2022 (3) TMI 829 - AT - Income Tax

Tribunal Upholds Reopening of Assessment & Addition of Income

Krishna Devi Versus Income Tax Officer, Ward-38 (3), New Delhi

Krishna Devi Versus Income Tax Officer, Ward-38 (3), New Delhi - TMI Issues Involved:1. Jurisdictional Ground: Assessment is void ab initio.2. Other grounds on merits qua addition of Rs. 24,69,636.Detailed Analysis:1. Jurisdictional Ground: Assessment is void ab initio1.1 Violation of Mandatory Jurisdictional Conditions:The assessee contended that the assumption of jurisdiction under Section 148 by the Assessing Officer (AO) was in violation of mandatory jurisdictional conditions stipulated under the Act. The reasons recorded for reopening were based on borrowed satisfaction without independent application of mind. The reasons stated that the assessee had not filed a return of income, which was factually incorrect as the return was filed on 02/02/2015. The reasons did not narrate any tangible material to form a valid belief under Section 148.1.2 Lack of Independent Verification:The reasons recorded merely mentioned DIT information without corroboration by any independent material. The reopening was for verification and examination, which is not permissible under Section 148. The AO did not confront the assessee with any back material like the investigation wing report, thus invalidating the entire reopening process.1.3 Invalid Approval and Notice:The approval from the superior authority under the Act was not valid, and no valid notice under Section 143(2) was issued based on the return filed under Section 148 on 04/10/2018. Therefore, the orders of the AO and CIT(A) should be quashed.1.4 Non-appreciation of Assessee's Submissions:The CIT(A) erred in sustaining the AO's order without appreciating the submissions made by the assessee.2. Other Grounds on Merits Qua Addition of Rs. 24,69,6362.1 Bogus Long Term Capital Gains (LTCG):The AO added Rs. 24,69,636, including Rs. 23,52,034 as alleged bogus LTCG and Rs. 1,17,602 as unexplained expenditure under Section 68. The assessee argued that the LTCG arose from share sales on the stock exchange after due payment of Securities Transaction Tax (STT) through a recognized stockbroker, with voluminous evidence of purchase and sale. The AO's addition was based on a stereotype narrative without contradicting the evidence provided.2.2 Violation of Natural Justice:The addition was made without confronting the assessee with any investigation wing report, relevant extracts, or statements recorded by the investigation wing. The assessee was not offered cross-examination of the revenue's witness, which violated the principles of natural justice.2.3 Burden of Proof:The CIT(A) erred in sustaining the addition without appreciating that the burden to prove the transaction as bogus remained undischarged by the revenue. The findings were contrary to the evidence provided by the assessee.2.4 Modus Operandi Not Co-related:The AO and CIT(A) erred in making the addition without appreciating that the modus operandi relied upon was not co-related to the facts of the present case. There was no evidence to show that the assessee inducted certain cash at the time of sale to certain identified brokers or middlemen.2.5 Application of Section 68:The AO applied Section 68 without due application of mind. The assessee had no economic capacity to generate the unaccounted income, and no incriminating material was brought on record. Section 68 does not apply to the sale of shares where no unexplained cash credit within the meaning of Section 68 can be said to have arisen.2.6 Suspicion and Human Probabilities:The CIT(A) sustained the addition based on 'suspicion' and 'human probabilities' without converting it into reliable and trustworthy material. The assessment order was passed based on 'borrowed satisfaction' without any independent application of mind.2.7 No Opportunity for Confrontation:The CIT(A) erred in sustaining the addition without giving the assessee an opportunity to be confronted with the back material relied upon in the impugned orders, like the investigation wing report.2.8 Identical Facts in Other Orders:The CIT(A) erred in sustaining the addition without appreciating that in identical facts in various orders, relief had been granted to the assessee, accepting LTCG as genuine.2.9 Statutory Status of Evidence:The CIT(A) erred in sustaining the addition without appreciating the spirit of law contained in Section 10(38) and Section 43(5)(d), where statutory status is provided to evidence generated from the stock exchange system.Conclusion:The Tribunal upheld the reopening of the assessment under Section 148, finding that the AO had reasons to believe that income had escaped assessment. On merits, the Tribunal found that the transactions in question were not genuine and upheld the addition made by the AO. The appeal of the assessee was dismissed.