Case Law Details
Sandipkumar Parsottambhai Patel Vs ITO (ITAT Surat)
We note that in assessees case, the assessing officer received information from the Investigation Wing, Kolkata who had carried out survey / search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss. We note that on the basis of the information received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. In the assessee`s case, the assessing officer has failed to do so. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification. We note that from the reasons recorded, it appeared that the impugned reopening proceedings were on the borrowed satisfaction. No independent opinion was formed by Assessing Officer in the assessee’s case under consideration. Under the circumstances, the assumption of the jurisdiction to reopen the assessment under section 147 of the Act is bad in law.
The grounds or reasons which lead to the formation of the belief contemplated by section 147 of the Act must have a material bearing on the question of escapement of income of the assessee from assessment. As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. From our above analysis of reasons recorded in the assessee`s case under consideration, we note that the reasons recorded by the assessing officer falls in the zone of “reason to suspect” and not “reason to believe“, therefore we quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
FULL TEXT OF THE ORDER OF ITAT SURAT
Captioned two appeals filed by the assessee pertaining to assessment year(s) 2013-14 and 2014-15, are directed against the separate orders passed by the Learned Commissioner of Income Tax(Appeals)-3, Vadodara both dated 30.08.2018, which in turn arise out of separate assessment order(s) passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide order dated 28.12.2017 and 26.12.2016 respectively.
2. Since both appeals relate to same the assessee, for different assessment years, however, identical and common issues are involved, therefore these appeals have been clubbed and heard together and a consolidate order is being passed for the sake of convenience and brevity.
3. First, we shall take assessee`s appeal in ITA No.08/SRT/2019, for Assessment Year 2013-14. The grounds of appeal
“1. On the facts and circumstances of the case as well as law on the subject the learned assessing officer had erred in reopening the assessment u/s 147 by issuing notice u/s 148 of the I.T.Act, 1961.
2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of income Tax (Appeals) has erred in confirming the action of the assessing officer in disallowing the exemption of Rs.17,56,592/-claimed by assessee u/s 10(38) on account of Long Term Capital Gain and treating it as the accommodation entry and thereby making addition u/s 68 of the Act.
3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of income Tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.87,290/- on account of unexplained expenditure u/s 69C of the Act for commission payment for procuring the alleged accommodation entry.”
4. Brief facts of the issue in dispute are stated as under. Assessee is an individual and his assessment was reopened under section 147/148 of the Act. The assessing officer received information from Investigation Wing of Kolkata, which had carried out survey / search operations wherein it was established that in large number of penny stock companies the share prices were artificially raised on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss (“LTCG” for short). The information as per EFS / ITS data / Penny Stock reflects that the assessee has shown LTCG of Rs.17,56,592/- on which STT has been paid which is claimed as exempt and the scrip being Global Securities Ltd., is one of the penny stock companies utilised by Stock Brokers for providing bogus accommodation entries. Therefore, the case was reopened to examine suspicious sale transaction in shares (penny scrip). Hence, a notice u/s 148 of the Act was issued on 10.02.2017 after obtaining necessary approval from the higher authorities. The assessee vide his letter, dated 31.03.2017, has requested to treat the original return filed on 29.03.2014 declaring total income of Rs.3,20,960/- as return filed in response to notice issued u/s 148 of the Act. Thereafter, reasons for reopening the case were furnished, by letter, dated 12.04.2017. Later on a notice u/s 142(1) dated 26.05.2017 along with a questionnaire was issued calling for details with regard to scrutiny reassessment proceedings, which was duly served upon the assessee.
5. Thereafter, the assessing officer discussed the assessee`s case on merits and noted that assessee had claimed exemption of LTCG on sale of the scrip, Global Securities Ltd. However, on perusal of the assessment record of earlier years of the assessee it was noticed by assessing officer that such a huge amount of exempted capital gain has never been earned in earlier years by the assessee. Further, the reason for reopening the case is “to examine the earning of suspicious capital gain from transaction in penny stock”. The assessee submitted that he has earned genuine capital gain and to substantiate it`s plea he submitted documents, evidences and written submissions before the assessing officer. However, the assessing officer has rejected the stand taken by the assessee and observed that huge capital gains was earned by assessee within a very short period of time by investing in a penny stock. This activity of the assessee was neither the result of a coincidence nor of a genuine investment activity but were created through well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scripts worked in tandem to achieve the predetermined objectives. Therefore, the claim of LTCG u/s 10(38) was denied by the assessing officer, and the amount of Rs.17,56,592/- was added to the total income u/s 68 of the Act.
6. The assessing officer also observed that it was established by the Investigation Directorate, Kolkata that for getting accommodation entries for bogus LTCG, a commission of approximately 5% was given to the entry providers by the assessee. Therefore, a sum of Rs.87,290/-( being 5% of Rs.17,45,592/- claimed as LTCG), was disallowed u/s 69C of the Act as unexplained expenditure.
7. Aggrieved by the order passed by the Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has confirmed the action of the Assessing Officer. Aggrieved by the order of Ld. CIT(A) the assessee is in appeal before us.
8. We note that assessee did not raise objections against the reasons recorded u/s 147 of the Act in the course of assessment proceedings. Further, the ground regarding the validity of assessment was not raised before Ld CIT(A) on the contrary same raised before the Tribunal in Form 36 filed with additional ground. Learned Counsel submits before us that additional ground of appeal may be admitted as it is being purely a legal issue and all facts are already on record. On the other hand, Learned DR for the Revenue pleaded that assessee did not raise this issue during the appellate proceedings, before the ld CIT(A), therefore, at this stage the assessee cannot raise additional ground on legal issue. We note that assessee has raised the additional ground on the legal issue challenging the validity of reassessment proceedings under section 147/148 of the Act. During the assessment stage assessee did not file return of income in response to notice issued u/s 148 of the Act but he filed reply in the course of assessment proceedings stating to treat original return of income filed under section 139(1) of the Act, as the return of income field in response to notice u/s 148 of the Act. Therefore, the facts relating to reopening the assessment under section 147 were there before the assessing officer.
We note that it is purely a legal issue and all facts are already on record which goes to the root of the matter and no further inquiry is required for deciding the same as all facts are already on record. Therefore, considering these facts we admit the additional ground raised by the assessee challenging re-assessment proceedings u/s 147 r.w.s. 148 of the Act, in the light of ratio laid down by the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee.
9. Now, we shall examine the reasons recorded by the Assessing Officer in the assessee’s case. The reasons recorded for re-opening assessment, u/s 147 of the Act for assessment year 2013-14 is reproduced below:-
“ The assessee filed return of income for the year under consideration on 29.03.2014 declaring total income at Rs.3,20,960/-.
In this case, information is received from the Investigation Wing of Kolkata which had carried out survey / search operations wherein it was established that in large number of penny stock companies the share prices were artificially raised on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss. The Information as per EFS / ITS data / penny stock reflects that the assessee has shown Long Term Capital Gain of Rs.17,56,592/- on which STT has been paid which is claimed as exempt.
This is one such case wherein the assessee has claimed that the Long Term Capital Gain amounting to Rs.17,56,592/- arising out of sale of shares is exempt and the scrip name being Global Securities Ltd. Which is one of the companies utilized by Anand Rathi Share and Stock Brokers Ltd for providing bogus accommodation entries. The said fact was duly accepted before the Investigation Authorities, Kolkata Wing in the statement taken on oath u/s 131 of the I.T. Act. Of Shri Sanjay Vora, Regional Directsor, East Zone of M/s Anand Rathi Shares and Stock Brokers Ltd., during the course of Survey Operation u/s 133A of the Act.
In view of the above facts, I have reason to believe that income to the extent of Rs.17,56,592/- has escaped assessment for A.Y 2013-14 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary in the return of income. Hence, notice u/s 148 r/w/s/ 147 of the Income Tax Act, 1961 is to be issued for the assessment year 2013-14.”
10. Learned Counsel for the assessee invited our attention to the order dated 07.01.2021, passed by the Division Bench of this Tribunal in assessee’s group case of Shri Nishant Kantilal Patel and Smt. Muktaben Nishantbhai Patel vs. ITO Ward-2(2), Bharuch in ITA Nos. 05-06/SRT/2019 for assessment year 2013-14 decided on 07.01.2021, whereby the issue relating to reopening the assessment u/s 147 on the basis of identical reasons recorded have been discussed and issue has been adjudicated in favour of assessee. Learned Counsel for the assessee submitted that the present appeal is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench.
We note that identical reasons for re-opening assessment has been recorded by the Assessing Officer in the group cases in case of Shri Nishant Kantilal Patel and Smt. Muktaben Nishantbhai Patel vs. ITO Ward-2(2), Bharuch in ITA Nos. 05-06/SRT/2019 for assessment year 2013-14 decided on 07.01.2021 (supra). The findings given by the Co-ordinate Bench on the identical issue is mentioned in para-19 to 26 of the said order, which is reproduced below:
“19. Coming to the ‘reasons recorded’ for reopening the assessment proceedings, we note that arguments advanced by the ld Counsel are that there is no tangible material before the assessing officer, information received from Intelligence Wing of Kolkata is only an information, and there is no live link between the material in possession of the assessing officer and formation of belief, therefore these reasons recorded by the assessing officer are bad in law. On the other hand, arguments advanced by the ld DR for the Revenue are that the assessing officer after getting the information from the Investigation wing, Kolkata, has examined the said information, applied his mind and then he got satisfaction, hence there is a ‘reason to believe’ that chargeable income has escaped assessment, thus reasons recorded by the assessing officer are valid.
In such a controversial situation, we are of the view that first of all it would be necessary to examine the ‘reasons recorded’ by the assessing officer. The ‘reasons recorded’ by the assessing officer which is placed in paper book page No. 76 is reproduced below:
“The assessee filed return of income for the year under consideration on 29.3.2014 declaring total income at Rs.7,77,230/-.
In this case, information is received from the Investigation Wing, Kolkata who had carried out survey / search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss. The Information as per EFS / ITS data / penny stock reflects that the assessee has shown Long Term Capital Gain of Rs.20,76,924/- on which STT has been paid which is claimed as exempt.
This is one such case wherein the assessee has claimed that the Long Term Capital Gain amounting to Rs.20,76,924/- arising out of sale of shares is exempt and the scrip name being Global Securities Ltd. which is one of the companies utilized by Anand Rathi Share and Stock Brokers Ltd. for providing bogus accommodation entries. This fact was duly accepted before the Investigation Authorities, Kolkata Wing in the statement taken on oath u/s.131 of the I.T.Act of Shri Sanjay Vora, Regional Director, East Zone of M/s.Anand Rathi Shares and Stock Brokers Ltd during the course of Survey Operation u/s.133A of the Act.
In view of the proceedings conducted by the Investigation Wing, Kolkata and after perusal of the information received from the Investigation wing, Kolkata as well as available data, I have reason to believe that income to the extent of Rs.20,76,924/- has escaped assessment for A.Y. 2013-14 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary in the return of income. Hence, notice u/s. 148 r.w.s 147 of the Income tax Act, 1961 is to be issued for the assessment year 2013-14.
Sd/-
[MUKESH KUMAR]
Income-TAX Officer,
Ward-2(2). Bharuch.”
Place: Bharuch
Dated: 10.02.2017
20. Now, we shall analyze the ‘reasons recorded, as follows: We note that second para of the ‘reasons recorded’ contains only general information; the said general information is not in the context of the assessee. At the cost of repetition but for the sake of convenience the second para of the reasons recorded is again reproduced below:
“In this case, information is received from the Investigation Wing, Kolkata who had carried out survey / search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss.”
We note that above noted reasons are only information. This ‘information’ does not say that in case of assessee under consideration the income chargeable to tax has escaped assessment within the meaning of section 147 of the Income Tax Act 1961 on account of share price manipulation on the stock exchange. Moreover, Investigation Wing, Kolkata had not carried out any survey or search operation on the assessees, it is a survey or search operation conducted by the Investigation Wing on other assessees, therefore the findings of the Investigation Wing, Kolkata in respect of other assessees are not applicable on the assessee. The Assessing Officer has to record the reasons in respect of assessee, which he has failed to do so.
21. We reproduce third para of the ‘reasons recorded’ for our convenience and analysis, as follows:
“This is one such case wherein the assessee has claimed that the Long Term Capital Gain amounting to Rs.20,76,924/- arising out of sale of shares is exempt and the scrip name being Global Securities Ltd. which is one of the companies utilized by Anand Rathi Share and Stock Brokers Ltd. for providing bogus accommodation entries. This fact was duly accepted before the Investigation Authorities, Kolkata Wing in the statement taken on oath u/s.131 of the I.T.Act of Shri Sanjay Vora, Regional Director, East Zone of M/s.AnandRathi Shares and Stock Brokers Ltd during the course of Survey Operation u/s.133A of the Act.”
The statement taken on oath u/s.131 of the I.T.Act of Shri Sanjay Vora, Regional Director, East Zone of M/s.Anand Rathi Shares and Stock Brokers Ltd during the course of Survey Operation u/s.133A of the Act, does not contain the name of the assessee. The said statement does not relate to broker of assessee, moreover, the assessee did not sell shares through M/s Anand Rathi Share & Brokers but through Arcadia Share and Brokers Pvt. Ltd. Therefore, the said “reasons recorded” by the assessing officer are not directly related to the assessee under consideration.
22. We reproduce fourth para of the ‘reasons recorded’ for our convenience and analysis, as follows:
“In view of the proceedings conducted by the Investigation Wing, Kolkata and after perusal of the information received from the Investigation wing, Kolkata as well as available data, I have reason to believe that income to the extent of Rs.20,76,924/- has escaped assessment for A.Y. 2013-14 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary in the return of income. Hence, notice u/s. 148 r.w.s 147 of the Income tax Act, 1961 is to be issued for the assessment year 2013-14.”
We note that above proceedings were not conducted by the Investigation Wing, Kolkata, with reference to the assessee under consideration. The proceedings conducted by the Investigation Wing, Kolkata was not related to the assessee but it was related to other assessees.
23. Thus, it is abundantly clear from our above analysis of “reasons recorded” that assessing officer used the general “information” available with Investigation Wing Kolkata. This ‘Information’ is not a tangible material which can suggest that in assessee`s case the income chargeable to tax has escaped assessment. The statement taken on oath u/s.131 of the Income Tax Act of Shri Sanjay Vora, does not contain the name of the assessee and it does not relate to broker of assessee, moreover, the assessee did not sell shares through M/s AnandRathi Share & Brokers. The Investigation Wing, Kolkata did not conduct any survey and search operation on the assessee. In the reasons recorded the findings of survey or search operation in relation to other assessees were applied on the assessee, which is not acceptable.Thus, we note that the reasons which had been given for the belief which was formed by the assessing officer hopelessly failed to satisfy the requirements of the statute. It is required that whole of the process of taxation must follow the procedures which are valid under the law and must adhere to law i.e. substantive one as well as procedural one too. It should be ensured that levy and collection of the taxes is strictly in accordance with law – not only substantive one but the procedural law, as well.
24. As noted by us above in our analysis of reasons recorded. The words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and the assessing officer may Act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The assessing officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section.
There was no material or fact which had been stated in the reasons for starting proceedings in the assessee`s case on which any belief could be founded of the nature contemplated by section 147 of the Act. Hence, the requirements of section 147 of the Act were not satisfied and, therefore, the reasons recorded by the assessing officer are not valid, for this reliance can be placed on the judgment of the Hon`ble Supreme Court in the case of Sheo Nath Singh Vs. ACIT, 82 ITR 147(SC) wherein it was held as follows:
“All that have been found in the records are reports in Form “B” made in connection with starting of proceedings under section 34(1A), each report relating to a different assessment year. Items (7) and (8) of this Form relate to brief reasons for starting proceedings and whether the Central Board of Revenue was satisfied that it was a fit case for issue of notice. Against item (7) it is stated “reasons as per separate sheet attached”. Against item (8), the Secretary of the Central Board of Revenue signed after writing “yes, satisfied”. The reasons for starting the proceedings given in the separate sheet may be fully reproduced.
“For the reasons hereinafter recorded I believe that income, profits and gains earned by the assessee in his personal capacity and in conjunction with others and chargeable to income-tax have escaped assessment and that the amount of such concealed income relating to the accounting years covering the period beginning on the 1st day of September, 1939; and ending on the 31st day of March, 1949, amount to or is likely to amount to Rs. 1,00,000.The reason for such belief, inter alia, is as follows:
(1) The assessee who is or was at the relevant time a managing director in about a dozen limited companies alongwith “Oberois” is believed to have made some secret profits which were not offered for assessment.
(2) The assessee is believed to have received as sum of Rs. 22 lakhs from “Oberois” and this sum or at least part of which represents income which has escaped assessment.
(Sd.)A. K. Bhowmik
Income-tax Officer,
Dist. II(2), Calcutta.”
It is abundantly clear that the two reasons which have been given for the belief which was formed by the Income-tax Officer hopelessly fail to satisfy the requirements of the statute. In a recent case, Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC), which came up before this court, a similar situation had arisen and under the directions of the court, the department produced the records to show that the Income-tax Officer had complied with the conditions laid down in the statute for issuing a notice relating to escapement of income. There also, the report submitted by the Officer to the Commissioner and the latter’s orders thereon were produced. In his report, the Income-tax Officer referred to some communications received by him from the Commissioner of Income-tax, Bihar and Orissa, from which it appeared that certain creditors of the assessee were mere name-lenders and the loan transactions were bogus and, therefore, proper investigation regarding the loans was necessary. It was observed that the Income-tax Officer had not set out any reason for coming to the conclusion that it was a fit case for issuing a notice under section 148 of the Income-tax Act, 1961. The material that he had before him for issuing notice had not been mentioned. The facts contained in the communications which had been received were only referred to vaguely and all that had been said was that from those communications, it appeared that the alleged creditors were name-lenders and the transactions were bogus. It was held that from the report submitted by the Income-tax Officer to the Commissioner it was clear that he could not have had reasons to believe that on account of the assessee’s omission to disclose fully and truly all material facts, income chargeable to tax had escaped assessment.
In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words “reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.
There is no material or fact which has been stated in the reasons for starting proceedings in the present case on which any belief could be founded of the nature contemplated by section 34(1A). The so-called reasons are stated to be beliefs thus leading to an obvious self-contradiction. We are satisfied that the requirements of section 34(1A) were not satisfied and, therefore, the notices which had been issued were wholly illegal and invalid.”
25. We note that in assessee`s case, the assessing officer received information from the Investigation Wing, Kolkata who had carried out survey / search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss.We note that on the basis of the information received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. In the assessee`s case, the assessing officer has failed to do so. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification. We note that from the reasons recorded, it appeared that the impugned reopening proceedings were on the borrowed satisfaction. No independent opinion was formed by Assessing Officer in the assessee’s case under consideration. Under the circumstances, the assumption of the jurisdiction to reopen the assessment under section 147 of the Act is bad in law. We note that Hon`ble High Court of Gujarat in the case of Harikishan Sunderlal Virmani, 394 ITR 146 (Guj-HC), on the similar facts quashed the reassessment proceedings. The findings of the Hon`ble Court is reproduced below:
5.3 Thus from the reasons recorded, the reopening of the assessment is on the information/data supplied by the office of the Principal Director of Income Tax (Investigation), Ahmedabad and the information received from the Principal Director of Income Tax (Investigation), Ahmedabad vide his confidential letter dated 8/3/2016. From the information received, it appears that though the client code of the assessee with the broker – Guinness Securities Limited was WW/2647, modified client code was found to be WW/2108 and therefore, to verify the genuineness of the modification of the client code, by applying Lavenshtein Distance Analysis or digit edit analysis utility, distance was found to be 3 and therefore, it is believed that the code is not wrongly typed and it is termed as deliberate change and establishing non-genuineness and contrived nature of the code change. From the reasons recorded, it does not appear that verification of the material on record there is independent formation of opinion by the A.O. and that any income has escaped assessment due to any failure on the part of the assessee in not disclosing truly and correct facts/material necessary for assessment. From the reasons recorded, it appears that the impugned reopening proceedings are on the borrowed satisfaction. No independent opinion is formed. On the plain reading of the reasons recorded what emerges is that the A.O. on considering the information received from the Principal Director of Income Tax (Investigation), Ahmedabad, reassessment proceedings have been initiated on the ground that the income escaped assessment. However, there is no assertion regarding the basis on which material on record, he has come to such conclusion. Therefore, the material on the basis of which the A.O. seeks to assume the jurisdiction under section 147 if the Act is the information received from the external source viz. the Principal Director of Income Tax (Investigation), Ahmedabad. It cannot be disputed that on the basis of the information received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, A.O. is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification.
5.4 At this stage it is required to be noted that even in the reasons recorded, there is no allegation that there was any failure on the part of the assessee in not disclosing truly and fully material facts necessary for assessment. Under the circumstances, the assumption of the jurisdiction to reopen the assessment beyond the period of four years in exercise of powers under section 147 of the Act is bad in law and contrary to the provisions of section 147 of the Act. Under the circumstances, on the aforesaid ground alone, the impugned reassessment proceedings deserve to be quashed and set aside.
5.5 In view of the above and for the reasons stated above, present petition succeeds. The impugned notice issued under section 148 of the Income Tax Act, 1961 and reopening of the proceedings for A.Y. 2009-2010 cannot sustain and the same deserves to be quashed and set aside and are hereby quashed and set aside. Rule is made absolute accordingly. In the facts and circumstances of the case, there shall be no order as to costs.”
26. The grounds or reasons which lead to the formation of the belief contemplated by section 147 of the Act must have a material bearing on the question of escapement of income of the assessee from assessment. As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. From our above analysis of reasons recorded in the assessee`s case under consideration, we note that the reasons recorded by the assessing officer falls in the zone of “reason to suspect” and not “reason to believe“, therefore we quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
27. Before parting, we would like to mention that sanction for issue of notice under section 151 is in accordance with law, as the JCIT has gone through the facts and then approved it, hence there is no irregularity so far sanction for issue of notice under section 151 is concerned.”
11. After going through the order of Co-ordinate Bench of this Tribunal in group case as cited (supra) we note that the present appeal of the assessee is squarely covered, therefore we see no reason to take any other view of the matter than the view so taken by the division Bench of this Tribunal in the aforesaid case. There is no change in facts and law and the Revenue is unable to produce any cogent material to controvert the aforesaid findings of the Division Bench (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the order of the Co-ordinate Bench of this Tribunal in the case of Shri Nishant Kantilal Patel & Smt. Muktaben Nishantbhai Patel (supra) we quash the re-opening proceedings initiated by the assessing officer under section 147 r.w.s 148 of the Act.
12. In the result, appeal filed by the assessee ( In ITA No.8/SRT/2019) is allowed.
13. Now, we shall take, assessee`s appeal in ITA No.9/SRT/2019, for Assessment Year 2014-15. The grounds of appeal raised by the assessee are as follows:
“1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of income-tax (Appeals) has erred in confirming the action of the assessing officer in disallowing the exemption of Rs.33,15,263/- claimed by assessee u/s 10(38) on account of Long-Term Capital Gain and treating it as the accommodation entry and thereby making addition u/s 68 of the Act.
2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of income-tax (Appeals) has erred in confirming the action of Assessing Officer in making addition of Rs.3,29,188/- on account of unexplained expenditure u/s 69C of the Act for commission payment for procuring the alleged accommodation entry.”
14. Succinct facts are that during the course of assessment proceedings, the Assessing Officer ( in brief ‘A.O.’) observed that the assessee declared Long Term Capital Gain on sale of shares at Rs. 33,15,263/- and claimed the same as exempt u/s.10(38) of the Act. Based upon the analysis from different sources as well as from the findings of the Investigation Wing that has carried out Search/Survey on the entry operators, it was observed by assessing officer that entry in form of bogus Long Term Capital Gain (LTCG) through sale of penny stock claimed as exempt u/s 10(38) of the Act was pre-arranged method adopted by the assessees to evade capital gain taxation. In the present case, the assessee has purchased 35,500 shares of M/s Sun and Shine Worldwide Ltd, on 30.10.2012 for Rs. 19,525/- . The said 35,500 shares sold between February, 2014 to March, 2014 at rates between Rs.22.90/- and Rs. 25.25/- for a total consideration of Rs.33,15,263/-. The Assessing Officer has discussed and explained the modus operendi in his assessment order in detail. The assessing officer, after duly considered the submissions of the assessee, had observed that:
(i) the assessee was not in a position to give any satisfactory explanation regarding physical delivery of shares and transaction slips of transfer of shares either at the time of assessment proceedings or during the course of appellate proceedings.
(ii) Financial health of M/s Sun and Shine Worldwide Ltd, did not improve to an extent to have spiraled the price of shares many times within a short span of time and,
(iii) the findings of the investigation wing, where the entry operators had accepted the modus operandi of providing bogus LTCG through purchase and sale of shares of few companies.
Based on these facts, the assessing officer held that assessee has not at all been able to adduce cogent evidences in this regard. There is no economic or financial justification for the sale price of these shares. The so called purchaser of these shares has not been identified despite efforts made by assessing officer. The broker company through which shares were sold did not respond to queries to the assessing officer. Hence the fantastic sale price realization is not at all humanly probably, as there is no economic or financial basis, that a share of little known company would jump abnormally. Therefore, assessing officer made addition in respect of the transactions in purchase and sell of shares of M/s Sun Shine Worldwide Ltd. for Rs. 33,15,263/- under section 68 of the Act.
15. The assessing officer also held that since, the commission amount paid on the bogus purchase and sale of penny stock scripts is an integral part of entire game plan, therefore regarding payment of commission to the entry operator/broker for arranging the bogus LTCG, the assessing officer made addition to the tune of Rs.3,29,188/-, being commission paid @0.10% to the entry operator/broker.
16. Aggrieved, the issue was taken up before the first appellate authority for relief. However, ld CIT(A) confirmed the action of the assessing officer.
17. Aggrieved, the assessee has come up with the present appeal.
18. Shri Rashesh Shah, Learned Counsel for the assessee pleads in brief that the genuineness of share transactions need to be proved by contract notes for sale and purchase apart from other ingredients like authentic supporting documents and investment through banking channel and stock exchange platform, and the same have been proved by the assessee therefore addition made by the assessing officer may be deleted.
19. On the other hand, Learned DR for the Revenue contends that the SEBI after thorough investigation has certified that such transactions are rigged and are carried out to convert black money into white. Therefore, the credit in the bank account of the assessee cannot be treated as explained and, therefore, liable to be added u/s 68 of the Act. The ld DR further pointed out that assessee miserably failed to discharge the onus with any supporting documentary evidence and it is clearly proved that it was an entry of bogus long term capital gain by paying unaccounted income. Therefore, ld DR prays the Bench that order passed by the assessing officer may be upheld.
20. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee purchased 35,500 shares of Sun & Shine Worldwide Ltd at Rs.0.557- per share on 30.10.2012 from Corporate Commodity Brokers Pvt Ltd. The transaction is supported by the debit note receipt, delivery challan and share certificate duly transferred in assessee’s name on 30.10.2012. Thereafter, the shares were sold on various dates for Rs.33,11,404/- in February vide four contract notes. The average rate comes to Rs.937- per share [Rs. 33,11,404/ 35,500]. The assessee claimed Long Term Capital Gain of Rs. 33,15,263/- as exempt u/s 10(38) of the Act. The shares were sold through the broker Jainam Shara Consultancy Pvt Ltd and assessee received the consideration through banking channel which was credited in assessee`s saving bank account with Axis Bank Limited. For proving the Sale of shares of Sun & Shine Worldwide Ltd., assessee filed the following documents before the assessing officer and ld CIT(A):
(a) Ledger Account of Jainam Share Consultancy Securities Pvt. Ltd.
(b) Contract Notes of Jainam Share Consultancy Securities Pvt. Ltd.
(c ) Relevant Bank Statement
21. To prove the purchase of shares, assessee filed the following documents:
(I) Contra confirmation of broker M/s Corporate Commodity Broker Private Ltd.
(II) Share Certificate
(III) Share Transfer Form
(IV) Debit Note
(V) Cash Receipt
22. We note that all evidences of sales including contract notes were submitted by the assessee, as noted by us above. The Assessing officer has not found any fault in the documents, as noted by us above. The payments were received through account payee cheques and transaction were done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account and the assessee does not know the buyer. There is no evidence that assessee has paid cash in return of the receipt through cheque. In other words, there is no evidence that the cash was recycled. The assessee is not a party to alleged price rigging. He has no nexus with the company, its directors or operators. He is not concerned with the activity of broker and has no control over the same. Even there is no evidence that directors of company or broker were involved in price rigging. The Assessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capital gains in a short period, does not mean that the transaction is bogus, as all the documents and evidences have been produced before assessing officer. The shares were sold in piecemeal on different date through recognized stock exchange at quoted price.
23. Regarding the statement of Shri Anil Khemka, alleged entry provider, which is reproduced in Assessment Order at Page 8, we note that said statement recorded neither implicate Sun & Shine Worldwide Ltd nor the broker Tradebulls Securities Pvt Ltd and nor the assessee. We note that physical delivery of shares is proved by the memorandum of transfer of shares stated in the share certificate being registered on 30.10.2012. Regarding the escalation of prices of shares of M/s. Sun & Shine Worldwide Ltd., that is, the prices have increased by 140 times over the period of 17 months. At this juncture, it is submitted by ld Counsel that prices of shares are determined by the market forces and not solely on the basis of financial statements.
24. We also note that Assessing officer and CIT(A) has relied on the case of Sumati Dayal vs. CIT (214 ITR 801) (SC). We are of the view that said decision is not applicable to the assessee under consideration, as the assessee has successfully demonstrated with help of evidences on record to have made the transaction of purchase and sale of alleged shares. No single material was brought on record indicating name of any of the entry provider taking assessee’s name or assessee’s broker name. We note that assessee has submitted enough evidences such as: (a) Ledger Account of Jainam Share Consultancy Securities Pvt. Ltd,(b) Contract Notes of Jainam Share Consultancy Securities Pvt. Ltd, (c ) Relevant Bank Statement showing that all transactions were through banking channel. (d) Contra confirmation of broker M/s Corporate Commodity Broker Private Ltd. (e)Share Certificate, (f). Share Transfer Form, (g). Debit Note and (h) Cash Receipt etc. Therefore, addition in assessee`s case can not be made on generalization, human probabilities, suspicion, conjectures and surmises.
25. We note that assessee submitted before lower authorities the share brokers contract note indicating name of the scrip which was traded on the stock exchange; quantity of equity shares sold; date and time on which such shares had been sold; rate at which sale was executed; stock exchange at which such shares had been dealt with; amount of brokerage charged; amount of service tax charged; amount of Securities Transaction Tax charged; amount of BSE transaction charges paid; amount of stamp duty paid. Therefore, evidence with regard to source and purpose for which amount had been received and credited in the books has been submitted and which has not been found false, forged and fabricated. The Identity of the party is established from the contract note itself wherein it has been prominently stated that name of the Share Broker is M/s Tradebulls Securities Pvt Ltd and that they are member of the Bombay Stock Exchange Ltd. The Demat Account statement evidencing holding of equity shares of Company of which shares have been dealt with at Bombay Stock Exchange and also the quantity which has been sold and the date on which such quantity was sold. The demat account statement, contains BSE settlement number which is very much matching with settlement number appearing in the contract note issued by the share broker. The Bank statement evidencing receipt of funds from the Share Broker has already been furnished in the course of assessment proceedings. The AO have not brought any material indicating that said amount proposed to be taxed has not been received from the Share Broker or the sum received is from the sources other than the sale consideration claimed against sale of shares. In view of these facts, we are of the view that addition should not be made under section 68 of the Act.
26. In the light of the documents and evidences submitted by the assessee, we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee. We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidences in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidences clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon’ble Calcutta High Court in the case of M/s Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows:
“It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However, it was held that the transactions of the shares are genuine. Therefore, we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed.”
27. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore delete the addition of Rs.33,15,263.
28. Since, we have deleted the main addition of Rs.33,15,263/-, therefore, the addition on account of commission payment of Rs.3,29,188/-, which is consequential in nature, and hence the same is hereby deleted.
29. In the result, appeals filed by the assessee( in ITA Nos. 8 and 9/SRT/2019) are allowed.
A copy of the instant common order be placed in the respective case file(s).
Order pronounced on 29/11/2021 in the open court by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule, 1963.
