The court established that the reopening of an assessment based on insufficient evidence and without proper jurisdiction constitutes illegal action under the Income Tax Act.

ORDER

PER BRAJESH KUMAR SINGH, AM,

This appeal by the assessee is directed against the order of the National Faceless Appeal Centre (NFAC), Delhi, dated 04.03.2025 [hereinafter referred to as the ‘Ld. CIT(A)’] arising out of the assessment order dated 27.03.2022 passed under Section 147 r.w.s. 144 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the National Faceless Assessment Centre, Delhi, (hereinafter referred to as the ‘Ld. AO’) pertaining to A.Y. 2015-16.

2. In this case, the assessment was reopened vide notice issued u/s 148 of the Act, dated 30.03.2021. The assessment was reopened on the basis of information that the assessee had shown profit of Rs. 1,31,95,650/-, during the financial year 2014-15, relevant to A.Y. 2015-16 through “reversal entries” of option trades, which were carried out with a view to obtain accommodation entries of profit and losses. Several notices, as noted by the AO on page 2 of its order, were issued to the assessee which were non-complied to the assessee and the assessment was completed u/s 144 of the Act, by making an addition of Rs. 1,31,95,650/-. Before passing the order, the AO had issued a show cause notice dated 24.03.2022, and the assessee submitted its reply vide letter dated 26.03.2022, which were not accepted by the AO for the reasons discussed in the assessment order, which are reproduced as under:

“ In response to the show cause, the assessee has filed its written reply dated 26.03.2022 The reply of the assessee has been carefully considered but not found acceptable. The assessee has stated that the alleged escaped income of Rs. 1,31,95,650/- was already included in the income of Rs.2,01,12,181/-. In support of the claim of the assessee, the assessee has submitted only copies of contract notes alongwith a summary of contract notes showing that Rs.1,31,95,650/- is included in Rs.2,01,12,181/- for the year under consideration. In support of its claim the assessee has not submitted any details of expenses which were set off against the said income. Further, in the light, the transactions done by the assessee was analyzed and found to be an unfair trade practice with an intention to create an artificial loss through reversal trades in stocks of illiquid scrips. Therefore, it is evident that the afore said trades were non genuine, created falsely of misleading by appearance of trading in terms of artificial volume in stock.

The argument of the assessee is not found acceptable that it has already been disclosed the said income in its return of income for A.Y. 2015-16. The facts and the circumstances that the amount of profit/loss of the counterparties to the trades are as a result of such non genuine trades and therefore should not be taken as the income(loss) is thus not from the sources as being put up or explained by the assessee in the details filed but are artificially generated to mask the income that remains unexplained. Therefore, the office has finalise the assessment order on the basis of merits of details available on record.”

2.1. Accordingly, the AO added the sum of Rs. 1,31,95,650/- under section 68 of the Act.

3. Against, the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee and the findings of the Ld. CIT(A) on merits in para no. 5.5. of the said order are reproduced as under:

“5.5 The ground of appeal No. 1 and 4 related to the quantum addition. As discussed above, the appellant has failed to submit the details before the Assessing Officer. The entire transactions of stock options has been held by SEBI / Hon'ble Supreme Court as non genuine. It is also noted that the appellant firm is primarily into the business of chemicals and not trading in stocks. Therefore, it is the onus of th