NAVNEETBHAI RAMANLAL PATEL,AHMEDABAD V. THE ITO, WARD-2(1)(2), AHMEDABAD

ITA 223/AHD/2025

AI Insights

The case involves Navneetbhai Ramanlal Patel, an individual engaged in commission agency for LIC, who appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The appeal was related to the reassessment for the Assessment Year 2016-17, where the Assessing Officer had added a fictitious trading loss of Rs. 46,88,950/- to the assessee's income, based on information from the Investigation Wing about manipulative transactions in shares. The Tribunal found that the reassessment was based on vague and general information without specific details linking the assessee to any bogus transactions, leading to the conclusion that the reassessment was invalid.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783540 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 29-01-2025
• Other Referred Cases: Swadeshi Polytex Ltd. v. ITO [127 ITR 287 (All.)], CIT v. Motor General Finance Ltd. [254 ITR 449 (Del.)], CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Del), Meenakshi Overseas (P.) Ltd. v. Pr. CIT [2017] 395 ITR 677 (Del), Varshaben Sanatbhai Patel v. ITO (Tax Appeal No. 12873 of 2014, dated 13.10.2015), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C. DHARANI NATH
• Assessee Lawyers: HIREN TRIVEDI
• Keywords: Business income; Opportunity of being heard; Reassessment proceedings; Corroborative evidences; Period of limitation; Reopening of assessment; Principle of natural justice; Tangible material; Borrowed satisfaction; Bogus
• Section: 147; 148; 144; 142(1); 271(1)(c)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “SMC,अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ] ] BEFORE DR. BRR KUMAR, VICE PRESIDENT AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं /ITA No.223/Ahd/2025 िनधा \u000fरण वष\u000f /Assessment Year : 2016-17 Navneetbhai Ramanlal Patel 19, New Ambica Park Society D Cabin Sabarmati Ahmedabad – 380 019 बनाम/ v/s. The ITO Ward-2(1)(2) Ahmedabad – 380 051 \u0013थायी लेखा सं./PAN: AQZPP 2479 D (अपीलाथ\u0017/ Appellant) (\u0018\u0019 यथ\u0017/ Respondent) Assessee by : Shri Hiren Trivedi, AR Revenue by : Shri C. Dharani Nath, Sr.DR सुनवाई की तारीख/Date of Hearing : 17/09/2025 घोषणा की तारीख /Date of Pronouncement: 04/11/2025 आदेश/O R D E R PER SIDDHARTHA NAUTIYAL, JM: The present appeal has been preferred by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 14/10/2024 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2016-2017. 2. The assessee has raised the following grounds of appeal: “1. In law and in the facts and in the circumstances of the case, the Id. CIT (Appeal) NFAC has passed the appellate order without providing video hearing as provided in Faceless Appeals Scheme more particularly when Appellant has stated that proper opportunity of being heard should be provided before disposing of the its appeal. Printed from counselvise.com ITA No223/Ahd/2025. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 2 2. In law and in the facts and circumstances of the case of the Appellant, the order u/s 250 of the Income Tax Act, 1961 is ex-parte and totally in breach of natural justice. 3. In law and in the facts and circumstances of the case of the Appellant, the Ld. CIT(Appeal) NFAC erred in not appreciating the fact that the order of learned AO is passed in breach of natural justice and thus deserved to be quashed and set-aside. 4. In law and in the facts and circumstances of the case of the Appellant, the Ld. CIT(A)- NFAC has erred in confirming addition on account of alleged fictitious loss Rs.46,88,950/-. 5. Without prejudice to above, in law and in the facts and circumstances the Ld. CIT(A)-NFAC erred in confirming the levy of interest under section 234A/B/C/D. 6. Without prejudice to above, in law and in the facts and circumstances the Ld.CIT(A)-NFAC erred in initiating proceedings under section 271(1)(c) of the Act. 7. during the course of hearing of the appeal. The appellant craves leave to add to alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 3. The brief facts of the case are that the assessee, an individual engaged in the business of commission agency for LIC, had filed origin return of income for Assessment Year 2016–17 on 28.06.2016 declaring total income of Rs. 2,55,960/-. The return was processed under section 143(1) of the Act. Subsequently, based on information received from the Investigation Wing regarding the assessee’s involvement in transactions of sale and purchase of shares through a stockbroker, M/s. Marfatia Stock Broking Pvt. Ltd., which were allegedly part of a bogus penny stock scheme, the Assessing Officer (AO) reopened the case under section 147 of the Act. As per the information received by the Assessing Officer, the assessee had claimed a fictitious trading loss of Rs. 46,88,950/- through manipulative transactions in shares, despite having a relatively modest income declared in the return. The AO issued notice under section 148 on 31.03.2021 and, in response, the assessee filed a return reiterating the same income of Rs. 2,55,960/-. During the Printed from counselvise.com ITA No223/Ahd/2025. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 3 reassessment proceedings, the Assessing Officer issued several notices under sections 142(1) and 143(2) of the Act along with questionnaires asking for documentary evidence and explanations regarding the impugned transactions. However, the Assessing Officer observed that despite repeated opportunities, the assessee failed to submit the required documents such as contract notes, demat statements, broker bills, and bank statements. The AO noted that the assessee remained largely non-compliant, seeking adjournments and delaying the proceedings until the period of limitation of passing assessment order was nearing expiry. Accordingly, finding no satisfactory explanation or supporting evidence to substantiate the loss claimed, the AO held that the assessee had engaged in accommodation transactions designed to generate a fictitious loss to offset other taxable income. Therefore, invoking the provisions of section 144 read with section 147 of the Act, the AO completed the assessment to the best of his judgment and added Rs. 46,88,950/- to the total income as fictitious loss. The AO relied on judicial precedents including Swadeshi Polytex Ltd. v. ITO [127 ITR 287 (All.)] and CIT v. Motor General Finance Ltd. [254 ITR 449 (Del.)] to justify the best judgment assessment in cases of non-compliance with statutory notices. 4. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], NFAC. In the statement of facts and grounds of appeal, the assessee challenged the validity of reopening under section 147 of the Act and the addition on account of fictitious loss, contending that the order was passed without due consideration of evidence and in violation of natural justice. However, during the appellate proceedings, despite several notices issued through the ITBA portal on multiple dates, the assessee failed to submit any written submissions or documentary evidence in support of his case and sought repeated adjournments. The CIT(A) observed that Printed from counselvise.com ITA No223/Ahd/2025. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 4 despite ample opportunities, the assessee neither appeared nor furnished any details to substantiate his claim. The CIT(A) held that the AO had given sufficient opportunities during the assessment proceedings and that, in the absence of cooperation from the assessee, the AO was justified in resorting to best judgment assessment. The CIT(A) further noted that the assessee had failed to explain the alleged trading loss or provide any corroborative evidence to rebut the information received from the Investigation Wing, and therefore the AO’s action in treating the loss as fictitious was in accordance with law. The CIT(Appeals) relying on the principle that an assessee cannot take advantage of his own non-compliance, the CIT(A) upheld the assessment order in full. The CIT(A) also cited the dictum vigilantibus non dormientibus jura subveniunt—that the law assists those who are vigilant with their rights—and held that the assessee’s persistent failure to respond showed lack of interest in pursuing the appeal. Accordingly, the CIT(A) confirmed the addition of Rs. 46,88,950/- as business income and dismissed the appeal both for appearance and on merits. 5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. 6. Before us, the Counsel for the assessee submitted that the very basis of passing of 147 order is on a weak footing since both in the “reasons” for initiating re-assessment proceedings and also in the assessment order, there is no mention with respect to which particular stock the assessee dealt with, constituted a penny / bogus under the penny stock scheme. The Counsel for the assessee submitted that the assessee had submitted all possible details as called for by the Assessing Officer and in the assessment order and also the “reasons” for initiating re-assessment proceedings, there is not an iota of mention which penny / bogus had been sold by the assessee. Printed from counselvise.com ITA No223/Ahd/2025. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 5 7. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders. 8. We have heard the rival contentions and perused the material on record. The primary issue involved in the present appeal pertains to the validity of the reassessment proceedings initiated under section 147 of the Act, and the consequent addition of Rs. 46,88,950/- made by the Assessing Officer by treating the alleged loss as fictitious. We observe that both in the recorded “reasons” for reopening of the assessment as well as in the final assessment order passed under section 147 read with section 144 of the Act, there is not even an iota of mention as to which particular share or scrip was alleged to be a “penny stock” or bogus transaction. The Assessing Officer has merely made general references to information received from the Investigation Wing and from the Bombay Stock Exchange without identifying the specific transaction or scrip involved or bringing any tangible material on record to connect the assessee with any such alleged manipulation or accommodation entry. 9. It is a settled principle of law that the “reasons to believe” must be based on specific, relevant, and tangible material and cannot be founded upon vague, general, or borrowed information. The absence of specific details of any alleged bogus scrip or the manner in which the assessee is alleged to have derived fictitious loss renders the formation of belief mechanical and unsustainable in law. The Hon’ble Delhi High Court in CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Del) has held that reopening of assessment based merely on information from the Investigation Wing without independent application of mind by the Assessing Officer is invalid. Printed from counselvise.com ITA No223/Ahd/2025. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 6 Similarly, in Meenakshi Overseas (P.) Ltd. v. Pr. CIT [2017] 395 ITR 677 (Del), the Hon’ble High Court observed that the reasons recorded must demonstrate a live link between the material relied upon and the belief formed; a mere reference to a general investigation report cannot justify reopening. The Hon’ble Gujarat High Court in Varshaben Sanatbhai Patel v. ITO (Tax Appeal No. 12873 of 2014, dated 13.10.2015) has also held that reassessment proceedings cannot be sustained where the Assessing Officer fails to apply independent mind to the facts of the assessee’s case and merely acts on borrowed satisfaction. Likewise, the Hon’ble Supreme Court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) laid down that there must be a direct nexus or live link between the material before the Assessing Officer and the formation of belief that income has escaped assessment. 10. In the present case, both the “reasons recorded” and the assessment order are conspicuously silent on which shares were traded by the assessee, what evidence existed to suggest those shares were bogus, or how the alleged loss of Rs. 46,88,950/- was found to be fictitious. The addition has been made solely on the basis of unverified information from external sources without any independent inquiry or corroborative evidence. The AO has not identified any specific transaction as sham nor brought on record any material to show that the assessee had received any cash or accommodation entry in lieu of such loss. This approach, based entirely on presumptions and generalized allegations, cannot form a valid basis for reassessment or addition. 11. In view of the above, we hold that the reassessment proceedings initiated under section 147 are invalid in law and that the consequent Printed from counselvise.com ITA No223/Ahd/2025. Navneetbhai Ramanlal Patel Asst. Year : 2016-17 7 addition made by the Assessing Officer is unsustainable on facts as well as in law. 11.1. Accordingly, the addition of Rs. 46,88,950/- made by the Assessing Officer and confirmed by the CIT(A) is directed to be deleted. The appeal of the assessee is, therefore, allowed. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 04/11/2025 at Ahmedabad. Sd/- Sd/- (DR. BRR KUMAR) VICE PRESIDENT (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 04/11/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)- (NFAC), Delhi 5. िवभागीय #ितिनिध , अिधकरण अपीलीय आयकर , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u000f फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad Printed from counselvise.com "