Shrikant Phulchand Bhakkad (Huf) v. Joint Commissioner Of Income Taxrange – 1, Aurangabad.range – 1, Aurangabad

1 wp 14336.21 IN THE HIGH COURT OF JUDICATURE AT BOMBAYBENCH AT AURANGABAD WRIT PETITION NO. 14336 OF 2021 Shrikant Phulchand Bhakkad (HUF),Through its KartaShrikant S/o Phulchand Bhakkad,Age : 45 Years, Occu. : Business,R/o Ramjeevan Phulchand Bhakkad,New Mondha Road, Jalna,Tq. & Dist. Jalna.PAN No. .. Petitioner Versus 1.Joint Commissioner of Income TaxRange – 1, Aurangabad.Range – 1, Aurangabad. 2.Income Tax Officer,Ward – 1, Jalna,Tq. and Dist. Jalna.Ward – 1, Jalna,Tq. and Dist. Jalna. 3.Income Tax Officer,National Faceless Assessment Centre,Delhi... RespondentsNational Faceless Assessment Centre,Delhi... Respondents Shri Raviraj R. Chandak, Advocate for the Petitioner.Shri Alok Sharma, Advocate for Respondent Nos. 1 to 3. CORAM :R. D. DHANUKA ANDS. G. MEHARE, JJ. CLOSED FOR JUDGMENT ON:24.03.2022 JUDGMENT PRONOUNCED ON:22.04.2022 JUDGMENT (Per : R. D. Dhanuka, J.) :- .Rule. Shri Alok Sharma, the learned counsel for 2 wp 14336.21 respondents waives service. Rule is made returnable forthwith. 2.By this petition filed under Article 226 of the Constitutionof India, the petitioner has impugned notice dated 31[st] March,2021 issued by the respondent No. 2 under Section 148 of theIncome Tax Act, 1961 (for short “I. T. Act”) and also order dated02[nd] December, 2021 passed by the respondent No. 3 therebyrejecting the objection filed by the petitioner. 3.Some of the relevant facts for deciding this petition are asunder : It is the case of the petitioner that, on 25[th] December, 2018,the then Assessing Officer passed the assessment order for theAssessment Year 2016-2017 after considering all the documentsregarding derivative transaction and accepted the loss claimedby the petitioner arising out of said derivative transaction. TheAssessing Officer accepted the income claimed by the petitionerin his return for assessment year 2016-2017. On 20[th] October,2018, the petitioner supplied all the relevant informationregarding derivative transaction. On 10[th] December, 2018, theassessing officer once again called upon the petitioner for theinformation regarding account statement, demat account, detailsof broker and contract notes issued by the broker for derivativetransaction. It is the case of the petitioner that all theinformation was duly submitted by the petitioner to theassessing officer on 14[th] December, 2018. On 31[st] March, 2021,the respondent No. 2 on the same set of facts issued notice U/Sec.148 of the I. T. Act and started proceeding of re-assessment 3 wp 14336.21 U/Sec. 147 of the I. T. Act. 4.On 19[th] July, 2021, the petitioner after receipt of copy ofthe reasons recorded by the assessing officer filed his objection tothe said reasons and prayed for dropping of the proceedings onthe ground that the assessing officer could not have issued suchnotice on the ground of change of opinion. On 02[nd] December,2021, the respondent No. 3, however, passed speaking orderrejecting the objections filed by the petitioner. The petitionertherefore filed this writ petition. 5.Mr. R. R. Chandak, the learned counsel for the petitionerinvited our attention to various documents annexed to the writpetition including the income tax return filed by his client for theassessment year 2016-2017 along with computation of incomeand balance sheet. U/Sec. 147 of the I. T. Act. 4.On 19[th] July, 2021, the petitioner after receipt of copy ofthe reasons recorded by the assessing officer filed his objection tothe said reasons and prayed for dropping of the proceedings onthe ground that the assessing officer could not have issued suchnotice on the ground of change of opinion. On 02[nd] December,2021, the respondent No. 3, however, passed speaking orderrejecting the objections filed by the petitioner. The petitionertherefore filed this writ petition. 5.Mr. R. R. Chandak, the learned counsel for the petitionerinvited our attention to various documents annexed to the writpetition including the income tax return filed by his client for theassessment year 2016-2017 along with computation of incomeand balance sheet. 6.Learned counsel invited our attention to the assessmentorder dated 25[th] December, 2018 passed by the assessing officerfor the assessment year 2016-2017 in respect of income taxreturn filed by the petitioner and would submit that by the saidassessment order, after considering the details furnished by thepetitioner in respect of the derivative transaction in the saidassessment order passed U/Sec. 143(3) of the I. T. Act, theassessing officer accepted the income returned at Rs. 56,92,100/-without making any additions. He submits that, the thenassessing officer has deemed to have applied his mind whileaccepting income returned by the petitioner for the said 4 wp 14336.21 assessment year 2016-2017. 7.The learned counsel for the petitioner submits that,pursuant to the notice dated 31[st] March, 2021 issued by theassessing officer, the petitioner filed E-Return of income on 22[nd]April, 2021 along with computation of income for the assessmentyear 2016-2017. The petitioner requested the assessing officer tofurnish various details including the reasons recorded for issuingnotice U/Sec. 148 of the I. T. Act, copy of sanction taken by theassessing officer from approving authority, copy of relevanttangible material which has been considered by the assessingofficer for the reasons to be recorded for re-assessmentproceedings. 8.It is submitted by the learned counsel for the petitionerthat, the assessing officer thereafter furnished the reasons forinitiating proceedings U/Sec. 147 of the I. T. Act for theassessment year 2016-2017 and also the approval granted by theJoint Commissioner of Income Tax, Range – 1, AurangabadU/Sec. 151 of the I. T. Act. He submits that, the said sanction U/Sec. 151 of the I. T. Act cannot be granted mechanically andwithout considering the material on record to be placed beforethe sanctioning authority by the assessing officer. He submitsthat, from the copy of the sanction produced by the assessingofficer U/Sec. 151 of the I. T. Act, it is clear that all thedocuments alleged to have been possessed by the assessingofficer were not produced before the Joint Commissioner ofIncome Tax while seeking sanction U/Sec. 151 of the I. T. Act. 5 wp 14336.21 9.The learned counsel for the petitioner invited our attentionto the order dated 02[nd] December, 2021 passed by the AssessingOfficer, Government of India, Ministry of Finance, Income TaxDepartment, National Faceless Assessment Centre, Delhirejecting the objection raised by the petitioner and informingthat the proceedings U/Sec. 147 of the I. T. Act would be furthercontinued. The petitioner was informed that, notice U/Sec.142(1) of the I. T. Act was being issued for necessary compliance. 5 wp 14336.21 9.The learned counsel for the petitioner invited our attentionto the order dated 02[nd] December, 2021 passed by the AssessingOfficer, Government of India, Ministry of Finance, Income TaxDepartment, National Faceless Assessment Centre, Delhirejecting the objection raised by the petitioner and informingthat the proceedings U/Sec. 147 of the I. T. Act would be furthercontinued. The petitioner was informed that, notice U/Sec.142(1) of the I. T. Act was being issued for necessary compliance. 10.The learned counsel for the petitioner submits that, all theinformation along with ledger of capital account, balance sheet,audit report were already submitted by the petitioner incompliance to the notice U/Sec. 142(1) of the I. T. Act and werealready on record before the assessing officer while passing theassessment order for the assessment year 2016-2017 on 25[th]December, 2018. Issuance of notice U/Sec. 148 of the I. T. Act forre-opening of the assessment order is without any tangiblematerial and is based on suspicion without any genuine‘reasonable belief’ that income had escaped. No reasons arerecorded by the assessing officer indicating any nexus or live linkbetween any fresh material which is to be the basis for reopeningof the alleged escapement of income. He submits that, the beliefof the assessing officer must be that of an honest and reasonableperson based upon reasonable grounds and cannot be on thebasis of mere suspicion, gossip or rumor. The entire proceedingsinitiated by the assessing officer U/Sec. 148 of the I. T. Act werewithout jurisdiction. The objections raised by the petitioner are 6 wp 14336.21 also not dealt with properly by the assessing officer whilepassing an order of rejection of objection. 11.The learned counsel for the petitioner submits that the socalled sanction granted by the Joint Commissioner of Income Taxon 31[st] March, 2021 itself would indicate that the assessingofficer had submitted a proposal for seeking such approval on 31[st]March, 2021. The reasons of the approving authority whilegranting such approval also would clearly indicate that all thedocuments and information were not furnished by the assessingofficer to the Joint Commissioner of Income Tax. 12.Learned counsel for the petitioner strongly placed relianceon the judgment of this Court in a case of Ashok Manikrao KhopadeVs. Principal commissioner of Income Tax 1, Nasik and othersin WritPetition No. 8818 of 2018 delivered on 25th March, 2019 and moreparticularly paragraph Nos. 6 and 14 and would submit that, theerstwhile assessing officer had already considered all thematerial produced by the petitioner pursuant to the directionsissued by the assessing officer regarding derivative transactionsand having accepted the income returned by the petitioner afterconsidering such material, the subsequent assessing officercannot reopen the assessment order already passed based onchange of information. 13.The learned counsel for the petitioner placed reliance onunreported judgment of this Court delivered on 21st August, 2019in a case of Marico Ltd. Vs. The Assistant Commissioner of Income Tax- 7 wp 14336.21 13.The learned counsel for the petitioner placed reliance onunreported judgment of this Court delivered on 21st August, 2019in a case of Marico Ltd. Vs. The Assistant Commissioner of Income Tax- 7 wp 14336.21 12(3)(2) and others in Writ Petition No. 1917 of 2019 and in particularparagraph Nos. 6, 7 and 10 to 12 and would submit that, afteradverting to the judgment of the Hon’ble Supreme Court in acase of CIT Vs. Kelvinator of India Ltd.reported in (2010) 320 ITR 561,this Court held that non rejection of explanation in theassessment order would amount to the assessing officeraccepting the view of the assessee, thus taking a view for formingan opinion would be completely without jurisdiction. He submitsthat, even if assessing officer in the original assessment orderhad not recorded any specific reasons while dealing withdocuments and details furnished by the petitioner, which werespecifically called for by the assessing officer, reopening ofassessment on the same facts is not permissible, otherwise itwould amount to review of the earlier order, which is notpermissible. He submits that, the Hon’ble Supreme Court hasrejected the SLP bearing Diary No. 7367 of 2020 on 01.06.2020arising out of the said judgment delivered by this Court on 21[st]August, 2019 in a case of Marico Ltd. Vs. The AssistantCommissioner of Income Tax-12(3)(2) and others (supra). 14.The learned counsel for the petitioner relied upon thejudgment of this Court in a case of Aroni Commercials Limited Vs. Dy.Commissioner of Income Tax – 2reported in Laws (Bom)-2014-2-43and in particular paragraph No. 16 and would submit that, whileissuing a notice for reopening of the assessment, the assessingofficer has to rely upon the tangible material made availableafter passing of the original assessment order, which tangiblematerial would be factual material and not inference/information 8 wp 14336.21 of material already existing and considered during theassessment proceedings. He submits that, this is not a case ofany new fact being available by virtue of any internal audit,which could lead to a reasonable belief that income chargeable totax has escaped the assessment. 15.Mr. Alok Sharma, the learned counsel for respondents onthe other hand invited our attention to the averments made inparagraph No. 2 and few other paragraphs of the affidavit inreply filed by respondents. He submits that, the assessing officerhas fully complied with the procedure for reopening of theassessment proceedings. 16.It is submitted that, the assessment order dated 25[th]December, 2018 for the assessment year 2016-2017 U/Sec. 143(3)of the I. T. Act was carried only for limited purpose on the issuewhether share capital was genuine and was income fromdisclosed sources or not. The said assessment was completedafter carrying out general nature of verification within the scopeof limited issue. The assessing officer in this case has in hispossession fresh and specific facts pertaining to the transactionsof the petitioner. The reopening has been done on the basis ofspecific information which was not available at the time ofassessment proceedings U/Sec. 143(3) of the I. T. Act. There wasthus, no change of opinion while initiating the re-assessmentproceedings U/Sec. 147(1) of the I. T. Act as sought to becanvassed by the petitioner. 9 wp 14336.21 9 wp 14336.21 17.Learned counsel for the respondents tendered a copy of theletter dated 09[th] December, 2019 and would submit that on thebasis of such information received by the assessing officer, noticeU/Sec. 148 of the I. T. Act was issued. This information was notavailable when the earlier assessment order on 25[th] December,2018 was passed by the assessing officer. The learned counselfor the respondents placed reliance on Section 147 of the I. T.Act and also to the 1[st] proviso and would submit that, once noticeU/Sec. 148 of the I. T. Act is issued within four years of thecompletion of assessment, assessment can be reopened. Hesubmits that, reasons are already recorded by the assessingofficer before issuance of notice. In support of this submission,the learned counsel for respondents invited our attention to thereasons recorded by the assessing officer at page No. 92 to 94 ofthe writ petition. He submits that, in the said reasons theassessing officer has clearly provided that, fresh information wasreceived by the assessing officer after completion of theassessment order earlier on 25[th] December, 2018 and based onfresh information received by the assessing officer, sanctionU/Sec. 151 of the I. T. Act was rightly obtained from the JointCommissioner of Income Tax on 31[st] March, 2021. 18.Learned counsel for respondents placed reliance on thejudgment of the Supreme Court in a case of Raymond Woollen MillsLtd. Vs. Income Tax Officer and others reported in (1999) 236 ITR 34(SC) and also another judgment of the Supreme Court in a case ofAssistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P.Ltd. reported in (2007) 291 ITR 500. He submits that on the basis 10 wp 14336.21 of the material information received by the assessing officer afterpassing of the assessment order in the year 2018, the assessingofficer has rightly formed an opinion for reopening of theassessment in view of the earlier order and escaped assessment. 19.The learned counsel for respondents placed reliance on thejudgment of this Court in a case of Ajeet Seeds Pvt. Ltd. Vs. TheUnion of India through Assistant Commissioner of Income Tax Aurangabadreported in (2018) TaxCorp (DT) 71634 (HC-BOMBAY) and moreparticularly paragraph Nos. 16 to 18 and would submit that, thisCourt has laid down the guidelines on the exercise of powers ofthe Court while dealing with the action on the part of theassessing officer to issue notice U/Sec. 148 of the I. T. Act foropening the reassessment. 20.Learned counsel for respondents placed reliance on thejudgment of the Gujarat High Court in a case of Sanjab BaulalSurana Vs. Assistant Commissioner of Income Taxreported in(2021)111 CCH 193 (HC-GUJARAT) in support of the submissions that,since the reasons for the formation of the belief by the AssessingOfficer in the instant case have a rational connection with orrelevant bearing on the formation of belief that there has beenescapement of the income of the assessee from assessment in theparticular year because of his failure to disclose fully and trulyall material facts, no interference is warranted by this Court inthis petition filed under Article 226 of the Constitution of India. 11 wp 14336.21 20.Learned counsel for respondents placed reliance on thejudgment of the Gujarat High Court in a case of Sanjab BaulalSurana Vs. Assistant Commissioner of Income Taxreported in(2021)111 CCH 193 (HC-GUJARAT) in support of the submissions that,since the reasons for the formation of the belief by the AssessingOfficer in the instant case have a rational connection with orrelevant bearing on the formation of belief that there has beenescapement of the income of the assessee from assessment in theparticular year because of his failure to disclose fully and trulyall material facts, no interference is warranted by this Court inthis petition filed under Article 226 of the Constitution of India. 11 wp 14336.21 judgment of the Gujarat High Court in a case of Backbone ProjectsLimited Vs. The Assistant Commissioner of Income Tax, Circle 1 (1)reported in (2021) TaxCorp (DT) 85341 (HC-GUJARAT) in supportof the submission that, since the Assessing Officer had issuednotice for reopening of the assessment order under Section 147 ofthe Income Tax Act, 1961 before four years from the end ofrelevant assessment year, the condition set out in the saidprovision had been fully satisfied by the Assessing Officer whileissuing notice under Section 148 of the Income Tax Act, 1961.He submits that, the Assessing Officer was justified in issuingnotice on the basis of the credible information and tangiblematerial found subsequently. 22.Learned counsel for respondents placed reliance on thejudgment of this Court in a case of Chhagan Chandrakant BhujbalVs. Income Tax Officer Ward 20 (1) (3), Mumbai, Commissioner ofIncome Tax-20 Mumbaireported in (2021) TaxCorp (DT) 86184 (HC-BOMBAY)and in particular paragraph no.13 in support of thesubmissions that, since the petitioner had participated in theassessment proceedings before the Assessing Officer, this Courtshall not exercise its extraordinary jurisdiction under Article 226of the Constitution of India for interfering with the proceedingsbefore the Assessing Officer. 23.Learned counsel for respondents placed reliance on thejudgment of the Hon’ble Supreme Court in a case of ACIT VS.Rajesh Jhaveri Stock Brokers (P) Ltd.reported in (2007) 291 ITR500(SC)and would submit that, after interpreting ‘reason’ in the 12 wp 14336.21 phrase ‘reason to believe’ would mean cause or justification. Ifthe Assessing Officer has cause or justification to know orsuppose that income had escaped assessment, it can be said tohave reason to belief that an income had escaped assessment.The expression cannot be read to mean that the Assessing Officershould have finally ascertained the fact by legal evidence orconclusion. The function of the Assessing Officer is to administerthe statute with solicitude for the public exchequer with aninbuilt idea of fairness to taxpayers. He submits that, at thisstage, the only question that is required to be considered iswhether there was relevant material on which a reasonableperson could have formed a requisite belief. Whether thematerial would conclusively prove the escapement is not theconcerned at that stage. He submits that, the formation of beliefby the Assessing Officer is within the realm of subjectivesatisfaction. 24.Learned counsel for respondents distinguished thejudgment relied upon by Mr. Chandak, learned counsel for thepetitioner. He submits that, the judgment relied by the petitionerin the case of Principal Commissioner of Income Tax 5 Vs. ShodimanInvestments (P) Ltd.reported in (2018) 93 taxmann.com, 153(Bombay)was passed in Income Tax Appeal and not in WritPetition. He submits that, in the Income Tax Appeal, the Courthas to deal with the issue in the greater detail, whereas in WritPetition only limited issue arise for consideration. He submitsthat, in this case there is no case of non-application of mind. 13 wp 14336.21 24.Learned counsel for respondents distinguished thejudgment relied upon by Mr. Chandak, learned counsel for thepetitioner. He submits that, the judgment relied by the petitionerin the case of Principal Commissioner of Income Tax 5 Vs. ShodimanInvestments (P) Ltd.reported in (2018) 93 taxmann.com, 153(Bombay)was passed in Income Tax Appeal and not in WritPetition. He submits that, in the Income Tax Appeal, the Courthas to deal with the issue in the greater detail, whereas in WritPetition only limited issue arise for consideration. He submitsthat, in this case there is no case of non-application of mind. 13 wp 14336.21 25.Learned counsel for respondents distinguished thejudgment in a case of Assistant Commissioner of Income Tax Vs.Dhariya Construction Companyreported inLex (SC) 2010 2 87 onthe ground that, in this matter the Assessing Officer had issuednotice under Section 148 of the Income Tax Act, 1961 on thebasis of the additional information after passing earlierassessment order. 26.Learned counsel for the respondents distinguished thejudgment in a case of CIT Jabalpur Vs. M/s. S. Goyanka Lime andChemicals Ltd.inIncome Tax Appeal No.82 of 2012on the groundthat, in that case the Joint Commissioner of Income Tax hadpassed one line order recording his satisfaction before grantingsanction under Section 151 of the Income Tax Act, 1961, whereasin this case, the Joint Commissioner of Income Tax had grantedsanction by applying his mind and after considering the materialproduced by the Assessing Officer before him. 27.Learned counsel for the respondents distinguished thejudgment of this Court in case of Gagan Omprakash Navani Vs.Income Tax Officerin Writ Petition No.1601 of 2022on the groundthat, in that case there was complete scrutiny while passing theearlier assessment order under Section 143(3) of the Income TaxAct, 1961, but in this case the assessment was passed on randombasis for limited purpose. There was limited scrutiny underCASS. 28.Mr. Chandak, learned counsel for the petitioner in his 14 wp 14336.21 rejoinder arguments submits that, for the purpose of reopeningassessment, there shall not be change of opinion on the part ofthe Assessing Officer. If notice for reopening of the assessmentis issued after four years and before six years, the AssessingOfficer has to satisfy additional requirement prescribed underthe said provisions. The Assessing Officer could not have beenformed a different opinion on the basis of the same facts anddocuments. It is not the case of the respondents that, there wereany fresh reason for reopening of the assessment. On thecontrary, the case of the respondents in that order recordingreasons is that, all the documents are already on record. Hesubmits that, purpose of obtaining prior sanction from thecompetent authority under Section 151 of the Income Tax Act,1961 is to check unwarranted use of powers under Section 148 ofthe Income Tax Act so as not to harass the assessee. He submitsthat, no reasons are recorded by the Joint Commissioner ofIncome Tax while granting sanction under Section 156 of theIncome Tax Act, 1961. He relied upon the judgment of this Courtin case of Principal Commissioner of Income Tax 5 Vs. ShodimanInvestments (P) Ltd.(supra). He submits that, the judgment ofthe Hon’ble Supreme Court in a case of Assistant Commissioner ofIncome Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd.(supra) has beenclarified the said judgment. The Assessing Officer did not submitany investigation report upon the petitioner alongwith Writ Petition. 29.Learned counsel for the petitioner relied upon the judgment ofthe Hon’ble Supreme Court in a case of Assistant Commissioner ofIncome Tax Vs. Dhariya Construction Company and would submit 15 wp 14336.21 29.Learned counsel for the petitioner relied upon the judgment ofthe Hon’ble Supreme Court in a case of Assistant Commissioner ofIncome Tax Vs. Dhariya Construction Company and would submit 15 wp 14336.21 that, this case is a case of total non-application of mind and thusinterference under Article 226 of the Constitution of India iswarranted in this case. He also relied upon the judgment of MadhyaPradesh High court in a case of CIT Jabalpur Vs. M/s. S. GoyankaLime and Chemicals Ltd.(supra) in support of submission and alsoin case of Gagan Omprakash Navani Vs. Income Tax Officer(supra). Reasons and conclusions : 30.The question that arises for consideration of this Court iswhether assessing officer had any fresh information for thepurpose of issuing notice U/Sec. 148 of the I. T. Act for re-openingof the assessment order for the assessment year 2016-2017 insupport of the case of the assessing officer that the income of thepetitioner had escapped in the assessment order or not ? 31.The petitioner had filed income tax return for theassessment year 2016-2017 on 29[th] September, 2016 declaringtotal income of Rs. 56,92,100/-. The asessing officer had issued anotice for scrutiny assessment of the petitioner for the saidreturn of income filed by the petitioner for the assessment year2016-2017. On 03[rd] September, 2018, the assessing officer issuednotice U/Sec. 142(1) of the I. T. Act and called upon the petitionerto furnish various information regarding derivative transations.A perusal of the said notice dated 03[rd] September, 2018 and moreparticularly paragraph No. 6 indicates that, in the said notice itwas observed by the assessing officer that in the balance sheetthe petitioner had debited loss from derivatives trading of Rs. 16 wp 14336.21 81,48,469/- and in that connection was called upon to furnishdetails i. e. (I) statement of purchase and sales of derivatives, (ii)copies of brokers note, (iii) copies of ledger account of brokermaintained by the petitioner and (iv) copies of Demat account.In para No. 7 of the said notice it was specifically held that,according to the assessing officer there was no profit and lossaccount maintained by the petitioner HUF. In the capitalaccount net business income had not been credited/debited. Thepetitioner was accordingly called upon to show as to why set offof lossess of F & O Trading against remuneration and interestearned from partnership firm should not be disallowed andadded to your total income of the petitioner. It was made clear inthe notice that, if those details were not submitted electronically,non compliance, part compliance or incompete compliance mayentail penal action and/or adverse inference in respect of the saidissue and/or taking recourse to rejection of books results andassessment U/Sec. 144 of the I. T. Act without any furtherreference to the petitoiner in that regard. 32.The petitioner, through its Chartered Accountant videletter dated 20[th] October, 2018 furnished various details to theassessing officer. The petitioner informed the assessing officerthat, the petitioner had incurred loss from derivative trading ofRs. 81,48,470/- in the said assessment year 2016-2017 andsubmitted statement of derivatives trading along with copy ofbroker note, ledger account of broker as appearing in books ofthe petitioner. The petitioner clarified that no Demat accountwas required for trading in F & O. The petitioner informed that, 17 wp 14336.21 32.The petitioner, through its Chartered Accountant videletter dated 20[th] October, 2018 furnished various details to theassessing officer. The petitioner informed the assessing officerthat, the petitioner had incurred loss from derivative trading ofRs. 81,48,470/- in the said assessment year 2016-2017 andsubmitted statement of derivatives trading along with copy ofbroker note, ledger account of broker as appearing in books ofthe petitioner. The petitioner clarified that no Demat accountwas required for trading in F & O. The petitioner informed that, 17 wp 14336.21 during the year under assessment, the petitioner had enteredinto derivatives, i. e. options trading on recognized stockexchange. The petitioner had prepared derivative account in itsfinancial statement, which was already submitted in its earliersubmission. The loss from said derivatives trading was debitedto capital account of the petitioner. The petitioner also clarifiedthat transactions of derivative trading were in the nature ofbusiness only. The petitioner relied upon clause (d) of Subsection 5 of Section 43 of the I. T. Act in support of the contentionthat an eligible transaction in respect of trading in derivativesreferred to in clause (ac) of section 2 of the Securities Contracts(Regulation) Act, 1956 carried out in a recognized stockexchange, was not to be deemed to be speculative transaction. 33.The assessing officer issued another notice U/Sec. 142(1) ofthe I. T. Act in continuation of the earlier notice and the replysubmitted by the petitioner on 27[th] November, 2018 and calledupon the petitioner to furnish various details. The petitionerwas called upon to produce the original contract note of thetransactions for verification, to provide copy and details ofaccount opening Form and copies of letter issued by the brokeralong with account opening fees provided by the petitioner andvarious documents. The petitioner was also called upon todisclose the reasons for trading done in end of the year. Inresponse to the said notice U/Sec. 142(1) of the I. T. Act, thepetitioner through its Chartered Accountant letter dated 14[th]December, 2018 submitted various documents. The petitoinerclarified that the petitioner had done transaction in derivatives. 18 wp 14336.21 There was no specific reason to carry out those transactions inthe month of March. 34.The assessing officer thereafter completed the assessmenton 25[th] December, 2018 for the said assessment year 2016-2017and accepted the returned income as furnished by the petitionerin the sum of Rs. 56,92,100/-. A perusal of the said assessmentorder indicates that, according to the said assessment order, thecase of the petitioner was selected for scurtiny under CASS forlimited purpose to examine whether the share capital wasgenuine and from disclosed sources. It was stated in theassessment order that, on verification of return filed and onverification of details and documents filed during the assessmentproceedings vis-a-vis reason for selection of case for scrutiny, theassessment was completed. In paragraph No. 4 of the saidassessment order it was stated that, on verification of details anddocuments furnished and on going through the return of incomefurnished, the total income of the assessee was accepted asdeclared in the return of income filed as Rs. 56,92,100/-. The saidassessment order was passed U/Sec. 143(3) of the I. T. Act. 35.A perusal of the reasons recorded by the assessing officerfor initiation of proceedings U/Sec. 147 of the I. T. Act indicatesthat, according to the assessing officer as per the informationreceived from I.T.O. (I&C), Aurangabad through insight portal,it was seen from the trade activity of the petitioner that, thesame scripts had been bought and sold immediately withinseconds and huge loss has been booked on such transactions. 35.A perusal of the reasons recorded by the assessing officerfor initiation of proceedings U/Sec. 147 of the I. T. Act indicatesthat, according to the assessing officer as per the informationreceived from I.T.O. (I&C), Aurangabad through insight portal,it was seen from the trade activity of the petitioner that, thesame scripts had been bought and sold immediately withinseconds and huge loss has been booked on such transactions. 19 wp 14336.21 The price of the scripts in which the assessee had traded, hadrecorded abnormal movement within few seconds on the sameday so as to enable the assessee to book substantial amount ofloss. This loss has been booked with an intention to reducetaxable income due to profit of normal business carried out bythe assessee. The assessee had tried to colour its non genuinetransaction as genuine trade and had claimed to have bookedhuge loss amounting to Rs. 81,48,170/- for the assessment year2016-2017. 36.In paragraph No. 3 of the said reasons, it is mentionedthat, during the course of assessment proceedings in this case, itwas observed that the assessee had booked loss on call options.The assessee has submitted that it had not exercised the optionon the date of the expiry and, thus, total premium paid forpurchase of said call option was loss to the assessee. Thepetitioner had considered the said loss as business loss andreduced it from remuneration and interest received by theassessee from the partnership firm. During the course ofassessment proceedings, notice U/Sec. 133(6) of the I. T. Act wasissued to the broker of the said transactions, M/s RoopchandToshniwal of Kolkatta, but no response was received. Thepetitioner was also unable to produce supporting evidence inthat regard. However, as the case of the petitioner was selectedfor limited scrutiny for different issue, no addition was made.The assessing officer observed that, from the above discussionmentioned in the said reasons and the information available onrecord, it was clear that assessee had entered into a sham 20 wp 14336.21 transaction to obtain loss for the purpose of set-off of his taxableincome. 37.The assessing officer found that the petitioner had claimedbogus loss on account of call option amounting to Rs. 81,48,170/-and the same needs to be disallowed and added to the income ofthe assessee. The assessing officer accordingly mentioned that,he had reasons to believe that the income to the extent of Rs.81,48,170/- had escaped assessment. In paragraph No. 8 of thesaid reasons, it is recorded that since the return of income filedby the petitioner was selectd for CASS for limited scrutiny fordifferent reasons, discrepancy was observed, in the return filedby the petitoiner, but no action could be taken and thus onlyrequirement to initiate proceedings in this case U/Sec. 147 wasreason to believe which had been recorded in paragraph Nos. 5and 6 of the said reasons. 38.A perusal of the sanction/approval granted by the JointCommissioner of Income Tax on 31[st] March, 2021 U/Sec. 151 ofthe I. T. Act indicates that, the assessing officer had sent theproposal for approval of the Joint Commissioner of Income Taxon 30[th] March, 2021. The approval was granted on 31[st] March,2021. In the said approval U/Sec. 151 of the I. T. Act, the Jointcommissioner of Income Tax has referred to the reasons tobelieve as per the annexure to the said approval. In the remarkscolumn, the Joint Commissioner of Income tax observed that, “inview of the details and quantum of undisclosed transactionsdiscussed by the assessing officer in the reasons recorded, I am 21 wp 14336.21 satisfied it is a fit case for the issue of notice under section 148 ofthe Income-tax Act, 1961. Sanction under section 151(2) for theissue of notice under section 148 is therefore accorded in thiscase.” 21 wp 14336.21 satisfied it is a fit case for the issue of notice under section 148 ofthe Income-tax Act, 1961. Sanction under section 151(2) for theissue of notice under section 148 is therefore accorded in thiscase.” 39.In response to the reasons recorded by the assessing officerand conveyed to the petitioner, the petitioner vide its CharteredAccountant’s letter dated 19[th] July, 2021 recorded variousobjections to the reasons and relied upon various judgments ofthis Court and various other High Courts and requeted theassessing officer to drop the proceedings initiated U/Sec. 148 ofthe I. T. Act. The assessing officer thereafter passed order on02[nd] December, 2021 and rejected the objection of the petitioneron the ground that same were devoid of any merits. Thepetitioner was informed that the proceedings U/Sec. 147 of the I.T. Act will be continued further. The petitoner was informedthat during the course of assessment proceedings petitionerwould be confronted with material available on record andadequate opportunity would be provided to explain its case onmerits and the resultent order would be passed on an objectiveappraisal of the evidence available. The petitioner was calledupon to participate in the assessment proceedings and to providethe information/documents. 40.During the course of argument Mr. Alok Sharma, thelearned counsel for respondents tendered a copy of thecomunication dated 09[th] December, 2019 received from the officeof the Income Tax Officer (I&CI), Aurangabad referred in the 22 wp 14336.21 reasons communicted to the petitioner forwarding theinformation regarding verification of reversal trades making nongenuine profit of Rs. 21,96,600/- by Shrikant Phulchand Bhakkad(HUF) during financial year 2014-2015 and 2015-2016. In thesaid letter, it was stated that information was received under theSpecial Pilot project from DIT (I&CI), Mumbai regarding TaxEvasion through trading in options derivative through tradereversal. The information was received in the name of ShrikantPhulchand Bhakkad (HUF) for Rs. 21,96,600/- in two piecesalong with the approval U/Sec. 133(6) from DIT (I&CI), Punedated 11[th] September, 2018. 41.In the said communication it is further stated that, theSecurities and Exchange Board of India came across severalinstances/internal alerts wherein a set of entities wereconsistently making loss or profit by their trading in options onindividual stocks (stock options) which were listed on theBombay Stock Exchange Limited (BSE). Trading of theseentities was found abnormal because they were consistently seenmaking significant loss or profit by their trades which werereversed with the same counter parties either on the same day orthe next day. It was further observed that, there were severalentities who consistently made significant loss and others whoconsistently made significant profit by executing reversal tradesin stock options on the BSE. 42.It is further stated in the said communication that, thenotice U/Sec. 133(6) dated 26.06.2019 was issued to the assessee. 23 wp 14336.21 The Assessee however, did not submit details of stock tradingproperly. The assessee was once again called upon to submitproper details. 42.It is further stated in the said communication that, thenotice U/Sec. 133(6) dated 26.06.2019 was issued to the assessee. 23 wp 14336.21 The Assessee however, did not submit details of stock tradingproperly. The assessee was once again called upon to submitproper details. 43.In the said communication it is stated that from the tradeactivity of the assessee it is seen that the same scripts have beenbought and sold immediately within seconds and huge loss hasbeen booked on such transactions. It was stated that in so far asscript TITAN is concerned, the total transaction was conductedwithin six seconds showing the loss of Rs. 5,00,000/- on the sameday. The assessee had booked a non genuine loss of Rs.5,00,000/-. The said analysis would show that trade rates werecompletely out of sync with the movement in the price ofunderlying asset. One Lac shares were sold on 26[th] March, 2015at 11.11.36 @ 0.2 per script for the total sum of Rs. 20,000/- andon the same day 11.11.42 One lac shares were purchased of thesame company at Rs. 5.2 per share for total sum of Rs. 5.20,000/-. 44.It is further stated in the said communication that, in caseof script of UCO bank also similar transactions were carried outwithin a span of 23 seconds and a non genuine loss of Rs.5,04,000/- was claimed and appropriated against other income ofthe assessee. It is further stated that the assessee has shown aloss of Rs. 21,00,427/- for the assessment year 2015-2016 onaccount of F and O trading and had shown loss of Rs. 81,48,470/-for assessment year 2016-2017 under the said head. However, asper the information received from DIT (I&CI), Mumbai a totalloss booked by the assessee firm was Rs. 21,96,600/- i. e. one 24 wp 14336.21 executed on 26.03.2015 and other on 31[st] March, 2015. It wasstated that the said loss had been booked with a view to reducethe profit and abnormal business carried out by the assessee. 45.It was seen that the issue under consideration of the officehad not been examined by the assessing officer while passing theassessment order. The transactions entered into by the assesseewere non genuine and were carried out with a view to avoidpaying tax. The assessee had set off the loss incurred from F &O Trading against profit booked from normal business activity.This is a text book case of tax avoidance. In the saidcommunication it was further stated that, the information wasbeing forwarded to the Pr. commissioner of Income Tax-1,Aurangabad as per the minutes of the Annual Conference of DITand as proved by the Chairman DBDT, New Delhi, with arequest to direct the jurisdictional assessing officer to takenecessary remedial action in the case of the assessee for theassessment year 2015-2016 and for the assessment year 2016-2017. The said office had verified only two transactions oftrading in script on test check basis. The jurisdictional assessingofficer to be requested to verify all the transactions entered intoby the assessee for determining the total tax liability of theassessee. 46.A perusal of the record indicates that, based on the saidinformation received from the Income Tax Officer – (I&C),Aurangabad giving details, assessing officer issued notice U/Sec.148 of the I. T. Act and for the reasons recorded by the assessing 25 wp 14336.21 46.A perusal of the record indicates that, based on the saidinformation received from the Income Tax Officer – (I&C),Aurangabad giving details, assessing officer issued notice U/Sec.148 of the I. T. Act and for the reasons recorded by the assessing 25 wp 14336.21 officer, a reference was made to the information received fromIncome Tax Officer (I&C), Aurangabad from insight portal.Based on the said information and after application of mind, theassessing oficer recorded the reasons that as the case wasselected for limited scrutiny issue, initially no additions weremade. It appears that on the information available on record,assessing officer is of reasonable belief that the petitoiner hadentered into a sham transaction to obtain loss for the purpose ofset off of his taxable income. In our view, there is no substancein the submissions made by Mr. Chandak, the learned counselfor the petitioner that, there was no application of mind on thepart of the assessing officer while issuing notice U/Sec. 148 of theI. T. Act. 47.A perusal of the assessment order dated 25[th] December,2018 for the assessment year 2016-2017 clearly indicates that, itis recorded in paragraph No. 2 that the case was selected forscrutiny under CASS for limited purpose to examine whether theshare capital was genuine and from disclosed sources. Noticeswere accordingly