TaxTMI 
TaxTMI 
2006 (11) TMI 237
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....ly effected the bogus capital gain of Rs. 12,47,500 without paying any tax on it as the assessee set of its loss of Rs. 11,59,066 from the sale of its gold jewellery against the said gain." 2. We have heard the parties and perused the record. 3. The relevant facts, briefly stated, are that the assessee had filed return of income for asst. yr. 1998-99 on 31st Oct., 1998, which was processed under s. 143(1) on 26th Feb., 1999. Subsequently notice under s. 148 was issued to the assessee on 29th May, 2001. In response to the said notice, the assessee filed the return on 16th Oct., 2001 declaring the same income of Rs. 7,93,140 as shown in the original return. The AO completed the reassessment at an income of Rs. 20,24,602 vide order dt. 21st March, 2003. 4. The assessee appealed to the CIT(A) and the latter vide impugned order allowed relief to the assessee against which the Revenue is in appeal before us. 5. It is also pertinent to mention that during the financial year 1997-98, the assessee had made a disclosure under VDIS of diamond jewellery valued at Rs. 29,02,395. In the return of income filed for asst. yr. 1998-98, the assessee had claimed to have sold the said jewel....
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....ut of these shares 24,000 shares were claimed to have been sold through a broker, namely Shri S.K. Sharma & Co. in the month of February/March, 1998 @ Rs. 48.50 to Rs. 54.50 per share. In para 4.2 of the assessment order, the AO has pointed out that in the case of Shri Som Nath Maini, a family member of the assessee, a similar exercise of purchase of 45,000 shares and subsequent sale of 43,000 shares of M/s Ankur International Ltd., Ludhiana had been carried out. It has been pointed out by the AO that Shri Som Nath Maini too has set off the short term capital loss on the sale of gold jewellery declared under VDIS, 1997 against the capital gain on the sale of above shares. The AO has expressed surprise that in both the cases, the short term capital gain was almost matching with the long term capital loss in the case of both the family members under different circumstances. The AO had made enquiries from Ludhiana Stock Exchange during the assessment proceedings in the case of Shri Som Nath Maini and obtained the P&L a/c/balance sheet of M/s Ankur International Ltd., Ludhiana for asst. yrs. 1996-97 to 1999-2000. According to the AO, the company had never declared any dividend and that....
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....count of Shri Sharma the alleged sale proceeds of the shares had been deposited in cash before the issue of cheques in the name of the assessee for purchase of shares. According to the AO the sale of shares through M/s S.K. Sharma & Co. was nothing but collusive affair so as to introduce assessee's own money amounting to Rs. 12,47,500 in assessee's books of account. The AO accordingly made an addition of Rs. 12,47,500 as income from undisclosed sources. The long term capital loss was determined at Rs. 2,85,620 to be carried forward. The AO had computed the income of the assessee as under: "1. Income from house property (as shown) 76,800 2. Long term capital gains a. On sale of diamond jewellery (as 10,14,333 discussed in para 3.14 above) b. On sale of gold jewellery (as shown) (-)12,99,983 ------------ Long term capital....
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....a change and that the cited decisions rendered with reference to the law prior to 1st April, 1989 are no longer applicable to the facts of this case. 8. The CIT(A) vide para 22 of his order held that the cost of diamond jewellery disclosed at Rs. 27,00,000 for the year 1982 was to be accepted in view of the following factors: "(i) Disclosure made in the VDIS form. (ii) Affidavit filed by the assessee during the VDIS. (iii) Entries made in the record and filed under the VDIS Scheme. (iv) Valuation report of 1983 by approved valuer filed during assessment proceedings valuing each item of diamond jewellery separately. (v) The principle of valuation of Gem & Jewellery Export Promotion Council. (a) Being average and having many shortcomings i.e. the same valuation of diamond of good quality size, cut, polish, with the inferior quality etc. (b) Confirming that valuation of diamonds etc. normally based on individual interpretation/appraisal of jewellery." 9. The CIT(A) relying upon the decision of Punjab & Haryana High Court in the case of Jaswant Rai vs. CWT (1977) 107 ITR 477 (P&H) held that the value declared under VDIS Scheme was to be accepted. Accordingly ....
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....AO had reopened the assessment in order to assess the capital gain on the sale of jewellery etc. There was no whisper about the sale of shares of M/s Ankur International Ltd., Ludhiana in the reasons recorded for reopening of the assessment. It was contended by the learned counsel for the assessee that the AO had reopened the assessment only with reference to the capital gain/capital loss on the sale of jewellery and, therefore, it was not open to him to assess the alleged bogus sale of shares in the course of reassessment proceedings for which assessment was not reopened. It was pointed out that the return of income filed by the assessee had been processed under s. 143(1)(a). The AO had not issued any notice under s. 143(2) to make enquiries. According to the learned counsel for the assessee it was only in the course of reassessment proceedings that the AO had made fishing enquiries and based the addition on presumptions ignoring the relevant material available on record to support the genuineness of the sale of shares. It was pointed out that the assessee had sold the shares at the prevailing market rate as evidenced by the stock exchange rates at Jaipur. The assessee had sold th....
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....firmed the payment to the assessee by cheque. The assessee was not bound to establish the source of source. If the broker had deposited the money in cash, the assessee was not required to explain the source of cash deposits made by the broker in his bank account. To support the contention that the assessee is not bound to establish the source of source, reliance was placed on the following decisions: (i) Murlidhar Lahorimal vs. CIT (2006) 200 CTR (Guj) 109 : (2006) 280 ITR 512 (Guj); (ii) CIT vs. Pragati Co-operative Bank Ltd. (2005) 197 CTR (Guj) 505 : (2005) 278 ITR 170 (Guj); (iii) Sarogi Credit Corporation vs. CIT 1975 CTR (Pat) 1 : (1976) 103 ITR 344 (Pat). It was accordingly pleaded that the appeal of the Revenue may be dismissed. 15. The learned counsel for the assessee further contended that the Tribunal may consider that the statement of the assessee in this case was not recorded at all and the statement of Shri S.K. Sharma was not provided to the assessee. Therefore, the addition made by the AO was not warranted. 16. In counter reply, the learned Departmental Representative contended that the statement of Shri S.K. Sharma was not used against the assesse....
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....rmation about the enquiry made in the case of Asstt. CIT vs. Som Nath Maini. It was pointed out that the Asstt. CIT-1(II) had recorded the reasons for reopening in the case of the assessee to be on account of sale of jewellery. However, the assessment in the case of Asstt. CIT vs. Som Nath Maini was made by different AO, namely Smt. Mamta Bansal, Asstt. CIT-1(III) on 26th March, 2001. In the case of the assessee the reasons for reopening of assessment were recorded by different AO, namely Shri Ravi Aggarwal on the issue of understatement of capital gain on sale of diamond jewellery. Thereafter restructuring took place in the IT Department consequent to which Shri M.S. Minhas was posted as Asstt. CIT, Range-VI. He had now jurisdiction on both Shri Balbir Chand Maini, the assessee and Shri Som Nath Maini (another member of the family). The case of Shri Som Nath Maini had been decided by the CIT(A) and Shri M.S. Minhas, Asstt. CIT in that case filed the second appeal to the Tribunal. Shri M.S. Minhas took up the reassessment of the assessee and during the course of reassessment proceedings the information which was available with Shri M.S. Minhas, the AO on the basis of the enquiry in....
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.... initiated. Even cross-objection has not been filed by the assessee. However, during the course of hearing, the learned counsel for assessee contended that the assessee has a right to contest on the issues decided against him by the CIT(A). In our considered view, the stand taken by the assessee's counsel is correct in the light of r. 27 of ITAT Rules, 1963 which is quoted hereunder: "27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him." 20. Since the issue relating to the validity of reopening was decided against the assessee, in the light of r. 27 of the ITAT Rules, 1963, quoted above, we hold that the assessee is entitled to contest the issue in defence of the appeal of the Revenue. We, therefore, first deal with the validity of reopening of assessment. 21. In this case, the assessee had filed the return of income on 31st Oct., 1998 declaring an income of Rs. 7,93,140. The said return had been processed under s. 143(1) on 26th Feb., 1999. The assessee had disclosed long term capital gain of Rs. 1,40,917 in respect of diamond jewellery sold for Rs. 83,40,000. The assessee had made a volunta....
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.... view, on the basis of material on record, mainly the information collected from Gem & Jewellery Export Promotion Council of India, the AO could have formed a reasonable belief that the income of the assessee had escaped assessment. We, therefore, concur with the finding of the CIT(A) that in this case the AO had validly initiated the reassessment proceedings by issue of notice under s. 148. It may be pertinent to mention that in this case assessment had not been made under s. 143(3) earlier. The return of income had simply been processed without scrutiny and enquiry. Notice under s. 148 was issued within the period of 4 years. The AO had not expressed any opinion earlier as no regular assessment had been made in this case. The law is now well-settled that even after the amendment in s. 147 w.e.f. 1st April, 1989, assessment cannot be reopened on mere change of opinion. The principle has been thoroughly discussed by the Hon'ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. This view has been affirmed by the Hon'ble Supreme Court in the case of CIT & Anr. vs. Foramer France (2003) 185 CTR (SC) 512 : (2003) 264 ITR 566 (SC). So however, it will depend on the facts ....
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....hange. Sec. 147 as it exists from 1st April, 1989 reads as under: "147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year). Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material fa....
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....dings have clarified as under: "For the sake of clarification we may repeat that nothing observed by us in this case would debar the AO to bring to tax any other item of income which may have escaped assessment and which comes to his notice during the course of the proceedings under s. 147 of the Act. However, for this purpose, he cannot be allowed to make fishing inquiries to probe if any other income had escaped assessment or not. Such inquiries can only be permitted if in the first instance some material comes to his notice to suggest that some other item of income may have escaped assessment or had been underassessed. In that event, he would be perfectly justified in requiring the petitioner to furnish the requisite information on such other issue as well." In the case of V. Jagmohan Rao & Ors. vs. CIT (1970) 75 ITR 373 (SC), their Lordships of the Supreme Court held as under: "Once proceedings under s. 34 are validly initiated the jurisdiction of the ITO is not restricted to the portion of the income that escapes assessment. Sec. 34 in terms says that once the ITO decides to reopen the assessment he could do so within the period proscribed by serving on the person lia....
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....d with the information collected in regard to the sale of shares of M/s Ankur International Ltd. It is, therefore, evident that the AO in the case of the assessee did not embark upon the fishing enquiries but took cognizance of the material collected in similar case on identical facts which came to his notice while filing second appeal in the case of Shri Som Nath Maini on 19th Dec., 2002. The reassessment in the case of the assessee has been made by the same AO, namely Shri M.S. Minhas on 31st March, 2003 and the questionnaire issued to the assessee in regard to the sale of shares is dt. 6th Jan., 2003 i.e. after 19th Dec., 2002 when Shri M.S. Minhas processed the documents for filing second appeal in the case of Shri Som Nath Maini. We are, therefore, of the considered view that there is no infirmity in the order of the AO relating to the assessment relating to the sale of shares in reassessment proceedings. The action of the AO in this regard is in accordance with the parameters permissible under law. We accordingly hold that there is no merit in the objection raised by the assessee's representative relating to validity of reopening of assessment and subsequently dealing with th....
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....Som Nath Maini the CIT(A) had deleted the addition of Rs. 20,36,700. However, on further appeal the Tribunal, Chandigarh Bench 'A' in ITA No. 879/Chd/2002 for asst. yr. 1998-99 has restored the addition. Therefore, the issue is covered by the decision of the Chandigarh Bench in the case of another member of family, namely Som Nath Maini. We respectfully following the same, uphold the addition made by the AO on account of bogus sale of shares of M/s Ankur International Ltd. 27. We would also like to refer to certain material on the basis of which the finding of fact has been arrived at by the AO and confirmed by the Tribunal. The assessee had furnished evidence in regard to sale of shares through M/s S.K. Sharma & Co. and the formal confirmation from the broker. The AO had recorded the statement of Shri S.K. Sharma of Mr. S.K. Sharma & Co. and demanded details about the sale of shares. Though Mr. S.K. Sharma admitted to have purchased the shares of M/s Ankur International Ltd. from the assessee, yet it was found by the AO that he failed to produce the books of account and other relevant documents. It was also found by the AO that the alleged sale of shares had not taken place thr....
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....g Rastogi and latter sold the same to Shri Sunil Bakiwal on the same date who in turn again sold back the same shares to the original allottee Shri Rajinder Bansal on the same date i.e. 9th Feb., 1998. The AO accordingly held that it was a close circuit transaction and clearly a structured one. Other two transactions of 100 shares each were also held to be structured transactions. It was also found by the AO that the shares claimed to have been sold through M/s S.K. Sharma & Co. had not been transferred even at the time of making the enquiry by the AO. The said shares continued to be registered in the name of the assessee. 28. The AO had also determined the value of shares of M/s Ankur International Ltd. on the basis of the financial data collected by him and worked out the value of shares not to be more that Rs. 9.37 per share by adopting two methods for calculation of NAV (net asset value). 29. In the light of the above facts and circumstances of this case, we are of the view that the AO was justified in not relying upon the confirmation given by M/s S.K. Sharma & Co. in regard to the sale of shares claimed by the assessee. It may be pertinent to refer to the decision of th....