SEEMA LUNAWAT,RATLAM V. INCOME TAX OFFICER, MANDSAUR

ITA 300/IND/2024

AI Insights

The case revolves around the reassessment of Seema Lunawat's income for the Assessment Year 2011-12, where the AO added Rs. 1,89,650 to her income as unexplained investment in penny stocks. The addition was based on information received from the Prime Minister's Office (PMO) and other sources, alleging that the assessee had engaged in transactions with 'Twenty First Century India Limited', a known penny stock. The assessee contested the addition, providing bank statements, broker statements, and an affidavit denying any such transactions. Both the CIT(A) and the Tribunal found that the AO had not adequately substantiated the addition, leading to the Tribunal's decision to delete the addition and allow the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34546 (ITAT-INDORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Other Referred Cases: CIT vs. P.K. Noorjahan (1999) 237 ITR 570 (SC), Radhika Wadhwa vs. ITO (2010) 41 SOT 328 (ITAT Pune), Pr. CIT vs. Veena Gupta (2017) 393 ITR 495 (P&H), Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC), Roshan Di Hatti vs. CIT (1977) 107 ITR 938 (SC), CIT vs. S. Goyanka Lime & Chemical Ltd. (2015) 64 taxmann.com 313 (SC), Pr. CIT vs. Meenakshi Overseas (P) Ltd. (2017) 395 ITR 677 (Delhi), CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FORASSESSEEHASFILEDFOLLOWINGWRITTENSUBMISSION; FORREVENUEDEFENDEDTHEORDERSOFLOWER; FORASSESSEEISVERYFORCEFULLYSUBMITTINGINOPENCOURTTHATTHE; SHRIASHISHPORWAL
• Assessee Lawyers: SHRIAPURVAMEHTAANDRAJESHMEHTA; ARS
• Keywords: Opportunity of being heard; Reassessment proceedings; Unexplained investment; Onus to prove; Reopening of assessment; Reason to believe; Borrowed satisfaction; Procedural lapse; Penny stocks; Bogus
• Section: 147; 148; 143(3); 64; 271(1)(c); 69; 139

Judgement Text

"Page 1 of 12 आयकरअपीलीयअिधकरण, इंदौरɊायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE MS. SUCHITRA RAGHUNATH KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No. 300/Ind/2024 Assessment Year: 2011-12 Seema Lunawat, 5, Bajna Bus Stand, Ratlam बनाम/ Vs. Income Tax Officer, Mandsaur (Assessee/Appellant) (Revenue/Respondent) PAN: ABQPL3076Q Assessee by Shri Apurva Mehta and Rajesh Mehta, ARs Revenue by Shri Ashish Porwal, Sr.DR Date of Hearing 19.02.2025 Date of Pronouncement 28.02.2025 आदेश/ O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by order of first appeal dated 28.02.2024 passed by learned Commissioner of Income-Tax (Appeals)-Addl/JCIT(A)-Kolkata [“CIT(A)”] which in turn arises out of assessment-order dated 21.12.2018 passed by learned ITO, Mandsaur [“AO”] u/s 147 r.w.s. 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2011-12, the assessee has filed this appeal on following grounds: “1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in not considering the documentary evidences produced by the appellant as sufficient and confirming the addition of Rs. 1,89,650/- made by the Ld. AO without considering the fact that the burden Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 2 of 12 to prove such transaction happened is on the department. The Ld. AO has made additions merely on the basis of data received from PMO through Pr. CCIT, MP & CG, without conducting any further enquiry in this regard. The appellant prays that the said treatment of the CIT(A) may kindly be ordered to be deleted.” 2. The background facts leading to present appeal are such that the assessee-individual filed her original return of income u/s 139 on 02.03.2012 declaring a total income of Rs. 2,95,080/- from transactions of shares and interest which was assessed. Subsequently, the AO issued a notice dated 31.03.2018 u/s 148 to re-open assessee’s case on the basis of an information received indicating that the assessee has entered into transaction of shares of “Twenty First Century India Limited”, a penny stock. During proceeding, when the AO queried assessee, the assessee filed certain documents and an affidavit and categorically denied to have made any transaction in the shares of “Twenty First Century India Limited”. However, the AO rejected assessee’s submission and completed assessment after making an addition of Rs. 1,89,650/-. Aggrieved, the assessee filed first- appeal to CIT(A) but did not get any success. Now, the assessee has come in next appeal assailing the orders of lower-authorities. 3. At first, we extract the relevant portion of AO’s order: “4. In this case specific information was received vide list of penny stock related data received from PMO through Pr. Chief Commissioner of Income Tax, MP & CG, that the assessee has entered into share transaction of Rs. 1,89,650/- with the \"Twenty First Century India Limited\", a company involved in generating bogus LTCG/STCL and business loss by using CSE listed penny stocks. After recording reasons for initiating proceedings u/s 148 and after obtaining approval of the Pr. CIT, Ujjain vide sanction u/s 151(1) dated 30/03/2018, a notice u/s 148 was issued on 31/03/2018. In response to which assessee attended and furnished that the original return Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 3 of 12 filed by the assessee for the A.Y. 2011-12 on 02/03/2012 may be considered as return filed in response to the notice u/s 148 of 1.T. Act. 5. During the course of assessment proceedings, the assessee was asked to furnish the explanation regarding the investment made of Rs. 1,89,650/- during the F.Y.2010-11 in the penny stock company i.e. “M/s Twenty first century India Ltd.\". In response the assessee furnished the account statement of Motilal Oswal Securities Limited, Arihant Capital Market Ltd and India Infoline Limited and submitted that she had shown all gain from trading of share and income from Interest and others sources in the ITR filed for the Α.Υ. 2011-12. The assessee furnished the statement of bank account of HDFC Bank Ltd and Axis Bank Ltd to substantiate her trading with the above broker companies. 6. During the assessment proceeding the assessee furnishes an affidavit dated 16/12/2018 denying the transactions with the said company i.e. “M/s Twenty first century India Ltd.\" during the year consideration. On examining the submission of the assessee, it is found that in order justify his claim the assessee has taken a defense of self-serving documents in the form of an affidavit, therefore no cognizance has taken on the affidavit. And as per the information available on the record the assessee has found to be invested an amount of Rs. 1,89,650/- during the F.Y.2010-11 in the penny stock company i.e. “M/s Twenty first century India Ltd.\" during the F.Y. 2010-11. In view of the facts and circumstances of the case, the explanation given by the assessee does not found to be satisfactory. Therefore, the amount of Rs. 1,89,650/- is added to the total income of the assessee u/s 69 of I.T. Act as unexplained investment. Penalty proceedings u/s 271(1)(c) are initiated separately for concealment of income”. 4. During first-appeal, the CIT(A) has upheld AO’s order. 5. Before us, Ld. AR for assessee has filed following Written-Submission, iterated the contents of same during hearing and urged to delete the addition wrongly made by AO: “WRITTEN SUBMISSION The appellant respectfully submits as follows against the addition made by the Assessing Officer (AO) by treating hypothetical transaction as involving penny stock and consequently adding the same as income by treating as unexplained investment U/s. 69 of the act, in the hands of the appellant:- 1.1. Appellant has never dealt in the alleged scrip: Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 4 of 12 The AO has erred in law and erred in facts of the case by vaguely and baselessly alleging that the assessee has transaction in, \"Twenty First Century India Ltd.\", as penny stock and added the same to the income of the appellant as unexplained investment U/s. 69 of the act. However, the appellant unequivocally denies ever dealing in the said scrip. The following facts substantiate this assertion: (a) The appellant has provided complete statements of all three of his demat accounts during the course of the assessment proceedings. These statements clearly show no transactions involving the alleged scrip, thereby disproving the allegation, the Ld. AO has also not mentioned even a single instance of sale or purchase transaction of the alleged scrip in the demat accounts produced during the course of assessment hearing. (b) The AO has not produced any evidence to contradict the appellant's claim. There is no documentary proof indicating that the alleged scrip was ever routed through any of the appellant's demat accounts. (c) The appellant had not made any such investment in the alleged scrip. Hence, the addition made by the AO under Section 69 of the Act is factually incorrect, unlawful, and untenable. Therefore, the addition needs to be annulled. (d) Once the appellant denies having made any investment in the alleged scrip, the onus lies upon the AO to prove that the appellant has made such unexplained investments under Section 69. The AO has failed to discharge this onus, as no credible evidence has been provided to support the claim. Relevant case laws include:  CIT vs. P.K. Noorjahan (1999) 237 ITR 570 (SC): The Hon'ble Supreme Court held that the burden of proof lies on the revenue to establish unexplained investment.  Radhika Wadhwa vs. ITO (2010) 41 SOT 328 (ITAT Pune): The ITAT held that Section 69 requires the revenue to prove unexplained investments when the assessee denies any such liability.  Pr. CIT vs. Veena Gupta (2017) 393 ITR 495 (P&H): The Punjab & Haryana High Court held that mere suspicion cannot justify addition under Section 69 unless corroborated by evidence. 1.2. Affidavit denial by the assessee: The appellant has categorically denied dealing in the alleged scrip through a sworn affidavit submitted before the AO during the course of assessment proceedings. As per settled principles of law, an affidavit is a valid piece of evidence, and once such a denial is made, the burden shifts entirely to the revenue to disprove the affidavit and establish the facts. (a) The AO failed to provide any evidence that could invalidate the affidavit. (b) The AO failed to demonstrate how the alleged amount of Rs. 189,650/-qualifies as unexplained investment or why it is includible in the appellant's total income. The appellant never claimed any single amount of Long-Term Capital Gain (LTCG) related to the alleged scrip and even the assessee had not even a single rupee of long term capital gain from any other scrip as is evident from the clause (iv) of the Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 5 of 12 affidavit produced by the assessee in which the assessee has stated that, \"Even I didn't claim any exemption for LTCG of shares\", which proves that the Ld. AO has made addition of Rs. 189650/-merely on the basis of information received from PMO or DCIT, Mumbai or PCIT MP & CG. In the reason for reopening provided by the Ld. AO at the para 2 the Ld. AO has mentioned that, \"An information on penny stock is received in this office from the DCIT Central Circle, 3(4), Mumbai & PCIT, MP & CG on 29-3-2018. As per the information, the assessee was involved in generating bogus LTCG/STCL in the case of penny stock \"Twenty first century India Limited\" and business loss by using CSE listed penny stock. The assessee involved in the share transaction of Rs. 189650/- during the financial year 2010- 11\". Whereas in the assessment order at the para 4 of the assessment order the Ld. AO has stated that, \"In this case specific information was received vide list of penny stock related data received from PMO through Pr. Chief Commissioner of Income Tax, MP & CG, that the assessee has entered into share transaction of Rs. 189650/- with the \"Twenty First Century India Limited\" a company involved in generating bogus LTCG/STCL and business loss by using CSE listed penny stocks.\" From the above it is clear that the Ld. AO himself not clear that from which source the information has come and on basis of which information the case was reopened and which also proves that the reopening was done merely on the basis of borrowed satisfaction, and it was not the reason to believe of the AO. Therefore the reopening itself it against the law and liable to be quashed. The Ld. AO has mentioned in the para 2 of reason for reopening that the information was received on 29-3-2018 and in the para 4 of the assessment order mentioned that the approval from Pr. CIT, Ujjain was obtained on 30-3-2018 and notice U/s. 148 was issued on 31-3-2018, the office of Ld. AO is situated at City of Ratlam whereas the office of Pr. CIT is situated at City of Ujjain, so this short span of period of receiving information, recording reason and obtaining approval and issuing notice U/s. 148 proves that the notice has been issued without application of mind, and also the there is no date mentioned on the reason for reopening. (c) Relevant case laws include:  Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC): The Supreme Court held that an affidavit filed by an assessee must be accepted unless it is disproved through proper evidence.  Roshan Di Hatti vs. CIT (1977) 107 ITR 938 (SC): The burden of proving unexplained investments lies entirely upon the revenue, particularly when an affidavit has been filed denying such investments. 1.3. No banking transactions or proceeds related to the alleged scrip: Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 6 of 12 The appellant's bank and demat account statements were scrutinized thoroughly by the Ld. AO during the course of assessment proceedings, and no instances of transactions involving the alleged scrip were observed or mentioned. This further proves that the appellant had no connection with the alleged scrip. 1.4. Non-compliance with statutory requirements under Section 148 of the Act: (a) The appellant had specifically requested the AO to provide:  A copy of the approval from the Principal Commissioner of Income Tax (PCIT) as required under Section 151 of the Income Tax Act, 1961.  A copy of the satisfaction note recorded before issuing notice under Section 148 of the Act. (b) The AO only provided a copy of the \"reasons to believe\" and failed to furnish the required copy of the PCIT's approval. This non-compliance is a clear violation of procedural safeguards, rendering the proceedings invalid. (c) As per judicial precedents, obtaining valid approval from the PCIT and ensuring due satisfaction before initiating reassessment is mandatory. Non-adherence to these conditions vitiates the reassessment proceedings. 1.5. Reopening based on borrowed satisfaction and vague reasons: (a) The AO, in his assessment order, has explicitly mentioned that the case was reopened on the basis of information received from the Prime Minister's Office (PMO). This proves that the \"reason to believe\" was not the independent satisfaction of the AO but was based on borrowed satisfaction from an external source. (b) The reasons to believe provided by the AO are undated, and there is no clarity regarding when these reasons were recorded. Such vagueness further proves the procedural lapse. (c) In the reasons for reopening, the AO vaguely mentioned that the appellant was involved in generating bogus LTCG/STCL. However, the AO did not specify any transaction related to the alleged scrip, also the Ld. AO could not mention that whether it was purchased or sold, thereby proving that the case was reopened on baseless assumptions. (d) The reasons for reopening mention, \"escapement of income of Rs. 189,650/-\", whereas the AO, in the assessment order, added the same amount as \"unexplained investment\" under Section 69. This contradiction further demonstrates the baseless and conjectural nature of the addition. (e) Relevant case laws supporting this argument include:  CIT vs. S. Goyanka Lime & Chemical Ltd. (2015) 64 taxmann.com 313 (SC): The Hon'ble Supreme Court held that reopening of assessment without independent application of mind and solely on borrowed satisfaction is invalid. Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 7 of 12  Pr. CIT vs. Meenakshi Overseas (P) Ltd. (2017) 395 ITR 677 (Delhi): The Delhi High Court held that \"reason to believe\" must be the AO's own satisfaction and not a mere reproduction of another authority's satisfaction.  CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC): Reassessment must be based on the AO's independent application of mind; borrowed satisfaction renders the reassessment void. 1.6. Dismissal of appeal by CIT(A) against the law and facts: The CIT(A) dismissed the appeal without properly considering the facts and legal grounds raised by the appellant. Additionally, the CIT(A) failed to provide the appellant with an adequate opportunity of being heard, thereby violating principles of natural justice. 1.7. Assessment based on presumptions and surmises: The AO has merely presumed the appellant's involvement in trading penny stocks without substantiating the same with credible evidence. Not even a single instance of dealing in such alleged scrip was brought on record by the Ld. AO during the course of assessment proceedings. The assessment order was passed merely on the basis of vague and baseless information. Such presumptions cannot be the sole basis for addition, as held in various judicial pronouncements. 8. Relief sought: In light of the above: (a) The addition made to the appellant's income on account of alleged penny stock transactions may kindly be deleted. (b) The reassessment proceedings initiated under Section 148 of the Act may kindly be quashed for failure to comply with statutory and procedural requirements. (c) The reopening and issuance of notice under Section 148 being against the law may kindly be declared null and void. (d) The addition so made towards the alleged penny stock transactions being vague, baseless, and unlawful may kindly be deleted. The appellant remains grateful for the Hon'ble Tribunal's consideration and requests an opportunity of hearing in the matter.” 6. Per contra, Ld. DR for revenue defended the orders of lower- authorities. 7. We have considered rival submissions of both sides and perused the orders of lower authorities. We find that entire assessment u/s 147 has Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 8 of 12 been framed and addition therein has been made on the basis of information received by AO from office of DCIT, Central Circle 3(4), Mumbai / PCIT, MP & CG indicating that the assessee has entered into transactions of shares of “Twenty First Century India Limited” which is a penny stock. However, we take note that the assessee voluntarily filed return u/s 139 declaring income from transactions of shares and such return was filed much prior to resuming of re-assessment proceeding u/s 147 by AO. Further, during the proceeding of re-assessment, the assessee filed A/c statements of brokers M/s Motilal Oswal Securities limited, M/s Arihant Capital Market Ltd. and M/s India Infoline Limited to show that the gain from all share transactions had been disclosed in the ITR. The assessee also furnished Bank Statements of HDFC Bank and Axis Bank to substantiate the transactions with brokers. These facts are clearly acknowledged by AO in Para 5 of assessment-order. Besides, the assessee also filed an solemnized affidavit denying any transaction having been taken in shares of “Twenty First Century India Limited”, the affidavit filed by assessee is scanned and re-produced below: Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 9 of 12 Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 10 of 12 Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 11 of 12 8. Thus, when the assessee has filed all documentary evidences to explain the transactions done by him from shares and also a solemnized affidavit to deny any transaction of “Twenty First Century India Limited”, the AO is wrong in rejecting assessee’s explanation. The AO has brushed aside assessee’s explanation by stating only that the affidavit is self-serving document but the fact is that the assessee has also filed all documents of shares transactions to AO from which the AO is not able to pin point the alleged transaction of “Twenty First Century India Limited” having been done by assessee. Further, the AO has not even brought on record any document in his possession evidencing the transaction done by assessee. The Ld. AR for assessee is very forcefully submitting in open court that the assessee has not done any transaction in the shares of “Twenty First Century India Limited” and the department has made a bald allegation against assessee. In Para 1.1 of Written-Submission re-produced above, Ld. AR has submitted “However, the appellant unequivocally denies ever dealing in the said scrip.” At this stage, we may also mention that the term “penny stocks”, in the circles of Income-tax, is meant to convey those stocks from which an assessee books ‘exempted capital gain’ or ‘artificial loss’ to claim tax benefit but in present case, the assessee has not claimed any such benefit from the shares of “Twenty First Century India Limited”. Therefore, the case made out by AO is not supported by any evidence on record. In these circumstances, we are inclined to delete the addition made by AO. The assessee succeeds in this appeal. Seema Lunawat ITA No. 300/Ind/2024 – AY 2011-12 Page 12 of 12 9. Resultantly, this appeal is allowed. Order pronounced by putting on notice board as per Rule 34 of ITAT Rules, 1963 on 28/02/2025 Sd/- Sd/- (SUCHITRA RAGHUNATH KAMBLE) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक/Dated : 28/02/2025 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore "