Shashi Mohan Garg Vs ITO (Delhi High Court)
Conclusion: Re assessment notice issued under section 148 solely on basis of information received from the Kolkata Investigation Directorate that certain persons, who were based in Kolkata, had incorporated shell companies. and bogus long-term capital gains (LTCG) was provided through accommodation entries without due application of mind was invalid.
Held: AO held that at least Rs. 1,04,38,000/- had escaped assessment in the case of assessee for A.Y. 2012-13 within the meaning of Section 147/148. AO arrived at this conclusion based on the information received from the Kolkata Investigation Directorate that certain persons, who were based in Kolkata, had incorporated shell companies. and bogus long-term capital gains (LTCG) was provided through accommodation entries of trading in shares of shell companies. Assessee was one of the beneficiaries of LTCG from the sale of shares in a penny stock company i.e., Blue Print Securities Limited. AO had reasons to believe that assessee income had escaped assessment under section 147/148. It was held that AO being unable to tie up the information received by him, with the alleged failure on the part of assessee to “fully and truly” disclose all material facts, attained criticality in the instant case. There was a non-application of mind by AO. AO appeared to have solely proceeded based on the general information received by him. AO, in a sense, had taken recourse to “borrowed” satisfaction. Although, AO noted that LTCG said to have been earned by assessee amounted to Rs. 94,85,883/-, he continued to hold the position that income chargeable to tax which had escaped assessment [which he had tied to LTCG from sale of shares in Blue Print Securities] was Rs. 1,04,38,000/-. There was nothing in the “reason to believe” that would show how AO had reached a figure of Rs. 1,04,38,000/-. AO verily believed, for some strange reason, that assessee‟s case was the one which fell within four (4) years, which was why he had adverted to Section 151(2) rather than Section 151(1) Thus, reassessment proceedings were triggered against assessee without due application of mind by AO about the information received by him from the Kolkata Division of the Investigation Directorate. The court quashed the impugned notice issued under Section 148.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This writ petition concerns Assessment Year (AY) 2012-13.
2. Via the instant writ petition, the petitioner/assessee has laid a challenge to the notice dated 28.03.2019 issued under Section 148 of the Income-tax Act, 1961 [in short, “Act”].
3. It is not in dispute that, pursuant to the impugned notice, objections were filed by the petitioner on 28.05.2019, which were disposed of by the Assessing Officer (AO) on 12.06.2019. The impugned notice, as was the requirement of law, was founded on the “reason to believe” formulated by the AO for triggering the reassessment proceedings against the petitioner.
4. The petitioner’s/assessee’s case, thus, hinged on what is articulated by the AO in the “reason to believe”. In the articulation of the “reason to believe”, the AO concluded that, at least, Rs. 1,04,38,000/- has escaped assessment in the case of the petitioner/assessee for A.Y. 2012-13 within the meaning of Section 147/148 of the Act.
4.1. The AO arrived at this conclusion based on the information received on 16.03.2016 from the Kolkata Investigation Directorate. The information that the AO had received was, broadly, to the effect that certain persons, who were based in Kolkata, had incorporated shell companies. These shell companies were being operated by one Ashish Kumar Agarwal. Furthermore, the information claimed that two persons i.e, Ashok Kumar Kayan and Sushil Kumar Kayan, sharebrokers at the Calcutta Stock Exchange (CSE) and Bombay Stock Exchange (BSE), were providing bogus long-term capital gains (LTCG) through trading in shares of shell companies. The information also revealed that a survey was conducted on the premises of Ashok Kumar Kayan, which disclosed that Ashok Kumar was providing accommodation entries in the form of LTCG, in cahoots with entry providers and promoters of scrips at CSE.
4.2. Ashok Kumar Kayan has, apparently, provided the names of penny stock companies listed on BSE and CSE that were used for providing accommodation entries.
4.3. The AO refers to nine (9) shell companies in the “reason to believe”. Among the nine shell companies, one such company went by the name Blue Print Securities Limited.
5. The AO, insofar as the petitioner/assessee is concerned, made the following assertions in the reasons to believe:
“From the [sic] based upon outcome of such investigation and analysis of the data, Sh. Shashi Mohan Garg was found and intimated to be one of the beneficiaries for booking capital gains through these Penny Stock, whose details are given below:
