26.09.2025 O R D E R PER MADHUMITA ROY, JM: The instant appeal filed by the assessee is directed against the order passed by the Ld. CIT(A)-24, New Delhi, dated 16.01.2025 arising out of the Assessment Order dated 19.12.2019 passed by the Ld. ACIT, Circle-16(1), New Delhi under Section 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2012-13. Printed from counselvise.com P a g e | 2 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) 2. The instant appeal filed by the assessee is barred by limitation by 112 days. It has been submitted by the Ld. AR that such delay in filing the appeal is inadvertent, unintended and beyond the control of the appellant and thus, the same may be condoned. In support of delay in filing the appeal, the appellant has filed an application along with an affidavit affirmed by the appellant himself for condonation of delay in filing the appeal against the impugned order dated 16.01.2025 passed under Section 143(3) r.w.s 147 of the Act for Assessment Year 2012-13. It has been stated in the said application that the appeal was handled by one CA firm namely M/s S.A. Dhawan & Company who was entrusted to file the replies and also representing before the Ld. CIT(A). Once, the order passed by the Ld. CIT(A) the file was given to one particular advocate in the team of the said firm and the same ultimately could not be filed as the said junior advocate left the office on April, 2025. The file remained undetected and only in the month of July, 2025 on a routine follow up regarding listing of appeals, it was found that this particular appeal had not been filed before the Tribunal against the order passed by the Ld. CIT(A) under Section 147 of the Act. At that juncture, the appeal was drafted and ultimately filed before us after a period of 112 days. Though no evidence in support of the fact of Ld. junior advocate entrusted with the file, left the office of the concerned CA firm, however, it is found that there is some communication gap amongst the professionals in the litigation team and the appeal therefore, could not be filed in time. Under this background we do not find any intentional laches on the part of the assessee in delay filing of the appeal and we also note that in the event the appeal is not admitted upon condonation of delay, the appellant would suffer irreparable loss and injury. Thus, Printed from counselvise.com P a g e | 3 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) having regard to the entire aspect of the matter, we condone the delay in filing the appeal before us. 3. Brief facts leading to the case is this that the assessee filed its return of income for Assessment Year 2012-13 on 30.07.2012 declaring total income at Rs.195,80,710/- which was processed under Section 143(1) of the Act. Subsequently, the case of the assessee company was reopened on the basis of information received from DCIT (Investigation Wing) Unit-2(4) Kolkata by and under its letter dated 28.02.2019 whereby and whereunder a report of penny scrip prepared by the investigation wing was forwarded particularly on the data of BSE listed penny stock alleged to have been used for generating bogus long term capital gain/short term capital gain and business loss has been forwarded with a finding that the appellant before us has also been benefited from bogus LTCG. The case of the assessee was reopened upon issuance of notice dated 30.03.2019 under Section 148 of the Act. The assessee was issued with the reason recorded by the Ld. AO for escaping assessment by the assessee dated 29.03.2019 and the same was served along with the approval granted by the PCIT, Delhi, dated 30.03.2019. The said reason to believe recorded by the DCIT, Circle 16(1) Delhi and the approval granted by the PCIT Delhi, Delhi was served upon the assessee on 27.09.2019; a copy of the DDIT (Investigation) Unit-2(4) Kolkata, report dated 29.02.2019 was also obtained by the assessee. Notice under Section 143(2) dated 16.10.2019 followed by notice under Section 142(1) dated 07.11.2019 along with questionnaire were issued to the assessee. The assessee duly raised objection against the said issuance of notice under Section 148 of the Act before the Ld. AO which Printed from counselvise.com P a g e | 4 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) was disposed of by and under the order dated 13.12.2019. Further objection was raised dated 17.12.2019 against the said reopening of assessment which was disposed of on 18.12.2019 by the Ld. AO. The facts relating to issue are that the assessee has filed its return of income on 30.07.2012 declaring total income at Rs.195,80,710/- which was processed under Section 143(1) dated 06.02.2013 accepting the return of income. Subsequently, report by the DDIT, Investigation Unit-2(4) Kolkata was forwarded to the concerned office reporting that the assessee had earned long term capital gain on the sale of penny stock script of Konark, details whereof is as follows: Sr. No. Date Scrip Amount 1. 13.03.2012 KONARK Rs.39,19,200/- 2. 21.03.2012 KONARK Rs.14,69,700/- 3. 31.03.2012 KONARK Rs.24,49,500/- Total Rs.78,38,400/- 4. The share of Konark has been identified as penny stock by SEBI; it was further informed that these penny stocks were used to introduce undisclosed income in the books without paying taxes. The modus operandi as narrated by the Ld. AO as adopted by the operators was to make beneficiary buy some shares of a predetermined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale to save STT. The beneficiary holds the shares for one year, the statutory period after which LTCG is exempt under Section 10(38) of the Act. Meanwhile, the operators rig the price of the stock and gradually rise its price many times of 500 to 1000 times. This is done through low volume transaction indulged in by dummies of the operators Printed from counselvise.com P a g e | 5 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) at a predetermined price and only upon reaching the desired price level, the beneficiary who bought the share at a nominal price is made to sale to a dummy paper company of the operator. For this unaccounted cash is provided by the beneficiary which is routed through a few layers of companies by the operator and finally is parked with a dummy paper company that will buy the shares. The list of beneficiary sent to the department reveals that one of the individuals who have been benefitted from the claim of bogus LTCG on the scrips of Konark was the assessee before us and ultimately it was found by the Ld. AO that fund to the tune of Rs.78,38,400/- have gone through the layers of routing and ultimately reached to the hand of the beneficiary, the assessee before us, for Financial Year 2011-12. Show cause to that effect was sent to the assessee dated 14.12.2019 as to why LTCG received by it on sale of penny scrip Konark should not be added in the hands of the assessee with a finding that the assessee had entered into a colourable device for avoidance of tax and the receipt of Rs.78,38,400/- by way of earning exempt LTCG under Section 10(38) of the Act on sale of shares of penny stock of Konark is nothing but unexplained cash credit which was ultimately added in the hands of the assessee under Section 68 of the Act. Further, that as the assessee declared total LTCG amounting to Rs.10,59,79,592/- earned as exempt LTCG under Section 10(38) on sale of shares of penny stock which was added as unexplained cash credit under Section 68 of the Act; the balance amount of Rs.9,81,41,192/- was further added under Section 68 of the Act on account of unexplained cash credit in the hands of the assessee. The assessee preferred the appeal against the said order of addition made under Section 68 of the Printed from counselvise.com P a g e | 6 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) Act before the Ld. CIT(A) who in turn confirmed the same. Hence, the instant appeal before us. 5. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submitted before us that the reason was recorded on a completely different set of facts, name of the company of which the assessee has been alleged to have obtained the shares is incorrect. Moreso, amount mentioned in the show cause is not that of the amount as added in the hands of the assessee. In this regard, he has drawn our attention to page 5 of the paper book filed before us being the reason recorded for issuance of notice under Section 148 of the Act in the case of the assessee. Apart from that, he has further challenged the approval granted by the Ld. PCIT dated 30.09.2019 which has been given on the incorrect recording of facts by the Ld. AO which is nothing but non application of mind by the Ld. PCIT himself. Hence, as the reason recorded is on incorrect finding of facts solely on the basis of the report of the investigation wing and no inquiry was conducted by the Ld. AO, the same has also been termed as borrowed satisfaction by the Ld. AR appearing for the assessee. Thus, the entire proceeding is liable to be vitiated as was the crux of the submissions made by the Ld. AR. 6. On the other hand, the Ld. DR relied upon the order passed by the authorities below. 7. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record. In Printed from counselvise.com P a g e | 7 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) order to consider the case made out by the assessee as mentioned hereinabove, the reason recorded is required to be reproduced herein below: “Information received regarding escapement of Income Information was received from office of the Deputy Director of Income Tax (Inv.), Unit 2(4), Kolkata vide letter date 28.02.2019 received in this office on 15.03.2019 wherein the investigation report of penny scripts was forwarded. In this report the data for BSE listed penny stocks which have been used for generating bogus LTCG/STCL and business loss has been forwarded. According to the report Sh. Jagdish Chandra Malhotra has also benefited from bogus Long Term Capital Gain (LTCG). The following information has been received from investigation wing:- Sr. No. Date Beneficiary Scrips Amount (Rs.) PAN 1. 21.03.2012 Jagdish Chandra Malhotra Konark Syndicate Ltd. 14,69,700 AAIPM9318D 8. The reasons for belief framed by the Ld. DCIT, Circle 16(1), Delhi is as follows: “Reasons for belief 14. on going through the above facts and available information it is clear that on the basis of Investigation done as discussed in the above paras, it is detected that the funds to the tune of Rs.14,69,700/- have gone through the layers of routing and ultimately reached its beneficiary, in this case Sh. Jagdish Chandra Malhotra during the F.Y. 2011-12 relevant to A.Y. 2012-13. Further, it is seen that the case of assessee for A.Y. 2012-13 has not been assessed u/s 143(3) therefore the AO did not have the opportunity to examine the long term capital gain transaction made by the assessee. In view of the above, I have reasons to believe that an income of Rs.1,00,000/- or more has escaped assessment in the case of Sh. Jagdish Chandra Malhotra for the A.Y. 2012-13 within the meaning of section 147/148 of the Income Tax Act, 1961 due to failure on part of the assessee to fully & truly disclose the material facts necessary for the assessment. Printed from counselvise.com P a g e | 8 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) 15.1 It is pertinent to mention that in the case of CIT v Nova Promoters & Finlease (P) Ltd (ITA No. 342 of 2011) dated 15.02.2012, the Hon'ble Delhi High Court, which is the jurisdictional High Court, held that as long as there is a 'live link' between the material which was placed before the Assessing Officer at the time when reasons for reopening were recorded, proceedings u/s 147 would be valid. The Court also held- “We are aware of the legal position that at the stage of issuing the notice u/s 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form a prima facie belief or opinion that income chargeable to tax has escaped assessment” 15.2 Also, in the case of Phoolchand Bajrang Lal v. ITO 203 ITR 456 (SC), the Hon'ble Apex Court has held that:- “An assessment completed us 143(3) bur later on information received which was indefinite, specific and reliable and the AO duly recorded the reasons for his belief that the assessee had not fully and truly disclosed particulars of his income and hence there was escapement of income. Held that the reopening of the case was valid.” 15.3 Also, in the case of Raymond Woollen Mills Ltd. 236 ITR 34 (SC). the Hon'ble Apex Court has held that: - “Assessee did not include certain direct manufacturing costs and fiscal duties in the valuation of closing stock. This came to light in the subsequent years assessment proceedings. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice w/s 148.” 16. Prior to 1989 section 147 provided for two grounds to reopen concluded assessments:- (i) On basis of information received by the Assessing Officer assessment could be reopened. This had to be within four years. (ii) Where facts material for assessment are not disclose in the course of assessment, whether within or beyond four years. 17. Supervening these two, requirements in the alternative, the initial condition is that the Assessing Officer has reason to believe that there is escapement of income. The first requirement regarding information is now dropped by 1989 amendment and therefore for reopening of assessment within a period of 4 years from the end of assessment year the only requirement is “reason to believe”. Printed from counselvise.com P a g e | 9 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) For a period beyond 4 years in case where an original assessment by was made u/s 143(3), further, requirement is the non-disclosure of material facts necessary for assessment by the assessee. 18. I have carefully perused the assessment record for A. Y. 2012-13 in order to examine whether income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment in view of first provision of section 147 of the Act and have reached to the following conclusion:- • The assesse is beneficiary of earning income of Rs. 1,00,000/- or more on account of bogus long term capital gain. 19. In this case four years but not more than six years have elapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than 1 Lakh necessary sanction to issue notice u/s 148 of the Act is being obtained separately from the Pr. Commissioner of Income-tax-06, Delhi under amended provisions of section 151 of the Act w.e.f. 01.06.2015.” 9. It appears from the first page of the reason recorded by the Ld. DCIT, Circle 16(1) Delhi that the information received from the investigation wing is that the assessee has been benefitted of Rs.14,69,700/- on the scrips of “Konark Synthetics Ltd.” whereas from the assessment order passed by the Ld. AO it appears that the addition has been made on account of LTCG on sale of shares of “Konark”. Moreso, the amount mentioned in the show cause is of Rs.14,69,700/- whereas an amount of Rs.78,38,400/- has been added in the hands of the assessee. It is the case of the assessee that the Ld. AO without even considering actual fact of the matter recorded reasons that too solely on the basis of the report of the investigation wing. Thus, such recording of reason is flawed on two counts, firstly forming opinion on incorrect finding of fact and secondly, concluding the same without making any investigation and/or inquiry against the assessee as narrated in the Printed from counselvise.com P a g e | 10 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) reason so recorded by him. We are inclined to accept such submission made by the Ld. AR and we find that as the name of the company with whom the assessee never had any transaction has been mentioned while recording the reason; the reason recorded by the Ld. AO is the pillar of initiation of reopening of the proceeding under Section 147/148 of the Act and the path leading to invoke statutory power to reopen such assessment against assessee alleging escaping assessment by him. Further that, had there been any proper inquiry made by the Ld. AO the said recording of incorrect finding of fact would have not happened which was the other condition precedent for assumption of jurisdiction under Section 147 of the Act by the Ld. AO in reopening alleging escapement of assessment by the assessee which the Ld. AO failed to have complied with. Due to such lacuna and/or incurable defect the entire proceeding is vitiated. Furthermore, the Ld. PCIT in a routine manner approved the same without going into the fact of the matter. Had there been proper application of mind by the Ld. PCIT while approving recording reason by the Ld. AO such error would have not occurred, rather it is expected that considering the above facts of the matter no approval would have been given by the Ld. PCIT for reopening of assessment by the Ld. AO on incorrect finding of fact. Such stamp of mechanical approval further cannot demands a seal of sanctity by us. 10. The disputed fact before us is, therefore, admittedly on 3 counts. Firstly, script’s name mentioned in the report filed by the DDIT (Inv.), Unit 2(4) Kolkata is of “Konark” which is evident from page 33 of the paper book being the order 13.12.2019 rejecting the objection made by the assessee. From page 11 of the paper book filed before us it appears Printed from counselvise.com P a g e | 11 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) that while recording reasons the alleged scripts was mentioned as “Kotak Synthetics Ltd.”; the order of addition made by the Ld. AO is on account of receipt of Rs.78,38,400/- as earned exempt income LTCG under Section 10(33) on sale of shares of penny stock script of “Konark” and further addition of Rs.9,81,41,192/- was also on sale of shares of penny stock of “Konark” whereas page 3 of the paper book onwards being part of computation of total income for Assessment Year 2012-13 narrating the statement of LTCG exempt under Section 10(36) under Section 10(38) of the Act speaks of scripts of “Konark Commercials & Industries Ltd.” as duly submitted before us and also made known to the authorities below at all appropriate times by the assessee. The assessee had never made any transaction in regard to this scripts either of “Konark” or of “Konark Synthetics Ltd.” which is a glaring incorrect finding of fact committed by different authorities starting from the DDIT (Inv.), Unit 2(4) Kolkata to the Ld. Assessing Officer, approved by the Ld. PCIT and further reiterated by the Ld. CIT(A). Apart from that, the amount mentioned in the reason recorded is completely different from that of the amount added in the hands of the assessee by the Ld. AO while finalizing reassessment on alleged escapement of assessment. The case made out by the assessee that the AO’s reason to believe that income has escaped assessment must be based on tangible material having direct nexus that the belief was formed and once the assessment is concluded merely on the basis of suspicion, the same cannot be reopened is found to be acceptable. The import of the expression ‘reason to believe’ cannot be conflated with ‘reason to suspect’ that the assessee’s income has escaped assessment. Printed from counselvise.com P a g e | 12 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) 11. In this regard the judgment relied upon by the Ld. AR in the case of Sanjay Kaul Vs. ITO, Ward 24(4) New Delhi passed by the Hon’ble Delhi High Court has been duly considered by us where on identical situation reason recorded based on suspicion that the assessee has escaped assessment has been quashed. In fact, we are inspired by the ratio laid down therein. The judgment passed in the matter of CNB Finwiz Ltd. Vs. DCIT, Circle 6(1), Neutral citation 2025: DHC: 4035-DB has also been considered having regard to the identical ratio laid down therein. 12. Thus, taking into consideration the entire aspect of the matter, admittedly when the reason recorded is solely on the basis of the report of the DDIT (Inv.), Unit 2(4) on a script of which the assessee never entered into any transaction is not found to have any live nexus to the case of escaping assessment by the assessee as made out by the Revenue neither the fact of conducting no inquiry by the Ld. AO is found to be justifiable while concluding the assessment on the basis of the Investigation Wing, report upon making addition on the alleged LTCG on a script which had never seen the light of the day as having no transaction with the assessee, the same is found to be completely erroneous finding of facts; the reopening based merely on surmises and conjectures is found to be bad in law, and therefore, quashed. 13. The assessee has also filed application seeking stay of operation of the demand of Rs.6,49,36,186/- out of which an amount of Rs.58,93,960/- has been paid by the assessee. Therefore, the assessee Printed from counselvise.com P a g e | 13 ITA No. 4546/Del/2025 S.A. No.429/Del/2025 Jagdish Malhotra (AY: 2012-13) has prayed for stay of recovery of the disputed demand of Rs.5,90,42,266/- in the said application. 14. In view of order passed us in favour of the assessee quashing the entire reassessment proceeding under Section 147 r.w.s 148 of the Act the stay application filed by the assessee seeking recover of the demand is become redundant and the same is, therefore, dispose of. 15. The appeal preferred by the assessee is allowed. Order pronounced in the open court on 26.09.2025 Sd/- (Naveen Chandra) Sd/- (Madhumita Roy) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 26.09.2025 Rohit, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "