LEKHRAJ JASRAJ JAIN ,MUMBAI V. DCIT 19(1), MUMBAI

ITA 4937/MUM/2025

AI Insights

The case involves Lekhraj J. Jain, the appellant, contesting the reassessment proceedings initiated by the Deputy Commissioner of Income Tax (DCIT) under section 147 of the Income Tax Act, 1961, for the assessment year 2014-15. The reassessment was based on information from the Directorate of Income-tax (Investigation), Kolkata, alleging that Jain had engaged in transactions involving accommodation entries of bogus long-term capital gains (LTCG) through manipulation of the stock market. The Tribunal examined whether the reassessment was justified and found that it was based on general suspicions and unverified information, leading to the decision to quash the proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784589 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 06-08-2025
• Other Referred Cases: Ashok Jasraj Jain (HUF) vs. ITO, Dove Consultants Pvt. Ltd. vs. DCIT, PCIT vs. M/s. Shodiman Investments Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Assessee Lawyers: SUCHEK ANCHALIAY; VANSHIKA AGARWAL
• Keywords: Reassessment proceedings; Unexplained cash credit; Reopening of assessment; Capital Gains; Principle of natural justice; Accommodation entries; Earning of tax free income; Reason to believe; Tangible material; Bogus
• Section: 147; 132; 68; 69C; 139; 133A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER) ITA No. 4937/MUM/2025 Assessment Year: 2014-15 Lekhraj J. Jain, 45/12, Rajkotwala Building, Carpenter Street, CP Tank, Mumbai-400 004. Vs. DCIT 19(1), Piramal Chamber, Mumbai-400012. PAN NO. AAEPJ 3881 C Appellant Respondent Assessee by : Mr. Suchek Anchaliay & Ms. Vanshika Agarwal Revenue by : Mr. Surendra Mohan, Sr. DR Date of Hearing : 30/09/2025 Date of pronouncement : 12/11/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 10.06.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds: 1. On the facts and in the circumstances of the case and in law, the assumption of jurisdiction by the Ld. AO was bad in law as the conditions laid down for initiating assessment Printed from counselvise.com proceedings u/s 147 of the Income Tax Act, 1961 have not been fulfilled. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 55,49,342/- as unexplained cash credits u/s 68 of the Act, being sale proceeds received through banking channel on sale of shares of Matra Kaushal Ent recognised stock exchange, disregarding the ample documentary evidences furnished by the appellant to prove the genuineness of the impugned transactions and without appreciating that the addition was made by the Ld. Assessing Officer so conjectures and surmises relying upon general, vague and non-assessee specific forwarded information received from Investigation Wing. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirm Rs.1,10,986/ paid by the appellant at 2% of sale proceeds on sale of shares of Matra Kaushal Enterprises Limited, disregarding that the appellant has not taken any alleged accommodation entr addition was made by the Ld. Assessing Officer solely on the basis of estimation and conjectures. 4. On the facts and circumstances of the case and in law, the Ld. Assessing Officer erred in making the additions of Rs. 55,49,342/ u/s 69C of the Act without providing the appellant a copy of the material and statement relied upon as well as an opportunity of cross statement reliance was placed, in principles of natural justice, thereby making the additions unsustainable. 2. Before us, the Ld. counsel for the assessee submitted that ground No. 1 of the appeal might be treated as additional ground and same being legal ground going admitted. proceedings u/s 147 of the Income Tax Act, 1961 have not been fulfilled. he facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. as unexplained cash credits u/s 68 of the Act, being sale proceeds received through banking channel on sale of shares of Matra Kaushal Enterprises Limited on recognised stock exchange, disregarding the ample documentary evidences furnished by the appellant to prove the genuineness of the impugned transactions and without appreciating that the addition was made by the Ld. Assessing Officer solely on the basis of suspicion, conjectures and surmises relying upon general, vague and assessee specific forwarded information received from Investigation Wing. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs.1,10,986/- u/s 69C of the Act, being alleged commission paid by the appellant at 2% of sale proceeds on sale of shares of Matra Kaushal Enterprises Limited, disregarding that the appellant has not taken any alleged accommodation entry and without appreciating that the addition was made by the Ld. Assessing Officer solely on the basis of estimation and conjectures. 4. On the facts and circumstances of the case and in law, the Ld. Assessing Officer erred in making the additions of 55,49,342/- u/s 68 of the Act and of Rs. 1,10,986/ u/s 69C of the Act without providing the appellant a copy of the material and statement relied upon as well as an opportunity of cross-examination of the persons on whose statement reliance was placed, in gross violation of principles of natural justice, thereby making the unsustainable. Before us, the Ld. counsel for the assessee submitted that ground No. 1 of the appeal might be treated as additional ground and same being legal ground going to the root of the matter may be Lekhraj J. Jain 2 ITA No. 4937/MUM/2025 proceedings u/s 147 of the Income Tax Act, 1961 have not he facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. as unexplained cash credits u/s 68 of the Act, being sale proceeds received through banking channel on erprises Limited on recognised stock exchange, disregarding the ample documentary evidences furnished by the appellant to prove the genuineness of the impugned transactions and without appreciating that the addition was made by the Ld. lely on the basis of suspicion, conjectures and surmises relying upon general, vague and assessee specific forwarded information received from 3. On the facts and circumstances of the case and in law, ing the addition of u/s 69C of the Act, being alleged commission paid by the appellant at 2% of sale proceeds on sale of shares of Matra Kaushal Enterprises Limited, disregarding that the appellant has not taken any alleged y and without appreciating that the addition was made by the Ld. Assessing Officer solely on 4. On the facts and circumstances of the case and in law, the Ld. Assessing Officer erred in making the additions of u/s 68 of the Act and of Rs. 1,10,986/- u/s 69C of the Act without providing the appellant a copy of the material and statement relied upon as well as an examination of the persons on whose gross violation of principles of natural justice, thereby making the Before us, the Ld. counsel for the assessee submitted that ground No. 1 of the appeal might be treated as additional ground to the root of the matter may be Printed from counselvise.com 3. We have heard the rival submissions of the parties on the issue relating to the admissibility of the additional ground. The assessee has made an oral plea to treat this ground as an additional ground, submitti incorporated in Form No. 36. The learned Departmental Representative (Ld. DR) has not raised any serious objection to the admission of this ground. Since the ground challenges the very validity of the reassessment proceedi matter, without necessitating any further investigation into facts, we deem it appropriate to admit the same for adjudication. 4. Addressing the additional ground impugning the validity of the reassessment proceedings, the l drew our attention to the Paper Book filed, comprising pages 1 to 33. He specifically referred to page 8 thereof, containing the reasons recorded by the Assessing Officer for reopening the assessment, which, for the sake of “Reasons for re Income Tax, The assessee has not filed return of income for the year under consideration. 2. An information was received in this case from the Directorate of Income-tax (investigation), Kolkata, stating that the investigation carried out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndica entry of bogus long term capital gain, bogus short term capital gains and bogus short term capital loss / bogus business loss through trading of shares of various penny stock companies. We have heard the rival submissions of the parties on the issue relating to the admissibility of the additional ground. The assessee has made an oral plea to treat this ground as an additional ground, submitting that the same has already been incorporated in Form No. 36. The learned Departmental Representative (Ld. DR) has not raised any serious objection to the admission of this ground. Since the ground challenges the very validity of the reassessment proceedings and goes to the root of the matter, without necessitating any further investigation into facts, we deem it appropriate to admit the same for adjudication. Addressing the additional ground impugning the validity of the reassessment proceedings, the learned counsel for the assessee drew our attention to the Paper Book filed, comprising pages 1 to 33. He specifically referred to page 8 thereof, containing the reasons recorded by the Assessing Officer for reopening the assessment, which, for the sake of completeness, are reproduced below: Reasons for re-opening of the assessment u/s. 147 of the The assessee has not filed return of income for the year under consideration. 2. An information was received in this case from the Directorate tax (investigation), Kolkata, stating that the investigation carried out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term capital gains and bogus short term capital loss / bogus business loss through trading of shares of various penny stock companies. Lekhraj J. Jain 3 ITA No. 4937/MUM/2025 We have heard the rival submissions of the parties on the issue relating to the admissibility of the additional ground. The assessee has made an oral plea to treat this ground as an ng that the same has already been incorporated in Form No. 36. The learned Departmental Representative (Ld. DR) has not raised any serious objection to the admission of this ground. Since the ground challenges the very ngs and goes to the root of the matter, without necessitating any further investigation into facts, we deem it appropriate to admit the same for adjudication. Addressing the additional ground impugning the validity of the earned counsel for the assessee drew our attention to the Paper Book filed, comprising pages 1 to 33. He specifically referred to page 8 thereof, containing the reasons recorded by the Assessing Officer for reopening the assessment, completeness, are reproduced below: opening of the assessment u/s. 147 of the The assessee has not filed return of income for the year under 2. An information was received in this case from the Directorate tax (investigation), Kolkata, stating that the investigation carried out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of tes had arranged accommodation entry of bogus long term capital gain, bogus short term capital gains and bogus short term capital loss / bogus business loss through trading of shares of various penny stock companies. Printed from counselvise.com 3. The investigation conducted by the Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt Kolkata Investigation Directorate informed that all such brokers through whom such transaction were carried out, admitted that they charged commission on the amount involved in these transactions. It was also informed that the assesse the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed Income into tax free income without paying taxes. 4. As per the information available on record, the assesse sold shares of the penny stock co consideration of Rs.55,63,257/ term capital gains against the sale of above penny stock shares. Through the said transaction, the assessee converted undisclosed income into tax his Return of 4.1 The learned counsel for the assessee thereafter invited attention to page 1 of the Paper Book, which is a copy of the return of income filed on 30.03.2016 in the regular course. He submitted that despite the return ha while recording reasons for reopening, erroneously stated that no return of income had been filed application of mind. It was further contended that the reasons recorded are founded paragraph 5 of the assessment order, where the Assessing Officer described the LTCG claim as “suspicious” and proposed to conduct “detailed investigation.” 4.2 The learned counsel further placed reliance upon the dec of the Co-ordinate Bench of the Tribunal in 3. The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such brokers through whom such transaction were carried out, admitted that they charged commission on the amount involved in these transactions. It was also informed that the assesse had traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed Income into tax free income without paying taxes. 4. As per the information available on record, the assesse sold shares of the penny stock companies \"MKEL\" for total consideration of Rs.55,63,257/- and has not declared any long term capital gains against the sale of above penny stock shares. Through the said transaction, the assessee converted undisclosed income into tax-free income by not offering LTCG In of Income. The learned counsel for the assessee thereafter invited attention to page 1 of the Paper Book, which is a copy of the return of income filed on 30.03.2016 in the regular course. He submitted that despite the return having been duly filed, the Assessing Officer, while recording reasons for reopening, erroneously stated that no return of income had been filed — a manifest instance of non application of mind. It was further contended that the reasons recorded are founded purely on suspicion, as is evident from paragraph 5 of the assessment order, where the Assessing Officer described the LTCG claim as “suspicious” and proposed to conduct “detailed investigation.” The learned counsel further placed reliance upon the dec ordinate Bench of the Tribunal in Ashok Jasraj Jain (HUF) Lekhraj J. Jain 4 ITA No. 4937/MUM/2025 Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG income. Further, the Kolkata Investigation Directorate informed that all such brokers through whom such transaction were carried out, admitted that they charged commission on the amount involved in these had traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed Income into tax free 4. As per the information available on record, the assesse sold mpanies \"MKEL\" for total and has not declared any long term capital gains against the sale of above penny stock shares. Through the said transaction, the assessee converted ring LTCG In The learned counsel for the assessee thereafter invited attention to page 1 of the Paper Book, which is a copy of the return of income filed on 30.03.2016 in the regular course. He submitted ving been duly filed, the Assessing Officer, while recording reasons for reopening, erroneously stated that no a manifest instance of non- application of mind. It was further contended that the reasons purely on suspicion, as is evident from paragraph 5 of the assessment order, where the Assessing Officer described the LTCG claim as “suspicious” and proposed to conduct The learned counsel further placed reliance upon the decision Ashok Jasraj Jain (HUF) Printed from counselvise.com v. ITO in ITA No. 5609/Mum/2019 for Assessment Year 2014 wherein, in identical circumstances, the reassessment proceedings were held to be invalid for want of application of mind of “reason to believe.” The relevant findings of the Tribunal in that case demonstrates that the Assessing Officer therein had also proceeded on incorrect assumptions that no return had been filed and had reopened the assessment based merely o arising from information received from the Investigation Wing. relevant finding in the case of Ashok Jasraj Jain HUF reproduced as under: “8. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee has assailed the validity of reassessment proceeding in view of defects in reasons recorded. Therefore, it is relevant to reproduce the reasons recorded by the Assessing Officer, which are available on page 10 and 1 -2, as under: 1. An information was received in this case from the Directorate Income (Investigation), Kolkata, stating that the investigation comes out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term capital gain and bogus short term capital loss/bogus business loss trading of shares of various penny stock companies. 2. The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to conv undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such brokers through whom such transaction were carried out, admitted that they charged involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed income into tax free income in ITA No. 5609/Mum/2019 for Assessment Year 2014 wherein, in identical circumstances, the reassessment proceedings were held to be invalid for want of application of mind of “reason to believe.” The relevant findings of the Tribunal in that case demonstrates that the Assessing Officer therein had also proceeded on incorrect assumptions that no return had been filed and had reopened the assessment based merely o arising from information received from the Investigation Wing. relevant finding in the case of Ashok Jasraj Jain HUF reproduced as under: We have heard rival submission of the parties on the issue in dispute and elevant material on record. The assessee has assailed the validity of reassessment proceeding in view of defects in reasons recorded. Therefore, it is relevant to reproduce the reasons recorded by the Assessing Officer, which are available on page 10 and 11 of the paperbook An information was received in this case from the Directorate Income (Investigation), Kolkata, stating that the investigation comes out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term capital gain and bogus short term capital loss/bogus business loss trading of shares of various penny stock companies. The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to conv undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such brokers through whom such transaction were carried out, admitted that they charged commission on the amount involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed income into tax free income Lekhraj J. Jain 5 ITA No. 4937/MUM/2025 in ITA No. 5609/Mum/2019 for Assessment Year 2014–15, wherein, in identical circumstances, the reassessment proceedings were held to be invalid for want of application of mind and absence of “reason to believe.” The relevant findings of the Tribunal in that case demonstrates that the Assessing Officer therein had also proceeded on incorrect assumptions that no return had been filed and had reopened the assessment based merely on suspicion arising from information received from the Investigation Wing. The relevant finding in the case of Ashok Jasraj Jain HUF (supra) is We have heard rival submission of the parties on the issue in dispute and elevant material on record. The assessee has assailed the validity of reassessment proceeding in view of defects in reasons recorded. Therefore, it is relevant to reproduce the reasons recorded by the 1 of the paperbook An information was received in this case from the Directorate Income-tax (Investigation), Kolkata, stating that the investigation comes out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term capital gain and bogus short term capital loss/bogus business loss through The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such brokers through whom such transaction were commission on the amount involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed income into tax free income Printed from counselvise.com without paying tax suspended trading in shares of several penny stock companies consequent to its investigation. The Investigation Wing Kolkata had carried search action u/s 132 and survey action u/s 133A of the I.T. Act on vari operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator were artificially rigging the prices of several such companies for the purpose of giving accommodation entries in th gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra Kaushal Enterprises Ltd. (MKEL). 3. As per the information available on record, the ass penny stock company M/s MKEL disclosed the receipt and has not filed the return of income. 4. The company M/s MKEL had losses for the year ending 2011, 2012 and 2013. Thus its performance did not co prices short period. In view of all the above facts, the amount received by the assessee is unexplained. 5. On the basis of the aforesaid information available with me and after duly applying my mind, I have reasons to belie of ₹1,67,70,454/- meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is reopened u/s 147 of the I.T. Act, 1961 for AY 2014 8.1 Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the mind by the Assessing Officer while recording reasons to believe that income escaped assessment. We find that the Assessing Officer in P noted that the assessee has not disclosed the receipt of has not filed the return of income, whereas before us the assessee has filed a copy of return of income filed under provision of section 139 of th The Assessing Officer in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the said return of income, the assessee has declared the receipt on sale of the shares amounting to gain and claimed the same as exempt. Therefore, the Assessing Officer has recorded reasons to believe based on incorrect facts merely on the basis of the information received and without verifying the same from t available with him. mind on the part of the AO while recording the reasons for reopening of the assessment. In the case of (Del), the Hon’ble Delhi Hig without paying taxes. Information was received that the SEBI has suspended trading in shares of several penny stock companies consequent to its investigation. The Investigation Wing Kolkata had carried search action u/s 132 and survey action u/s 133A of the I.T. Act on vari operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator were artificially rigging the prices of several such companies for the purpose of giving accommodation entries in the form of long term capital gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra Kaushal Enterprises Ltd. (MKEL). As per the information available on record, the assessee sold shares the penny stock company M/s MKEL ₹1,67,70,454/-. The assesesse has not disclosed the receipt and has not filed the return of income. The company M/s MKEL had losses for the year ending 2011, 2012 and 2013. Thus its performance did not command any substantial increase in prices short period. In view of all the above facts, the amount received by the assessee is unexplained. On the basis of the aforesaid information available with me and after duly applying my mind, I have reasons to believe that income chargeable to tax - has escaped assessment for AY 2014-15 within the meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is reopened u/s 147 of the I.T. Act, 1961 for AY 2014-15. Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the mind by the Assessing Officer while recording reasons to believe that income escaped assessment. We find that the Assessing Officer in Para 3 of the reasons recorded has noted that the assessee has not disclosed the receipt of ₹1,67,70,454/ has not filed the return of income, whereas before us the assessee has filed a copy of return of income filed under provision of section 139 of th The Assessing Officer in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the said return of income, the assessee has declared the receipt on sale of the shares amounting to ₹1,67,45,253/- under the head long- gain and claimed the same as exempt. Therefore, the Assessing Officer has recorded reasons to believe based on incorrect facts merely on the basis of the information received and without verifying the same from t available with him. It makes clear that there is a total non-application of mind on the part of the AO while recording the reasons for reopening of In the case of CIT v. G & G Pharma (2015) 384 ITR 147 , the Hon’ble Delhi High Court held that the AO should apply his mind Lekhraj J. Jain 6 ITA No. 4937/MUM/2025 es. Information was received that the SEBI has suspended trading in shares of several penny stock companies consequent to its investigation. The Investigation Wing Kolkata had carried search action u/s 132 and survey action u/s 133A of the I.T. Act on various operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator were artificially rigging the prices of several such companies for the e form of long term capital gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra essee sold shares the . The assesesse has not The company M/s MKEL had losses for the year ending 2011, 2012 and mmand any substantial increase in prices short period. In view of all the above facts, the amount received by On the basis of the aforesaid information available with me and after duly ve that income chargeable to tax 15 within the meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the mind by the Assessing Officer while recording reasons to believe that income escaped assessment. ara 3 of the reasons recorded has 1,67,70,454/- and has not filed the return of income, whereas before us the assessee has filed a copy of return of income filed under provision of section 139 of the Act. The Assessing Officer in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the said return of income, the assessee has declared the receipt on sale of the -term capital gain and claimed the same as exempt. Therefore, the Assessing Officer has recorded reasons to believe based on incorrect facts merely on the basis of the information received and without verifying the same from the record application of mind on the part of the AO while recording the reasons for reopening of CIT v. G & G Pharma (2015) 384 ITR 147 h Court held that the AO should apply his mind Printed from counselvise.com in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 of the Act. 8.2 Secondly, we find that the Assessing Officer has referred to suspension of trading in some shares by the Security and Exchange Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of trading in the shares other than MKEL is not relevant for making belief tha the case of the assessee. The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private limited 291 ITR 500 (SC), held that at the stage of issue of notice, the question is whether there was relevant material on which a reasonable person could have formed a requisite belief that income escaped assessment. But, in the present case the information referred that SEBI suspended trading in some penny stock shares is not relevant for forming belief that income arisin shares of MKEL has escaped assessment. 8.3 Thirdly, the Assessing Officer in assessment order has recorded that case was reopened in view of the suspicion that income escaped assessment and therefore wanted detailed investigation. The relev finding of the Assessing Officer is reproduced as under: “5. Suspicion of Revenue 5.1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long term capital gainwas found s issue was undertaken. Various tools available were examined including ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI.” 8.4 It is evident that the Assessing Officer is referring to the reasons recorded where he found the long thereafter he is referring to the detailed investigation undertaken by him, where he has referred to various tools i data, BSE data, money control website, taxman, court rulings Internet as well as investigation wing report and finding of the SEBI. Thus, the contention of the Ld. DR that Assessing Officer has referred to the suspicion before carrying out investigation by the Investigation Wing, is not borne out of above factual position and therefore same is rejected. 8.5 The Ld. Counsel relied on the decision of the Hon’ble Bombay High Court in the case of Coronation Agro industries Ltd (s Hon’ble High Court has held that reassessment proceeding based on in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 of the Act. Secondly, we find that the Assessing Officer has referred to suspension f trading in some shares by the Security and Exchange Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of trading in the shares other than MKEL is not relevant for making belief that income escaped assessment in the case of the assessee. The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private limited 291 ITR 500 (SC), held that at the stage of issue of notice, the question is whether there was relevant on which a reasonable person could have formed a requisite belief that income escaped assessment. But, in the present case the information referred that SEBI suspended trading in some penny stock shares is not relevant for forming belief that income arising from sale of shares of MKEL has escaped assessment. Thirdly, the Assessing Officer in assessment order has recorded that case was reopened in view of the suspicion that income escaped assessment and therefore wanted detailed investigation. The relev finding of the Assessing Officer is reproduced as under: Suspicion of Revenue 5.1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long term capital gainwas found suspicious and detailed investigation of this issue was undertaken. Various tools available were examined including ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI.” It is evident that the Assessing Officer is referring to the reasons recorded where he found the long-term capital gain as suspicious and thereafter he is referring to the detailed investigation undertaken by him, where he has referred to various tools including Income-tax Department data, BSE data, money control website, taxman, court rulings Internet as well as investigation wing report and finding of the SEBI. Thus, the contention of the Ld. DR that Assessing Officer has referred to the e carrying out investigation by the Investigation Wing, is not borne out of above factual position and therefore same is rejected. The Ld. Counsel relied on the decision of the Hon’ble Bombay High Court in the case of Coronation Agro industries Ltd (supra), wherein Hon’ble High Court has held that reassessment proceeding based on Lekhraj J. Jain 7 ITA No. 4937/MUM/2025 in order to form reasons to believe that income has escaped assessment, is Secondly, we find that the Assessing Officer has referred to suspension f trading in some shares by the Security and Exchange Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of trading in the shares other than t income escaped assessment in the case of the assessee. The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private limited 291 ITR 500 (SC), held that at the stage of issue of notice, the question is whether there was relevant on which a reasonable person could have formed a requisite belief that income escaped assessment. But, in the present case the information referred that SEBI suspended trading in some penny stock g from sale of Thirdly, the Assessing Officer in assessment order has recorded that case was reopened in view of the suspicion that income escaped assessment and therefore wanted detailed investigation. The relevant 5.1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long uspicious and detailed investigation of this issue was undertaken. Various tools available were examined including ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI.” It is evident that the Assessing Officer is referring to the reasons term capital gain as suspicious and thereafter he is referring to the detailed investigation undertaken by him, tax Department data, BSE data, money control website, taxman, court rulings Internet as well as investigation wing report and finding of the SEBI. Thus, the contention of the Ld. DR that Assessing Officer has referred to the e carrying out investigation by the Investigation Wing, is not borne out of above factual position and therefore same is rejected. The Ld. Counsel relied on the decision of the Hon’ble Bombay High upra), wherein Hon’ble High Court has held that reassessment proceeding based on Printed from counselvise.com reason to suspect cannot be valid. The relevant finding of the Hon’ble High Court is reproduced as under: “4. We note that the reasons in support of the impugned notice accept fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while pu the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modif in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclu of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. 5. In the above view, prima facie, we are of the v notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment.\" 8.6 Similarly the Tribunal Delhi bench in decision dated 29/09/2021 the case of Dove Consultants Pvt. Ltd. Vs DCITITA Assessment Year 2009 reliable material and not on the basis of reason to suspect, accordingly, the Tribunal quashed the reassessment proceeding. 8.7 Similarly, Hon’ble Bombay High Court in judgment dated 16/04/2018 in the case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High Court) in Income Tax ITA. 1297 of 2015 Assessment Year 2003 that reassessment proceeding cannot be initiated b transactions in the bank account of Mahasagar Securities Ltd. 8.8 In the instant case also according to the Assessing Officer he found the long term capital gain declared by the assessee as suspicious transactions and not as reliable in investigation. In our opinion, in view of the decision of the Hon’ble Bombay High Court in the case of Shodiman Investments P. Ltd. (supra) cited above, the Assessing Officer is not permitted to reopen assessme on the reason to suspicion. reason to suspect cannot be valid. The relevant finding of the Hon’ble High Court is reproduced as under: “4. We note that the reasons in support of the impugned notice accept fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modif in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped 5. In the above view, prima facie, we are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment.\" Similarly the Tribunal Delhi bench in decision dated 29/09/2021 the case of Dove Consultants Pvt. Ltd. Vs DCITITA No. 1197/Del/2019 for Assessment Year 2009-10 held that reopening has to be based on the reliable material and not on the basis of reason to suspect, accordingly, the Tribunal quashed the reassessment proceeding. Similarly, Hon’ble Bombay High Court in judgment dated 16/04/2018 in the case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High Court) in Income Tax ITA. 1297 of 2015 Assessment Year 2003 that reassessment proceeding cannot be initiated based on suspicious transactions in the bank account of Mahasagar Securities Ltd. In the instant case also according to the Assessing Officer he found the long term capital gain declared by the assessee as suspicious transactions and not as reliable information and for ascertaining, he needed the investigation. In our opinion, in view of the decision of the Hon’ble Bombay High Court in the case of Shodiman Investments P. Ltd. (supra) cited above, the Assessing Officer is not permitted to reopen assessme on the reason to suspicion. Lekhraj J. Jain 8 ITA No. 4937/MUM/2025 reason to suspect cannot be valid. The relevant finding of the Hon’ble High “4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which nching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no de that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped iew that the impugned notice is without jurisdiction as it lacks reason to believe that income Similarly the Tribunal Delhi bench in decision dated 29/09/2021 the No. 1197/Del/2019 for 10 held that reopening has to be based on the reliable material and not on the basis of reason to suspect, accordingly, Similarly, Hon’ble Bombay High Court in judgment dated 16/04/2018 in the case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High Court) in Income Tax ITA. 1297 of 2015 Assessment Year 2003-04 held ased on suspicious transactions in the bank account of Mahasagar Securities Ltd. In the instant case also according to the Assessing Officer he found the long term capital gain declared by the assessee as suspicious transactions formation and for ascertaining, he needed the investigation. In our opinion, in view of the decision of the Hon’ble Bombay High Court in the case of Shodiman Investments P. Ltd. (supra) cited above, the Assessing Officer is not permitted to reopen assessment based Printed from counselvise.com 8.9 In view of above discussion, the reassessment proceedings completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground raised by the assessee is allowed. 5. We have carefully considered the rival submissions, perused the material placed on record, and duly examined the findings of the authorities below in the light of the settled legal position. The additional ground raised by the assessee challenges the very foundation and jurisdictional validity of the reassessment proceedings initiated under section 147 of the Act. 5.1 Upon a meticulous examination of the reasons recorded by the Assessing Officer for reopening the assessment, we find that they are couched in terms virtually identical to those considered by the Coordinate Bench of this Tribunal in the case of (HUF) v. ITO (ITA No. 5609/Mum/2019, A.Y. 2014 instances, the Assessing Officer proceeded on the erroneous premise that the assessee had not filed a return of income for the relevant assessment year, whereas the record unmistakably evidences that the return had indeed been filed in the regular course under section 139 of the Act. This fundamental factual error strikes at the very root of the \"reasons to believe\" recorded by the Assessing Officer and is indicative of a complete non mind. 5.2 Further, in both instances, the Assessing Officer proceeded on mere suspicion regarding the genuineness of long In view of above discussion, the reassessment proceedings completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground raised by the assessee is allowed. We have carefully considered the rival submissions, perused the material placed on record, and duly examined the findings of the authorities below in the light of the settled legal position. The additional ground raised by the assessee challenges the very foundation and jurisdictional validity of the reassessment proceedings initiated under section 147 of the Act. Upon a meticulous examination of the reasons recorded by the Assessing Officer for reopening the assessment, we find that they terms virtually identical to those considered by the Coordinate Bench of this Tribunal in the case of Ashok Jasraj Jain (ITA No. 5609/Mum/2019, A.Y. 2014 instances, the Assessing Officer proceeded on the erroneous e assessee had not filed a return of income for the relevant assessment year, whereas the record unmistakably evidences that the return had indeed been filed in the regular course under section 139 of the Act. This fundamental factual error very root of the \"reasons to believe\" recorded by the Assessing Officer and is indicative of a complete non Further, in both instances, the Assessing Officer proceeded on mere suspicion regarding the genuineness of long Lekhraj J. Jain 9 ITA No. 4937/MUM/2025 In view of above discussion, the reassessment proceedings completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground raised by the assessee is allowed.” We have carefully considered the rival submissions, perused the material placed on record, and duly examined the findings of the authorities below in the light of the settled legal position. The additional ground raised by the assessee challenges the very foundation and jurisdictional validity of the reassessment Upon a meticulous examination of the reasons recorded by the Assessing Officer for reopening the assessment, we find that they terms virtually identical to those considered by the Ashok Jasraj Jain (ITA No. 5609/Mum/2019, A.Y. 2014–15). In both instances, the Assessing Officer proceeded on the erroneous e assessee had not filed a return of income for the relevant assessment year, whereas the record unmistakably evidences that the return had indeed been filed in the regular course under section 139 of the Act. This fundamental factual error very root of the \"reasons to believe\" recorded by the Assessing Officer and is indicative of a complete non-application of Further, in both instances, the Assessing Officer proceeded on mere suspicion regarding the genuineness of long-term capital Printed from counselvise.com gains and sought to reopen the assessment to undertake a “detailed investigation,” which is impermissible under law. 5.3 In the case of Ashok Kumar Jasraj Jain (supra) in para 5 of the assessment order, the Assessing Officer mentioned that quantum of long term capital gain was found to be suspicious and detailed investigation was intended to be undertaken by way of reopening of the assessment. 5.4 Further, the reasons recorded, read in their entirety, reveal that the reopening was founded merely on generalized information received from the Investigation Wing, alleging accommodation entries in penny stock transactions. The Assessing Officer, instead of forming an independent belief based on tangible material linking the assessee with such alleged transactions, merely reproduced the contents of the information and expressed genuineness of the long a “detailed investigation.” It is trite law that the power to reopen an assessment cannot be exercised on the basis of a or for the purpose of making roving or fishing inquiries. 5.5 The Hon’ble Bombay High Court in DCIT (2019) 412 ITR 43 (Bom) has categorically held that where the Assessing Officer seeks to reopen an assessment merely to verify facts or conduct further inquiries, such reopening is without jurisdiction. Similarly, in gains and sought to reopen the assessment to undertake a “detailed investigation,” which is impermissible under law. In the case of Ashok Kumar Jasraj Jain (supra) in para 5 of the assessment order, the Assessing Officer mentioned that g term capital gain was found to be suspicious and detailed investigation was intended to be undertaken by way of reopening of the assessment. Further, the reasons recorded, read in their entirety, reveal that the reopening was founded merely on generalized information received from the Investigation Wing, alleging accommodation entries in penny stock transactions. The Assessing Officer, instead of forming an independent belief based on tangible material linking the assessee with such alleged transactions, merely reproduced the contents of the information and expressed suspicion genuineness of the long-term capital gains, proposing t a “detailed investigation.” It is trite law that the power to reopen an assessment cannot be exercised on the basis of a reason to suspect or for the purpose of making roving or fishing inquiries. The Hon’ble Bombay High Court in Precision Holdings Ltd. v. (2019) 412 ITR 43 (Bom) has categorically held that where the Assessing Officer seeks to reopen an assessment merely to verify facts or conduct further inquiries, such reopening is without jurisdiction. Similarly, in Coronation Agro Industries Ltd. v. DCIT Lekhraj J. Jain 10 ITA No. 4937/MUM/2025 gains and sought to reopen the assessment to undertake a “detailed In the case of Ashok Kumar Jasraj Jain (supra) in para 5 of the assessment order, the Assessing Officer mentioned that g term capital gain was found to be suspicious and detailed investigation was intended to be undertaken by way of Further, the reasons recorded, read in their entirety, reveal that the reopening was founded merely on generalized information received from the Investigation Wing, alleging accommodation entries in penny stock transactions. The Assessing Officer, instead of forming an independent belief based on tangible material linking the assessee with such alleged transactions, merely reproduced the suspicion regarding the term capital gains, proposing to undertake a “detailed investigation.” It is trite law that the power to reopen an reason to suspect or for the purpose of making roving or fishing inquiries. Holdings Ltd. v. (2019) 412 ITR 43 (Bom) has categorically held that where the Assessing Officer seeks to reopen an assessment merely to verify facts or conduct further inquiries, such reopening is without ndustries Ltd. v. DCIT Printed from counselvise.com (2017) 390 ITR 464 (Bom) and (ITA No. 1297 of 2015, judgment dated 16.04.2018, Bom HC), it has been held that reassessment proceedings initiated on the basis of reason to suspect rather than 5.6 The Coordinate Bench in identical facts, quashed the reassessment proceedings holding that the assumption of jurisdiction under section 147, based on incorrect factual premises and w mind, renders the proceedings void down therein squarely applies to the facts of the present case. 5.7 Applying the ratio of the aforesaid judicial precedents, and having regard to the indisti herein, we are of the considered opinion that the reasons recorded by the Assessing Officer suffer from the same incurable defect of non-application of mind and absence of any live nexus between the material relied upon reopening of assessment, being based on mere suspicion and factual inaccuracies, is thus devoid of jurisdictional foundation. 5.8 Accordingly, following the binding precedents of the Hon’ble jurisdictional High Cou Ashok Jasraj Jain (HUF) proceedings initiated under section 147 of the Act are invalid and without jurisdiction. The same are hereby quashed. (2017) 390 ITR 464 (Bom) and PCIT v. Shodiman Investments (P) Ltd. (ITA No. 1297 of 2015, judgment dated 16.04.2018, Bom HC), it has been held that reassessment proceedings initiated on the basis of rather than reason to believe are invalid in law. The Coordinate Bench in Ashok Jasraj Jain (HUF) identical facts, quashed the reassessment proceedings holding that the assumption of jurisdiction under section 147, based on incorrect factual premises and without independent application of mind, renders the proceedings void ab initio. The principle laid down therein squarely applies to the facts of the present case. Applying the ratio of the aforesaid judicial precedents, and having regard to the indistinguishable factual matrix obtaining herein, we are of the considered opinion that the reasons recorded by the Assessing Officer suffer from the same incurable defect of application of mind and absence of any live nexus between the material relied upon and the alleged escapement of income. The reopening of assessment, being based on mere suspicion and factual inaccuracies, is thus devoid of jurisdictional foundation. Accordingly, following the binding precedents of the Hon’ble jurisdictional High Court and the Coordinate Bench decision in Ashok Jasraj Jain (HUF) (supra), we hold that the reassessment proceedings initiated under section 147 of the Act are invalid and without jurisdiction. The same are hereby quashed. Lekhraj J. Jain 11 ITA No. 4937/MUM/2025 PCIT v. Shodiman Investments (P) Ltd. (ITA No. 1297 of 2015, judgment dated 16.04.2018, Bom HC), it has been held that reassessment proceedings initiated on the basis of are invalid in law. Ashok Jasraj Jain (HUF) (supra), on identical facts, quashed the reassessment proceedings holding that the assumption of jurisdiction under section 147, based on ithout independent application of . The principle laid down therein squarely applies to the facts of the present case. Applying the ratio of the aforesaid judicial precedents, and nguishable factual matrix obtaining herein, we are of the considered opinion that the reasons recorded by the Assessing Officer suffer from the same incurable defect of application of mind and absence of any live nexus between the and the alleged escapement of income. The reopening of assessment, being based on mere suspicion and factual inaccuracies, is thus devoid of jurisdictional foundation. Accordingly, following the binding precedents of the Hon’ble rt and the Coordinate Bench decision in (supra), we hold that the reassessment proceedings initiated under section 147 of the Act are invalid and Printed from counselvise.com 5.9 The additional ground raised by allowed. 6. Since we have already quashed the reassessment proceedings arguments raised by the parties on the merit of the addition rendered academic and therefore, we are not adjudicating the same. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on Sd/ (RAJ KUMAR CHAUHAN JUDICIAL MEMBER Mumbai; Dated: 12/11/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// The additional ground raised by the assessee is accordingly Since we have already quashed the reassessment proceedings arguments raised by the parties on the merit of the addition rendered academic and therefore, we are not adjudicating the same. In the result, the appeal filed by the assessee is allowed. ounced in the open Court on 12/11/2025. Sd/- Sd/ (RAJ KUMAR CHAUHAN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Lekhraj J. Jain 12 ITA No. 4937/MUM/2025 the assessee is accordingly Since we have already quashed the reassessment proceedings arguments raised by the parties on the merit of the addition are rendered academic and therefore, we are not adjudicating the same. In the result, the appeal filed by the assessee is allowed. /11/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "