TaxTMI 
TaxTMI 
2016 (12) TMI 862
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....(Inv) 1(4), Mumbai on 25.11.2009 that the assessee had entered into share transactions for sale/purchase of shares of M/s. Buniyad Chemicals Ltd. through a broker of the Mahasagar group of companies operated by Mukesh Choksi, i.e. M/s. Gold Star Finvest Ltd. who was engaged in providing accommodation entries and the assessee had taken fictitious gains in such share transactions. In the statement recorded in the course of search, Sri Mukesh Choksi admitted to providing accommodation entries to various persons. In the case on hand the assessee had purchased 46000 shares of Buniyad Chemicals Ltd. in F.Y. 2001-02 through M/s. Gold Star Finvest Ltd. @60 paise per share which were delivered in physical form and subsequently sold between 12.12.2002 to 13.03.2003 resulting in capital gains of Rs. 35,17,518/- which were invested in purchase of residential flat at Jaldarshan, Malabar Hills, Mumbai and exemption under section 54F claimed thereon. After recording reasons in this regard, the Assessing Officer (AO) issued notice under section 148 of the Act to the assessee on 29.03.2010. The assessment was then completed under sec....
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.... the orders of the CIT(A)-27, Mumbai dated 30.11.2012 for A.Y. 2003-04 and of the CIT(A)-28, Mumbai dated 30.12.2003 for A.Y. 2004-05, the assessee has preferred these appeals raising almost identical grounds. These appeals will be disposed off in seriatum as under. 3.1 Assessee's appeal for A.Y. 2003-04 (ITA No. 1264/Mum/2013) In this appeal, the assessee has raised the following grounds: - "1. The LD CIT [A] has erred in law and facts in partly allowing appeal confirming addition of Rs. 3517598/- as income from capital gain and reducing commission estimated 5% by A.O.to 0.15%. 2. Addition confirmed by CIT[A] which was unwarranted, arbitrary, with bias mind based on presumption , violating the principles of natural justice. 3. CIT[A] has not put before appellant to rebute notice u/s 143[2] on which CIT[A] relied upon. 4. A.O. himself mentioned in assessment order that subsequently information was received from DDIT[INV}. CIT[A] is given different finding then it is not put before appellant to rebute same. 5. CIT[a] has not disposed off grounds of appeal no 3.4.and 6 of grounds of appeal hence order of CIT{A] is n....
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....arned CIT(A)'s finding upholding the AO's reopening of the assessment for A.Y. 2003-04. It was submitted that on similar facts, the Coordinate Bench of ITAT in assessee's own case for A.Y. 2005-06 in ITA No. 1978 & 1979/Mum/2014 dated 07.10.2016 has upheld reopening of that assessment by the AO. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited (supra). It is seen that the learned CIT(A) dealt with this issue at paras 4 and 5 of the impugned order upholding the reopening of the assessment as under: - 4. During the proceedings before me, the AR submitted that the notice u/s. 148 is bad in law since there was no information received by the A.O. to form a reason to believe that income escaped assessment before issue of the impugned notice. According to the AR, the information was received by the A.O. after issue of the notice u/s. 148 of the Act. The AR also submitted that there was no direct link established between the information received and the facts in the appellant's case in as much as that the A.O. has not conducted any independent inquiry on his own. Se....
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....ved from DDI and statement of broker which is recorded by DDI. It was submitted by ld. AR that no independent enquiry has been made therefore notice u/s 148 is bad in law. It was further submitted that CIT(A) has not consider the grounds and submissions raised by assessee and has wrongly upheld the reopening of assessment which is even otherwise bad in law. The ld. AR reiterated the same arguments which were raised before CIT(A) and the same is also mentioned in the orders of CIT(A). Ld. CIT(A) has dealt with this issue in para no. 2.4.3 onwards which is reproduced herein below: "2.4.3 Undisputedly, this is a case where original return was accepted u/s. 143(1). While dealing with the subject of scope and effect of notice u/s. 147 as substituted with effect from 01-04- 1989, the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. 291 ITR 500 (SC) has held that under the substituted section of 147, existence of only the first condition i.e. 'Assessing Officer must have reason to believe that income had escaped assessment' is sufficient and 'if the Assessing Officer for whatever reason, has reason to believe that, income has escaped asse....
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....arried forward, deduction allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the face of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief. 2.4.6 The intimation under section 143(1)(a ) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right of the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from 01-04- 1989 to 31-03-1998, the second proviso to section 143(1)(a) required that where adjustments ....
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.... tax payable' and sometimes 'the whole procedure laid down in the Act for imposing liability upon the tax payer'. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a), as it stood prior to 01-04-1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to sent. Various circulars sent by the CBDT spell out the intent of the Legislature, i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. Under the first proviso to the newly substituted section 143(1), with effect from 01-06-1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It....
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.... different from provisions as they stood prior to such substitution. Under the old provisions of sec 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed a reassessed. To confer jurisdiction under section 147(a) two conditions were requires to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly the must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for 'his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be not....
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....C) has held that for determining whether initiation of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. It further held that the sufficiency or correctness of the material is not a thing to be considered at this stage. The Hon'ble apex court in the case of Shri Krishna P. Ltd. 221 ITR 538, 549 (SC) has also held that the enquiry at the stage of examining the validity of reassessment notice is only to see whether there are reasonable grounds for the AO and not whether the omissions/failures and the escapement of the income is established. The Hon'ble Court therefore, cautioned that it was necessary to keep this distinction in mind. 2.4.13 At this juncture it would be appropriate to reproduce the Explanation to sec.147 which reads as under:- "Expln. 2 - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respe....
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....ant was correct in his stand. In the present case, no facts regarding the bogus transactions with Mukesh was ever produced by the appellant and therefore for the sake of forming a prima facie belief, the information in the possession of the Ld. AO. on the basis of investigations made, was sufficient to initiate reassessment proceedings. It will be appropriate in this regard to refer to Explanation 1 to sec.147 of the Act which reads as under:- "Expl.1 Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso." 2.4.16 Referring to the said Explanation in Consolidated Photo & Finvest Ltd. (supra) it has been held: "8. It is clear from the above that the two critical aspects which need to be addressed in any action under s. 147 are whether the AO has 'reason to believe' that any income chargeable to tax has escapade assessment and whether the proposed reassessment is within the period of limitation prescribed under the proviso to s. 147. Expln .1 to the said prov....
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....ld have been able to find out the price in excess of their written down value realized by the assessee. It can be said that the ITO if he had been diligent could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the ITO truly and fully all material facts necessary for the purpose of assessment. The law casts a duty on the assessee to 'disclose fully and truly all material facts necessary for his assessment for that year'''. 2.4.19 It has been further observed in Consolidated Photo & Finvest Ltd. (supra): The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the AO proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined. It must be presumed that those aspects were present to the mind of the AO and had been held in favour of the assessee is too far-fetc....
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....for consideration is whether the appellant had made full and true disclosure of material facts. I have already reproduced above the contentions of the appellant in this regard and the objections raised. There is nothing on record and not even the stand of the appellant that details as recorded in the "reason to believe" were either called for or furnished and examined during the course of original assessment proceedings. 2.4.23 In Writ Petn. No.9036 of 2007, Honda Siel Power Products Ltd. vs. Dy CIT & Anr. Decision dt. 14th Feb. 2011 (reported at (2011) 52 DTR (Del) 353 - Ed.) it was held: "10 The term 'failure' on the part of the assessee is not restricted only to the IT return and the columns of the IT return or the tax audit report. This is the first stage. The said expression 'failure to fully and truly disclose material facts' also relate to the stage of the assessment proceeding, the second stage. There can be omission and failure on the part. of the assessee to disclose fully and truly material facts during- the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the AO complete and correct....
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....), the Hon'ble Jurisdictional High Court held that in a case of reopening after 4 years subsequent to scrutiny assessments, contradiction was discovered between Tax Audit report and Return of income, it was a case of omission and/or failure on the part of the assessee to disclose fully and truly all facts for computation of its income. It is also held by Hon'ble Supreme Court in the following cases that facts which could have been found by the ITO by further probing are covered under failure to disclose fully and truly all material facts:- Indo - Aden Salt Mfg. and Trading Co. P. Ltd. YS.CIT 159 ITR 624 (SC) R.B. Bansilal Abirchand Firm vs. CIT 70 ITR 74 (SC) 2.4.26 In such circumstances, it cannot be held that there was full and true disclosure by the appellant. Accordingly, the second contention of the appellant fails. 2.4.27 In view of the above binding precedents of the Hon'ble Supreme Court, I am of the view that the Ld. AO had valid reasons to initiate reassessment proceedings which were duly recorded and communicated to the appellant and therefore, there is no merit in the arguments advanced by the Ld. AR. on this ground.....
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....merit in the grounds raised or arguments put forth by the learned A.R. of the assessee, we uphold the action of the AO in reopening the assessment for A.Y. 2003-04 in the case on hand. Consequently, grounds 4, 6 & 11 of the assessee's appeal are dismissed. 6. Grounds 1, 7, 8, 9 & 12 6.1 In these grounds, the assessee assails the impugned order of the learned CIT(A) in upholding the AO's action in treating the capital gains on sale of shares of Buniyad Chemicals Ltd. amounting to Rs. 35,17,598/- as bogus transaction and the treatment of the investment thereof, in purchase of residential flat at Jaldarshan, Malabar Hills, Mumbai as unexplained investment; thereby denying the assessee exemption claimed thereon under section 54F of the Act. It is also contended that no independent inquiry has been made by the AO to ascertain the truth in the matter, since it is evident that he merely relied on the information received from the DDIT (Inv) and the statement of one Shri Mukesh Choksi, which is said to be general in nature and did not specifically name the assessee. The assessee further assails the impugned order of the learned CIT(A) and AO as being violative of the principles of na....
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....g the counsel as well as the order passed by the revenue authorities, we have observed that the Co-ordinate Bench of ITAT, Mumbai had already dealt with the similar issue in the case of Shri Kamlesh Mundra vs. ITO in ITA No.6248(Mum)/2012 for the assessment year 2003-04. The operative portion of the decision of the Hon'ble ITAT in the aforementioned case is as under; "6. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the lower authorities and after considering the same, we have observed that the co-ordinate Bench of ITAT 'Mumbai' has already dealt with the similar issue in ITA No. 1175/Mum/2012 and ITA No. 1176/Mum/2012 where in also the assessee's in those cases have dealt with the share transaction with the same companies. We referred the operative para of ITA No. 1175/Mum/2012 titled "Smt. Durgadevi Mudra vs. ITO" and the same is reproduced here in below: "I have heard the parties and perused the record. The Ld. Counsel submits that in respect of the 'Shares Scam' alleged to be involved by Shri Mukesh Chokshi actions were taken against many persons disallowing ....
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....ssessee with the folio No. 15021 and certificate Nos. 105744 to 105848. The Assessing Officer neither questioned the said company nor disproved the transfer of share certificates by 30/6/2000. The only basis for arriving at the conclusion that the transaction is not genuine is on the basis of the statement given by Mr. Mukesh Chokshi on 20-6- 2004/20-6-2002 before the DDIT (Inv.) with reference to certain transactions undertaken by Mr. Mukesh Chokshi and his group of companies, mainly Gold Finvest Pvt. Ltd. Richmond Securities and Alembic Securities, which are dealing in interconnected stock exchange/ NSC. Most of the enquiries pertains to the transactions in interconnected stock exchange and sale of shares In the company viz., Rashel Agro Tech Ltd. The enquiry in the said group of companies was with reference to the issuance of bogus , purchase and sale bills and accommodating various parties in earning the capital gains. However, as submitted by the learned Counsel, the assessee's name is not figuring in the transactions which were originally enquired by the DDIT (Inv.) on 26-4-2002. Even though the modus operandi was explained and stated that they were getting 0.5% commissio....
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.... accept the contention of the Assessing Officer based on the statement which is also un supported by any other evidence to deny the benefit of purchase of shares by the assessee on 8-4-2000. Not only that the Assessing Officer has also gave credit for the same amount of purchase of shares at cost and did not treat the sale proceeds as bogus/unaccounted income. The only action taken by the Assessing Officer is to deny the assessee the benefit of long term capital gain and subsequent deduction under section 54EC of the Act as the assessee invested the capital gains in REC Bonds. We do not see any reason to agree with the findings of the' Assessing Officer and also the findings of the CIT (A). In fact, the CIT (A) has went ahead in treating the entire transaction as bogus and confirmed the action of the Assessing Officer while holding "this will be more for an unexplained receipt of money of the appellant. Hence, Assessing Officer had rightly added the amount by and the action of the Assessing Officer in making this addition is confirmed treating it as STCG)). In arriving at this conclusion, the CIT (A) presumed that assessee could have paid full payment of 16 la....
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....hich is based on admission of Shri Mukesh Chokshi. Therefore accordingly, we direct the AO to assess the long term capital gain declared by assessee as such and accept the same. 11. Apart from analyzing the aforesaid order, we have also noticed in paper book at pages 11 & 12 wherein specific directions were given by the ld. CIT(A) to the AO to provide opportunity of cross examination to the assessee. But even inspite of that no opportunity of cross examination was ever granted by the AO to the assessee. During the course of argument, we have put this specific question to the ld. DR who appeared on behalf of revenue, but the ld. DR appearing on behalf of the revenue was unable to give any satisfactory reply as to why the AO has not complied with specific direction for allowing the assessee to cross examine such person as per directions given at page no.11 & 12 of paper book. After conjoint reading of the orders passed by the CIT(A) in the present case as well as the earlier orders by the Hon'ble ITAT, Mumbai Bench in similar case and an after taking into consideration the documents relied upon by the assessee, we are of the considered view that the ld. CIT....
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....n upholding the addition made by AO. Accordingly we set aside the order of CIT(A) and direct the AO to delete the additions." 6.3.2 On an appreciation of the facts on record in the case on hand and the decisions of various Coordinate Benches of this Tribunal in similar cases, we find that such additions/adverse findings rendered by AO's have been deleted/reversed on the grounds that 'no independent enquiry' has been conducted by the AO to ascertain/prove that information received was true and also since no opportunity of cross examination' was afforded to the assessee in order to verify whether the statement/deposition given by Shri Mukesh Choksi admitting to the issue of bogus bills was correct in the case of the assessee, before the AO could have used the same against the assessee. In this factual matrix of the case on hand, as discussed above, following judicial consistency and the decisions of the Coordinate Benches , inter alia, in the assessee's own case for A.Y. 2005-06 in ITA No. 1978 & 1979/Mum/2014 dated 07.10.2016, we hold that the learned CIT(A) erred in upholding the AO's action in treating the capital gains on sale of shares amounting ....
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....s except for raising this ground, the assessee did not challenge the issue of the said notice under section 143(2) of the Act and in the light of the factual finding rendered by the learned CIT(A) (supra), we dismiss this ground raised by the assessee. 8. In the result, the assessee's appeal for A.Y. 2003-04 is partly allowed as indicated above. Assessee's appeal for A.Y. 200405 (ITA No. 1736/Mum/2014) 9. In this appeal the assessee has raised the following grounds: - "1. CIT (A) has erred in law and facts confirming order of A.O. ignoring submission made by appellant. Appellant was prevented by sufficient cause for not attending on appointed date. 2. CIT[A] has erred in confirming addition on the basis appellant own case confirm in A.Y. 2003-04 by CIT[A] 27 without appreciating fact that appeals of ground are different and each year assessment is independent asst year. 3. CIT[A] had wrongly mentioned that the appellant has also raised similar contentions / grounds of appeal. Contention and grounds of appeal both are different in both appeal. 4. CIT[A] has not disposed off all grounds of appeal no observation on action u/s 14....