TaxTMI 
TaxTMI 
2010 (2) TMI 894
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....y the assessee. 3. On the fact and circumstances of the case the ld. CIT(A) has erred in Law and on facts in holding that the A.O. had no material to reach any conclusion about income escaping assessment in the hands of he assessee. 4. On the facts and circumstances of the case, the ld. CIT(A) has erred in Law and on facts in holding that the reassessment proceedings have been initiated without having any valid and specific information against the assessee. 5. On the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts ignoring the fact that the assessee failed to produce necessary documentary evidence regarding the transaction of shares except sales bills dated 24.03.1998 from the broker M/s. CMC Securities Ltd." 3. In this present case, a notice u/s.148 was issued by the AO on 30.03.2005, which was duly served upon the assessee on 31.03.2005. The proceedings were initiated u/s.147/148 in view of the information or report received from Director of Income Tax (Investigation), Kanpur. In response to notice u/s.148 of the Act, the assessee submitted before the AO that a return already filed by the assessee sometime in July ....
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.... Lucknow. 5. In the light of the aforesaid documents, the AO made enquiries by issuing a letter dated 09.01.2006 to M/s. Rakesh Nagar and Co. asking the party to confirm and prove the genuineness of the bill issued by them to the present assessee towards purchase of shares by the present assessee in June 1998 for sum of Rs.21,840. The letter remained uncomplied with 6. Similarly, the AO issued letter dated 09.01.2006 to M/s. CMS Securities Ltd asking the party to submit a copy of statement sheet of the Stock Exchange where the transaction for the sale of shares was undertaken. The said party was also asked to produce books of account to prove the genuineness of the sale transaction of the sale. In reply, M/s. CMS Securities Ltd. vide letter dated 25.02.2006, furnished a copy of FIR lodged with Samaipur Badli Police Station on 24.09.2002, wherein it was reported that the compute floppy, hard discs which comprised of the accounts and other useful papers were stolen from the car on that date and, therefore, they were not in position to submit any information with regard to sale of shares sold pertaining to the assessee. However, they confirmed that they had issued the ....
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....g seven years old, the papers and documents relating thereto has been misplaced or lost, and the same fact was reiterated in assessee's affidavit. (ii) The Investigation Wing never confronted or made known to the assessee the contents of their report. (iii) The assessee had earned income by sale of 1200 shares of M/s. Baba Business Services Ltd. and the bills of purchase and sale of shares alongwith copy of shares certificate, contract note and statement of account were produced by the assessee before the AO. (iv) The AO has failed to take into consideration the aforesaid papers and documents produced by the assessee. (v) The broker through whom the shares were sold, could not produce the documents because of supervening impossibility in as much as documents and the hard discs etc. were got stolen, as would be clear from a copy of FIR filed before the AO. The broker through whom the shares were sold had also produced a medical certificate to evidence his inability to personally attend proceedings in response to the summons issued u/s.131. But, the broker filed a relevant document with the AO confirming the bills and payments made by the broker.  ....
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....had failed to discharge such statutory duty before initiating reassessment proceedings against the assessee. (vii) On the other hand, the assessee had disclosed the transaction of sale of shares in the return of income and computed the long term capital gain and claimed necessary exemption as per law. (viii) Therefore, reassessment proceedings has been initiated purely on suspicion and conjectures without any valid and specific information against the assessee as regards escapement of any income. (ix) Even on merit, the AO has not brought any contrary evidence to reject the claim of the assessee. (x) The assessee has disclosed the purchase and sale of shares, and the payment was received through banking channels (xi) The transaction was put through a member of National Stock Exchange and the same is evidenced by contract note issued by such broker. (xii) The assessee has also produced evidence to show that the shares were held in the name of the assessee during the relevant period. (xiii) The AO has simply rejected the claim of the assessee without any material to prove that the claim of the assessee was bogus. (xiv) The AO ....
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....res alongwith the original return of income. The reopening made by the AO after having reason to believe that income shown in the nature of capital gain of sale of shares had escape assessment within the meaning of section 147 of the Act is thus valid. He further submitted that as no full particulars ever submitted by the assessee alongwith original return of income nor submitted before the Investigation Wing, the AO had every reason to believe that income had escape assessment. The CIT(A)'s observation that before initiating the proceedings u/s.147 of the Act, the AO should have verified the return of income filed by the assessee to examine the information received vis-a-vis return of income filed cannot be any basis to hold that the AO had initiated reassessment proceedings merely on surmises and conjectures when it is established position that with the original return of income, the assessee never submitted details of capital gain, purchase and sale of shares, and payment received from Kusum and Co and has also not submitted the balance sheet. When all the details about sale and purchase of shares and capital account and balance sheet were not furnished by the assessee alongwith....
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.... therefore, the purchase and sale of the shares had remain unverifiable and assessee has not produced any adequate evidence on record to prove and establish the genuineness and the authenticity of the transaction of sale claimed to be made through brokers. He, therefore, stated that the assessee has not been able to prove and establish the source and nature of receipt of money which has been, thus, treated to be as unaccounted money of the assessee. He, therefore, supported the order of the AO and contended that the order of the CIT(A) be reversed and that of the AO be restored. 15. The ld. counsel for the assessee, on the other hand, submitted that the proceedings initiated by the AO u/s.147 are not valid in as much as the AO has initiated action u/s.147 merely on suspicion and surmises based upon the vague report of the Investigation Wing. He, further, contended that the report of the Investigation Wing being not confronted to the assessee, the initiation of proceedings u/s.147 of the Act is bad in law. He placed reliance upon the decision of Delhi High Court in the case of Jai Bharat Maruti Ltd vs. CIT 180 Taxman 192. 16. With regard to the merit of the issue, he....
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....tion. If the Assessing Officer has cause or justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO [1991] 191 ITR 662, for initiation of action u/s.147 (a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceedings is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only issue whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material would conclusively prove the escapement is not the concern at that stage. T....
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....ncome of Rs.3 lacs had escaped assessment for the A.Y. 1998-99. The fact that assessee had received Rs.3 lacs from Kusum and Co. on account of sale consideration of shares was not even mentioned in the computation of income and other details filed along with the return of income. At the stage of issuing notice u/s.148 of the Act, the AO was supposed to see whether there was a relevant material based on which a reasonable person could have formed requisite belief that income had escape assessment. In the light of the very fact that the assessee received Rs.3 lacs from Kusum and Co. and in absence of any explanation as to the nature and character of the receipt, there is no doubt that a reasonable man could have formed requisite belief that income to the extent of Rs.3 lacs had escaped assessment within the meaning of section 147 of the Act, and the same thing has been done by the AO by forming a reason to believe that income of Rs.3 lacs had escaped assessment for the year under consideration. At this stage, the AO was not concerned whether the aforesaid fact that the assessee received Rs.3 lacs from Kusum and Co., would ultimately and conclusively prove that this income is chargeab....
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....t income had escaped assessment u/s.147 of the Act. 26. In the present case, the assessee filed voluntarily her original return of income on 16.07.1998, wherein the assessee had shown long term capital at Rs.6,21,523.27. In the computation of income, the assessee has mentioned that income from capital gain is, as per Annexure - A. In the computation of capital gain filed alongwith the return of income, the assessee has merely mentioned that 1200 shares purchased in 1996-97 with cost of Rs.21,840/-, (the total cost was shown at Rs.23,701/-) were sold for Rs.7,04,340/- during the present year under consideration without mentioning the name of the company and giving details of payment received. In the course of hearing of this appeal, it was ascertained that the assessee neither filed balance sheet nor details of about name of shares sold and amount received. Later on, the AO received information from the Investigation Wing that in the case of the assessee, one demand draft have been issued by one M/s. Kusum and Co. for a sum of Rs.3 lacs towards sale of shares. The investigation agency informed the AO that assessee was asked to file necessary details about the sale of shares ....
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....n agency that the assessee had received Rs.3 lacs from one M/s. Kusurri and Co. against sale of shares, which was not found verifiable from the information available in the return of income. Merely disclosing transaction of sale of shares in the return of income and computing long term capital gain is by itself not sufficient to preclude the AO from initiating proceedings u/s.147 of the Act on the basis of certain information specifically received by the AO that the transaction of sale of shares and receipt of money is not genuine. At the stage of issuing notice u/s.148 of the Act, the AO was not required to conclusively prove that the purchase and sale of shares were sham and bogus, but he was only required to form a requisite belief that on the basis of information received by the AO, he has reason to believe that income had escaped assessment. Therefore, we are of the view that the CIT(A) has not addressed the issue from its right and correct perspective while holding that the AO had initiated reassessment proceedings u/s.148 purely on suspicion and surmises, and without any valid and specific information against the assessee. 27. In the light of the facts of the present....
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....,03,340/- during the year under consideration:- I. Statement of accounts of Rakesh Nagar and Co. II. Copy of letter dated 24.06.1996, issued by the company regarding transfer of shares to assessee's name. III. Copy of share certificate with distinctive numbers and customers in the name of the assessee. IV. Copy of accounts of CMS Securities Ltd. 05.05.1998 V. Copy of sale bill issued by the CMS Securities Ltd. VI. Copy of bills issued by Rakesh Nagar and Co. dated 02.04.1996 VII. Copy of broker's contract note for purchase of shares. 31. The present assessment year is the A.Y. 1998-99, relevant to the period from 01.04.1997 to 31.03.1998. It is the claim of the assessee that the assessee has sold 1200 shares of M/s. Baba Business Services Ltd. through broker M/s. CMS Securities Ltd. and has receipted payment thereof by demand drafts. However, on the other hand the case of the AO is, amongst other, is that the assessee has failed to prove and establish that assessee has received money by alleged bank draft in pursuance of the alleged sale of shares. We, therefore, confine ourselves to the core issue as to whether the as....
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....t collected the details from Stock Exchange records. However, the broker has chosen not to do so but has taken a plea of his illness, and even avoided to appear before the AO. 34. It is also very interesting to note that before the Investigation Wing, the assessee filed an affidavit dated 09th day of March, 2005 stated therein that she had lost the papers and had no papers of broker as the matter is very old about seven years back, and the details were not available with the assessee. However, in the course of the assessment proceedings initiated u/s.148 on 30.03.2005, the assessee had produced copy of certain documents, which undoubtedly creates a serious doubt about their veracity and correctness unless they are otherwise corroborated by some independent and reliable evidences obtained from the Stock Exchange or the primary records maintained by broker. This assessee's contradictory stand raises a serious doubt against the assessee's conduct, and a strong presumption arises against the assessee that the assessee might have created these various papers to support her case. If these documents were genuine and available with the assessee, we fail to understand as to why the ....
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....t the shares were ultimately transferred from assessee's name to some other name after the shares were sold by the assessee on 19.03.1998. Therefore, evidences filed by the assessee are itself not sufficient to prove that the shares were ultimately sold by the assessee and transferred in the name of the purchaser. It is well settled that a transaction cannot be considered to be genuine merely because certain papers has been created without establishing and proving the genuineness and authenticity of the transaction. The AO is not bound to accept the papers on their face value. He is not supposed to put blinkers upon his eyes while verifying transaction and papers related there to. It is not understood as to how and in what circumstances the shares of an unlisted company purchased in the month of June 1996, at the rate of Rs.18.20 has been increased to Rs.588/- in the month of March 1998. Nobody knows the potential and credentials of Baba Business Services Ltd. The logical question arises that why a sale price of shares of a company, whose potential, credential and business activities neither known nor reported, would increase from Rs.18.20 to Rs.588/- within a span of about 1 1/2 y....
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....en by M/s. Kusum and Co. and shares were not sold by the assessee to M/s. Kusum and Co. In the statement of account furnished by CMS Securities Ltd., date and the amount of demand draft is only mentioned without any further details, such as, name of the bank from which demand draft were purchased or without giving any explanation as to how the demand draft came to be issued by M/s. Kusum and Co. against the sale consideration of shares payable by CMS Securities Ltd to the assessee. In this respect, no clarification whatsoever has been given either by the assessee or by CMS Securities Ltd at any stage of proceedings. No material or evidences or information showing any link or nexus between the amount of sale consideration payable by CMS Securities Ltd. to the assessee and the amount paid by M/s. Kusum and Co. has been furnished. The assessee has also failed to prove and show any relation or connection between CMS Securities Ltd. and Kusum and Co., and has failed to give any explanation as to why the demand draft has been paid by Kusum and Co. against the alleged sale consideration of sale of shares payable by the CMS Securities Ltd. No confirmation and explanation from Kusum and Co.....
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....y the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. 37. Further, the various decisions relied upon by the assessee in the case of (i) CIT vs. Carbo Industrial Holdings (supra), and (ii) CIT vs. Emerald Commercial Ltd. (supra), are of no assistance to the assessee as the facts of the present case are quite different to the facts of those cases and in the light of our finding that the assessee has not been able to prove and establish the nature and character of the receipt of money from Kusum and Co. and has not been able to prove and establish that the money received from Kusum and Co. is towards sale of alleged shares. In the present case, ....