Case Law Details
Sandip Sadanand Narkar Vs ITO (ITAT Mumbai)
The Mumbai ITAT quashed the reassessment proceedings for AY 2015–16, holding that the notice issued u/s 148 after 01.04.2021 was time-barred under the amended Section 149, and hence the entire addition on alleged penny stock transactions was invalid.
The AO had reopened the case based on penny stock information (Kabra Drugs Ltd.) and treated the entire sale proceeds of ₹49.47 lakh as unexplained u/s 68, alleging accommodation entries. The CIT(A) upheld both reopening and addition.
However, the ITAT held:
- As per the Supreme Court ruling in Rajeev Bansal, post 01.04.2021 reassessment must satisfy “surviving limitation” under new Section 149.
- For AY 2015–16:
- Normal limitation (3 years) expired on 31.03.2019,
- Extended limitation applies only if escaped income exceeds ₹50 lakh.
- In this case, addition was ₹49.47 lakh (< ₹50 lakh) – extended limitation not available.
The Tribunal also noted:
- Even Revenue conceded before SC that notices for AY 2015–16 issued after 01.04.2021 must be dropped,
- Hence, notice dated 29.07.2022 was clearly time-barred.
Accordingly:
- Entire reassessment held void ab initio,
- Addition u/s 68 on penny stock became academic and not examined on merits.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”], under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], dated 17.12.2025, arising out of the assessment order passed by the Assessing Officer under section 143(3) read with section 147 of the Act dated 30.05.2023 for the Assessment Year 2015–16.
Facts of the Case
2. The assessee is an individual and is stated to be engaged as a salaried employee as well as in investment in equity shares. For the year under consideration, the assessee had not filed the return of income originally. The case of the assessee came to the notice of the department on the basis of information received through High Risk CRIU/VRU on the Insight Portal, wherein the scrip of M/s Kabra Drugs Ltd. was identified as a “penny stock” used for facilitating introduction of unaccounted money in the garb of Long Term Capital Gains.
3. The Assessing Officer recorded that the Department had received a list of penny stock related cases from CBDT (PMO Reference), wherein M/s Kabra Drugs Ltd. was identified as one of the companies. It was further noted that a survey under section 133A was conducted on 23.08.2017 in the case of M/s Kabra Drugs Ltd., wherein it was found that the said company was engaged in providing accommodation entries to various beneficiaries. Based on the information available on the Insight Portal, it was observed that the assessee was one of the beneficiaries who had traded in the said scrip and the trade value was Rs. 98,95,700/-. It was also noticed that the assessee had not filed return of income for the relevant year. Accordingly, after obtaining administrative approval, proceedings under section 147 were initiated by issuing notice under section 148 of the Act.In response to the notice, the assessee filed return of income on 26.08.2022 declaring total income of Rs. 1,06,850/- and claimed exemption under section 10(38) of Rs. 47,34,058/- on account of Long Term Capital Gain.
4. During the course of assessment proceedings, notices were issued from time to time. The assessee submitted that he had purchased 70,500 shares of M/s Kabra Drugs Ltd. in physical form in the year 2009 after the market crash of 2008 at throwaway prices, anticipating future appreciation. It was submitted that the shares did not appreciate for several years and remained in physical form, and due to passage of time, the assessee was not in possession of purchase bills and bank statements. It was further submitted that during F.Y. 2014–15, the assessee observed a sudden increase in the price of the shares and therefore opened a demat account, dematerialised the shares in tranches, and sold 48,500 shares through a registered broker, M/s Arihant Capital Market Ltd., for a consideration of Rs. 49,47,850/-. The assessee contended that the transactions were duly reflected in demat statements, broker ledger and bank statements furnished before the Assessing Officer. The assessee also objected to the reopening proceedings by contending that the information relied upon by the Assessing Officer was vague and that the transaction value was incorrectly considered at Rs. 98,95,700/- instead of Rs. 49,47,850/-. The assessee further requested for cross-examination of the persons whose statements were relied upon during survey proceedings.
5. The Assessing Officer, however, did not accept the explanation of the assessee. It was observed that the assessee failed to produce documentary evidences such as purchase invoices, bank statements evidencing investment and other supporting material to substantiate the claim of purchase of shares in the year 2009. The Assessing Officer further relied upon the investigation findings in the case of M/s Kabra Drugs Ltd. and held that the said scrip was used for providing accommodation entries in the guise of Long Term Capital Gain. The request of the assessee for cross-examination was not accepted. The Assessing Officer concluded that the source of investment remained unexplained and the entire sale proceeds of Rs. 49,47,850/- were treated as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. The assessment was accordingly completed under section 143(3) read with section 147 of the Act on 30.05.2023 determining total income at Rs. 49,47,850/-. Penalty proceedings under section 271F and section 271(1)(c) were also initiated.
6. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). The assessee challenged the validity of reopening under section 147 on the ground that the notice under section 148 was issued beyond the limitation prescribed under section 149(1)(a) and that the Assessing Officer wrongly invoked extended limitation under section 149(1)(b). It was also contended that the reopening was based on vague information and that the assessee’s name did not appear in any investigation report. Further, it was contended that principles of natural justice were violated as no opportunity of cross-examination was provided and that the Assessing Officer ignored the affidavit and documentary evidences furnished by the assessee. On merits, the assessee contended that the addition under section 68 was unjustified as the transactions were duly supported by documentary evidences including demat statements, bank statements and broker confirmations.
7. The CIT(A), after considering the assessment order and submissions of the assessee, upheld the validity of reopening by observing that the total trade value associated with the information was Rs. 98,95,700/- which exceeded the threshold of Rs. 50 lakhs and therefore extended limitation under section 149(1)(b) was applicable. It was also held that the Assessing Officer had followed due procedure including issuance of notice under section 148A(b) and obtaining approval of the competent authority. Accordingly, the legal grounds challenging reopening were dismissed. On merits, the CIT(A) held that the investigation carried out by the department and survey findings established that M/s Kabra Drugs Ltd. was a shell company used for providing accommodation entries in the form of bogus Long Term Capital Gains. The explanation of the assessee regarding purchase of shares in physical form in the year 2009 and holding them for several years without dematerialisation was held to be not credible. The CIT(A) further held that the assessee failed to establish the genuineness of the transaction and the financial credentials of the company. It was observed that mere production of demat statements, contract notes or bank entries does not establish genuineness when the underlying transaction is found to be a device for laundering unaccounted money. The CIT(A) also rejected the contention regarding denial of cross-examination by holding that the addition was based on independent investigation and surrounding circumstances and that denial of cross-examination does not vitiate the assessment. Relying upon the principle of human probabilities, it was held that the transaction in the scrip of M/s Kabra Drugs Ltd. was a colourable device to convert unaccounted income into tax-exempt Long Term Capital Gain. Accordingly, the addition of Rs. 49,47,850/- made by the Assessing Officer under section 68 was confirmed and the appeal of the assessee was dismissed.
8. Aggrieved by the order of the CIT(A), the assessee is in appeal before us and has raised the following grounds of appeal:
1. Assessment Order bad-in-law as the notice of reopening was beyond the limitation period and cross-examination not provided, thus violation of principle of Natural Justice
1.1 The Ld. Commissioner of Income-Tax [“Ld. CIT (Appeals)”] has erred in law and facts on records in upholding the validity of the assessment order under section 147 r.w.s. 143(3), despite the fact that the ITO framed the assessment order u/s 147 of the I.T. Act by considering the sale of shares as “Penny Stock” on the basis of certain information from the company [Kabra Drugs Ltd.] even though appellant’s name was not at all appearing in any of the investigation related documents and the appellant being a bonafide purchaser as long term investor as he sold such shares after 6 (six) years.
1.2 The Ld. CIT (Appeals) has erred in law and facts on records in upholding the validity of the assessment order, despite the fact that the notice u/s 148 was beyond the limitation period prescribed u/s 149(1)(a) by AO’s wrongly considering the same as falling u/s 149(1)(b) even though the total sale price of shares is Rs. 49,47,850/- (as shown in insight portal) i.e. less than Rs. 50 lacs and without considering the Appellant’s objection for the same in true spirit for wrongly considering by AO at Rs 98,95,700 ( Rs 49,47,850 X 2 ).
1.3 The Ld. CIT (Appeals) has erred in law and facts on records in upholding the validity of the assessment order, despite the fact that the opportunity of cross-examination, which was specifically requested by the Appellant during the course of assessment proceedings, was not permitted. Thus, the assessment so framed be treated as invalid and void-ab-initio as per the decision of Hon’ble Supreme Court.
1.4 The Ld. CIT (Appeals) has erred in law and facts on records in upholding the validity of the assessment order, without even considering the Appellant’s Affidavit, which was submitted to AO during the course of assessment proceedings and the AO has intentionally suppressed the crucial facts and details submitted by the Appellant.
Consequently, the assessment order is bad-in-law and ought to be held as invalid & void-ab-initio, as the same has been framed in violation of principles of natural justice.
Without prejudice to the above
2. Addition u/s 68 of Rs. 49,47,850/- (against LTCG Rs.47,34,058/-)
2.1 The Ld. CIT (Appeals) has erred in law on the facts on records in confirming the addition of Rs. 49,47,850/- u/s 68 being the sale proceeds of 48,500 shares of Kabra Drugs Ltd. after holding period of 6 years, resulting in Long term capital gains, despite the fact that the AO considered the very same information (of sale of shares) as the very basis of re-opening of assessment. Moreover, the said addition is made without doubting the correctness of the factual details submitted by Appellant i.e. physical share certificates, demat statement, bank entries/ statements, broker’s confirmation, which details have not at all been controverted or disputed by the ITO/ CIT (Appeals). Hence, the addition so made u/s 68 is unjustifiable and unwarranted.
The Appellant prays that the appeals prayed for be admitted and allowed.
The Appellant craves leave to add, to alter or to amend any of the grounds of appeal at or before the time of hearing.
9. During the course of hearing before us, the learned Authorised Representative (AR) invited our attention to the notices placed in the paper book and submitted that the first notice under section 148 of the Act was issued by the Assessing Officer on 23.06.2021. It was further submitted that subsequently, after following the procedure prescribed pursuant to the directives of the Hon’ble Supreme Court, a fresh notice under section 148 was issued on 29.07.2022.
10. The learned AR further submitted that the issue relating to limitation of notice under section 148 of the Act for the year under consideration, i.e., A.Y. 2015–16, is squarely covered by the decision of the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal [2024] 167 com 70 (SC). He invited our attention to the said judgment placed in the paper book and submitted that the Hon’ble Apex Court has elaborately explained the interplay between section 149 of the Act, the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), and the effect of the judgment in Union of India vs. Ashish Agarwal.
11. The learned AR submitted that for A.Y. 2015–16, the limitation for issuance of notice under section 148 under the old regime would expire on 31.03.2022 being six years from the end of the relevant assessment year, assuming the threshold under section 149(1)(b) is satisfied. However, under the substituted provisions applicable with effect from 01.04.2021, the time limit is governed by section 149 of the new regime, which restricts issuance of notice beyond three years unless the income escaping assessment exceeds Rs. 50,00,000/-. It was submitted that the Hon’ble Supreme Court has held that after 01.04.2021, reassessment notices must satisfy the test of “surviving limitation” under section 149 read with TOLA and that TOLA merely extends the time limit for issuance of notice falling within the period 20.03.2020 to 31.03.2021 up to 30.06.2021, and does not extend the limitation indefinitely.
12. The learned AR further invited our attention to paragraph 19 of the judgment of the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal (supra), and specifically drew our attention to clause (f) of the submissions made on behalf of the Revenue before the Hon’ble Apex Court. The said submission, as recorded in the judgment, reads as under:
“f. The Revenue concedes that for the assessment year 2015-16, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA;”
13. Placing reliance on the aforesaid submission, the learned AR contended that even the Revenue before the Hon’ble Supreme Court has accepted the legal position that in respect of A.Y. 2015–16, any notice issued under section 148 on or after 01.04.2021 would be beyond the scope of the extension granted under TOLA and hence liable to be treated as time barred.
14. It was thus submitted that in the present case, since the notice under section 148 has been issued on 23.06.2021 and thereafter on 29.07.2022, both being post 01.04.2021, the reassessment proceedings for A.Y. 2015–16 are clearly barred by limitation and deserve to be quashed.
15. The learned AR further invited our attention to paragraph 53 of the judgment of the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal (supra), wherein the Hon’ble Apex Court has summarised the legal position governing limitation under section 149 of the Act. The relevant extract, as relied upon by the learned AR, reads as under:
“53. The position of law which can be derived based on the above discussion may be summarized thus: (i) Section 149(1) of the new regime is not prospective. It also applies to past assessment years; (ii) The time limit of four years is now reduced to three years for all situations. The Revenue can issue notices under section 148 of the new regime only if three years or less have elapsed from the end of the relevant assessment year; (iii) the proviso to Section 149(1)(b) of the new regime stipulates that the Revenue can issue reassessment notices for past assessment years only if the time limit survives according to Section 149(1)(b) of the old regime, that is, six years from the end of the relevant assessment year; and (iv) all notices issued invoking the time limit under section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs.”
16. Relying upon the aforesaid authoritative pronouncement, the learned AR submitted that for A.Y. 2015–16, the limitation under the new regime would ordinarily expire after three years from the end of the relevant assessment year, i.e., on 31.03.2019, and thereafter, recourse to extended limitation under section 149(1)(b) would be available only if the income escaping assessment exceeds Rs. 50,00,000/-.It was contended that in the present case, the addition made by the Assessing Officer is Rs. 49,47,850/-, which is below the statutory threshold of Rs. 50,00,000/-. Therefore, even the extended period of limitation under section 149(1)(b) of the Act is not available to the Revenue.
17. Per contra, the learned Departmental Representative relied upon the orders of the Assessing Officer and the Ld. CIT(A).
18. We have carefully considered the rival submissions, perused the orders of the lower authorities and the material placed on record, including the judicial precedents relied upon by the parties. The primary issue which arises for our consideration is the validity of reassessment proceedings initiated under section 147 of the Act for A.Y. 2015–16, particularly in the context of limitation prescribed under section 149 of the Act as amended by the Finance Act, 2021 and the law laid down by the Hon’ble Supreme Court.
19. At the outset, it is an admitted position on record that the initial notice under section 148 was issued on 23.06.2021 and thereafter, pursuant to the directions of the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal, a fresh notice under section 148 came to be issued on 29.07.2022 after following the procedure under section 148A of the Act. The validity of such notice is required to be examined in light of the judgment of the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC), which has authoritatively settled the legal position governing limitation in such reassessment matters.
20. The Hon’ble Apex Court in the said judgment has, inter alia, held that after 01.04.2021, the reassessment proceedings are governed by the substituted provisions of sections 147 to 151 of the Act, and that the time limit for issuance of notice under section 148 must satisfy the conditions prescribed under section 149 of the new regime read with the extension granted under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). It has been categorically held that a reassessment notice issued beyond the “surviving period of limitation” would be time barred and liable to be set aside.
21. Further, in paragraph 53 of the said judgment, the Hon’ble Supreme Court has clarified that the time limit of four years under the old regime stands reduced to three years under the new regime for all situations, and that the extended period beyond three years can be invoked only if the income escaping assessment exceeds Rs. 50,00,000/-. It has also been held that all notices invoking the extended time limit under section 149(1)(b) would have to be dropped if the income escaping assessment is less than Rs. 50,00,000/-.
22. In the present case, the assessment year involved is A.Y. 2015–16. The end of the relevant assessment year is 31.03.2016. Applying the provisions of section 149 of the new regime, the normal period of limitation of three years would expire on 31.03.2019. The extended period beyond three years can be invoked only if the income escaping assessment exceeds Rs. 50,00,000/- and subject to further conditions prescribed under the proviso.
23. On perusal of the assessment order, it is evident that the addition made by the Assessing Officer is Rs. 49,47,850/-, which is below the threshold of Rs. 50,00,000/- prescribed under section 149(1)(b) of the Act. Therefore, the extended period of limitation is not available to the Revenue in the present case.
24. Further, as pointed out by the learned AR, the Hon’ble Supreme Court in paragraph 19 of the judgment in Rajeev Bansal has recorded the submission of the Revenue itself to the effect that for A.Y. 2015–16, all notices issued on or after 01.04.2021 would have to be dropped as they would not fall within the period contemplated under TOLA.
25. In view of the above binding legal position, we are of the considered view that the notice issued under section 148 dated 29.07.2022 for A.Y. 2015–16 is clearly beyond the permissible period of limitation as envisaged under section 149 of the Act read with TOLA and the law laid down by the Hon’ble Supreme Court. Once the notice itself is held to be time barred, the entire reassessment proceedings become void ab initio and liable to be quashed. Accordingly, the legal grounds raised by the assessee challenging the validity of reassessment proceedings are allowed.
26. Since we have quashed the reassessment proceedings on the preliminary legal issue of limitation, the grounds raised on merits challenging the addition of Rs. 49,47,850/- under section 68 of the Act become academic in nature and do not require adjudication.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 16.04.2026.
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