TaxTMI 
TaxTMI 
2019 (4) TMI 1114
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....natural justice, hence the order requires to be cancelled. 4. That the notice, initiation and all subsequent proceedings u/s 148 is bad in law, is without jurisdiction, barred by law and requires to be cancelled. 5. The notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled. 6. The conditions precedent to justify the reopening of the assessment u/s 147 of the Act being absent, the reopening of the assessment is bad in law and the reassessment requires to be cancelled. 7. That the authorities below erred in framing order under section 144 of the Act without following the prescribed procedure under law. 8. That the order u/s 144 r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment. 9. That the entire reassessment proceedings violates the procedure prescribed by the Supreme Court in 259 ITR 19 for 148 proceedings. 10.The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted....
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....o opportunity has been given before levy of interest u/s 234B and 234D of the Act. 26. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234Band 234D of the Act. 27. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 3. The grounds raised by the assessee for Assessment Year 2013-14 in ITA No. 2374/Bang/2018 are as under. "1. That the order of the authorities below in so far as it is against the assessee is against the law, facts, circumstances, natural justice, equity all other known principles of law. 2. That the total income and total tax computed is hereby disputed. 3. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 4. That the notice, initiation and all subsequent proceedings u/s 148 is bad in law, is without jurisdiction, barred by law and re....
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....he transfer of shares in M/s. Blue Circle Services Ltd of Rs. 7,86,38,101/-. 19. That the authorities below erred in making addition of Rs. 23,59,143/- u/s 69C of the Act. 20. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 21. The appellant denies the liabilities for interest u/s 234B of the Act. Further prays that the interest if any should be levied only on returned income. 22. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express provisions of law. 23. No opportunity has been given before levy of interest u/s 234B and 234D of the Act. 24. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234Band 234D of the Act. 25. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 4. The grounds raised by the assessee for Assessment Year 2014-15 in ITA No. 2375/Bang/2018 are as under. "1. That....
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....es below erred in not providing complete details before calling for objections from the assessee. 16. That the authorities below erred in relying on irrelevant material while ignoring the relevant material and further erred in making addition solely on third party statement without any corroboration. 17.That the authorities below erred in making addition of Rs. 2,85,58,035/-u/s 68 of the Act. 18.That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s. Blue Circle Services Ltd of Rs. 47,82,937/- u/s 68 of the IT Act. 19.That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s.Parag Shilpa Investment Ltd (PS IT Infrastructure & Services Ltd) of Rs. 2,37,75,098/- u/s 68 of the IT Act. 20. That the authorities below erred in resorting to section 68 of the Act. 21. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Blue Circle Services Ltd of Rs. 47,82,937/-. 22. That the authorities below erred in refusing to grant the b....
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....he prescribed procedure under law. 8. That the order u/s 144 r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment. 9. That the entire reassessment proceedings violates the procedure prescribed by the Supreme Court in 259 ITR 19 for 148 proceedings. 10.The reassessment proceedings is bad in law as the regular assessment proceedings was open. 11.The parallel reassessment proceeding is clearly barred. Any proceeding which is in conflict with regular proceeding is against law. 12.The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted under law. 13.The reasons I findings of the authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record. 14. That the authorities below erred in relying on sworn statements provided along with show cause notice dt.13.01.2017 of persons namely Shri Amit Saraogi, Shri AmarchandRatanlalRander, Shri Sajjan Kedia, Shri Soumen Se....
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....e assessment order passed by the AO u/s. 144 is bad in law because the preconditions of section 144 are not complied with. Thereafter, he submitted that the remaining grounds are in respect of merit of the addition and charging of interest. 7. First he made arguments in respect of ground nos. 7 and 8 as per which this is the claim of the assessee that the assessment orders are bad in law because the pre-requirements of section 144 are not complied with. He submitted that as per the provisions of section 144 of IT Act, the AO can pass best judgment assessment order under following three conditions. i) If the assessee fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or ii) The assessee fails to comply with all the terms of a notice issued under subsection (1) of section 142 or fails to comply with a direction issued under subsection (2A) of that section, or iii) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, 8. He submitted that paras 9 and 10 of the assessment order on pages 22 and 23 of ....
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....a Investments Ltd) (PSIL) do not appear. On this, it is submitted that, the Learned AR has tactfully omitted to refer the complete modus operandi of Shri Jagadish Prasad Purohit, one of the operators of operating stock companies. It is pointed out that it not only operate in its own capacity or through the company in which he is a Director, but also through its cronies and trusted persons. One of its trusted person is Shri Dhruva Narayan Jha. In the statement recorded by DDIT(Inv) Unit-3(3), Kolkata on 21-01-2015, Shri Jha while answering to question no.7, has admitted that he is a salaried employee of the group companies maintained and managed by Shri Jagdish Prasad Purohit. As per his direction and instruction, he became Director in many companies. He has enumerated the name of the company where he is made Director. In reply to question no.8 wherein the very first company name is Blue Circle Services Ltd. In reply to question no.9, he has mentioned that in another 259 companies his name is being used. At S.No.149, name of the another penny stock company PS IT Infrastructure & Services Ltd is appearing. The statement of Sri Dhruva Narayan Jha. forms part of the assessment order....
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.... operators and their cronies in providing accommodation entries for commission are more in the nature of explaining the modus operandi and how the course of events are predetermined and so arranged as to translate into profits for all the parties involved. The statements are not specifically and solely against the appellant, who incidentally a beneficiary of the entire scheme. Therefore, there is no injustice imparted to the appellant on not being provided with an opportunity of cross examination. On the contrary, it appears that the entire scheme was so designed and executed that the mischievous elements were operating from behind the screen. The systematic execution of the predetermined acts did not require any personal, one to one interaction between the beneficiaries and the brokers. In any case, the appellant had already expressed his ignorance about the developments / activities that tool place behind the screen and he could also not furnish a proper reason as to why the investments were made by him in a non-descript company with hardly any financial tract record. The stock market data, the trade pattern, the involvement of brokers, the balance sheet, the profitability its....
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....ant part of the observation of the Hon'ble Supreme Court is reproduced hereunder: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe. 5. We Will also like to bring to the notice of the Hon'ble ITAT on the judgements of the Hon'ble High Courts and Hon'ble ITATs which department would like to rely upon. These are listed out in the enclosed Annexure." b) Relevant Portion of the assessment order i.e. Para 9 &10:- "9. In the case of ITO vs. Luxmi Prasad Goenka [19771{110 ITR 674 (Calcutta High Court), it is observed that, in order to commit the default u/ s 143(2) of the Income-tax Act, 1961,it is necessary that there must be a failure to produce books of accounts or documents or evidence on which the assessee r....
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....ains of Rs. 16,27,57,903/-. During the regular assessment proceedings the bank statements, property wise rental details, details of income from other sources, confirmation of accounts from parties relating to unsecured loans, statement of computation of capital gains along with contract notes, details of income from profession and bank account details were obtained and verified. After thorough verification of the same, the assessment was completed u/s 143(3) of the Act on 24.03.2015 by accepting the return of income filed by the assessee (copy of assessment order passed u/s 143(3) is enclosed as Annexure 1). Subsequently, a notice u/s 148 of the Act dated 03.11.2016 was issued to the assessee on 11.11.2016. The assessee complied with the said notice on 09.12.2016 and also sought copy of the reasons recorded for reopening of the concluded assessment by issue of notice u/s 148 of the Act. Though no copy of the reasons recorded were furnished however a consolidated notice u/s 142(1) of the Act dt.13.01.2017 for the AY's 2012-13, 2013-14, 2014-15 & 2015-16 was issued to the assessee on 24.01.2017 proposing to treat the long term capital gains arising out of investment in M/s. Blu....
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....e cannot be the basis for completing assessment u/s 144 of the Act. The provisions of the section does not approve the action of the AO. Thus the assessment u/s 144 is based on wrong facts and particulars. The AO has also not issued any show cause notice to the assessee seeking to complete the assessment u/s 144 of the Act thereby not following the due procedure prescribed under law. The AO is in error for invoking section 144 of the Act in as much the ingredients for invoking section 144 is clearly absent in this case. The best judgment assessment so made is clearly against law, bad in law and requires to be vacated. In this regard the assessee relies on the decision in the case of Mohini Debi Malpani vs ITO &Anr - Calcutta HC - 77 ITR 674 (Annexure 3) wherein the Court has held as under: "Assessment-Best judgment assessment under certain particular circumstances-Noncompliance of notices as mentioned in s. 144 is necessary to make best judgment assessment-Prior to assumption as regards the jurisdiction under s. 144 the AO must record a finding that there has been non-compliance with any of various notices mentioned in s. 144" Secondly, the Assessing Officer erred in not provid....
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....sessee had claimed that reopening of assessment was done beyond 4 years from the end of the assessment year and therefore the first proviso of section 147 would come into play according to which there must be failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment-Assessee claimed that the reasons recorded for reopening the assessment do not even allege that there has been any failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment-Held, It was held by various High courts that in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the AO u/s 147 beyond the four year period would be wholly without jurisdiction-In the present case it was evident from the recorded reasons, that there was no whisper of the petitioner having failed to disclose fully and truly all material facts necessary for his assessment- Therefore, the necessary ingredient for inviting the provisions of Section 1....
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....e financial statements of three companies. The said material is not authenticated as required in law and consequently the veracity of the material is an open ended question. The assessee replied to the notice vide reply dt.06.03.2017 offering objections to the proposal in the notice and requested the AO to provide complete details and thereafter provide opportunity for cross examination, in the event the objections of the assessee are not considered favorably. Without appropriately considering the objections and the clarifications the AO completed the assessment u/s 144 rws 147 of the Act making additions as proposed in the show cause notice by referring to the purported oath statements stated to be recorded from Shri Amit Saraogi, Shri Soumen Sen, Shri Dhruv Narayan Jha, Shri. Jagdish Prasad Purohit consisting of 1 to 91 pages and financial statements of two companies 1 to 6 pages. Thus the assessment suffers from non compliance of natural justice as the AO erred in not providing complete details before calling for objections from the assessee. The assessee is also aggrieved as the AO has made the additions based on certain material without provid.ing an opportunity for cross ex....
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.... are registered with the stock exchanges and also under the Companies Act. The Bank accounts are in reputed Banks, all indicating the genuinity and verifiability of the transactions. In support of the transactions made, the AO is in full possession of the details and was also perused during the survey. In view of absence of any irregularity, the transactions must be reckoned as genuine and resultant treatment in law also as genuine. The production of documents in the form of contract notes, demat statement, bank statements etc establishes the source, identity, creditworthiness and genuineness of the transactions. The AO has relied on the truncated oath statement of the assessee extracted in the assessment order which does not bring out anything incriminating or adverse inference against the assessee. Thus the AO erred in relying on irrelevant material while ignoring the relevant material. The reasons / findings of the AO are unsustainable and untenable in law as the same are contrary to the facts emerging from the record. The sale proceeds of the shares deposited into the Bank account cannot be treated as cash credit coming under the rigors of section 68. The assessee has already....
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....roceedings. We find thatld. CIT(A) has noted and reproduced the submissions before him and as per ground no. 7 of appeal raised before CIT(A), this was the contention of the assessee that the AO erred in framing order u/s. 144 without following the prescribed procedure under law. Ground nos. 1 to 6 and 8 to 14 raised before CIT (A) were in respect of validity of reopening of the assessment and all these grounds were disposed of together by the ld. CIT(A) as per Para 5.4 of his order without giving any specific finding in respect of these objections of the assessee regarding absence of preconditions prescribed under section 144 of IT Act. 12. As per Para nos. 9 and 10 of the assessment order as reproduced above, it is seen that AO has referred to the judgment of Hon'ble Calcutta High Court rendered in the case of ITO Vs. Luxmi Prasad Goenka as reported in [1977] 110 ITR 674 and he has also noted that as per this judgment, it is necessary that there must be a failure to produce books of accounts or documents or evidence on which the assessee relied in support of his return. The AO has also noted that in the present case, the assessee has produced books of accounts and other document....
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....ssessment. In the instant case, the question is whether any of these three different situations contemplated by sub-s. (4) of s. 23 has happened in order to justify assessment under sub-s. (4) by the ITO. Counsel for the Revenue contended that in this case there was a failure to comply with the notice under sub-s. (2) of s. 23. It was urged that notice under sub-s. (2) of s. 23 has been given. That fact is undisputed. It also is apparent that the assessee did not, it was urged, produce any document or evidence or books of account of the firm to prove the genuineness of the claim made by the assessee in its return. Therefore, it was urged that the assessee had failed to comply with the terms of the notice under sub-s. (2) of s. 23 of the Act. We have noted sub-s. (2) of s. 23. It empowers the ITO, in cases where he is not satisfied with the return without the presence of the assessee or books or evidence by the assessee in support of the return, to call upon the assessee to produce or cause to be produced any evidence on which such person might rely in support of the return. Therefore, in order to commit the default under sub-s. (2) of s. 23, it is necessary that there must be a fai....
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....the Act may be confined only to the personal attendance of the assessee or to the production of books of account or other evidence or may require both. 9. From the admitted facts of the present case, a notice under Section 143(2) of the Act was issued to the assessee and the notice was complied with by the production of certain books of account by one C. M. Chopra on behalf of the assessee. Admittedly, the file in the present case was transferred from the Income-tax Officer, "J"-Ward, Dist I(I), Calcutta, to the Income-tax Officer, "D"-Ward, Dist I(I), Calcutta. Before the new officer could issue another notice under Section 143(2) of the Act in the present case, he, in my view, had to be satisfied that in spite of compliance with an earlier notice under Section 143(2) of the Act, he could not complete the assessment on the basis of the books of account and documents produced but required further production by way of evidence or the attendance of the assessee before completing the assessment. There is nothing on the records of the present case to show that the Income-tax Officer, "D"- Ward, Dist I(I), Calcutta, felt any such difficulty in completing the assessment without the pro....
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....-14 also, the AO has noted in the assessment order that the return of income was filed by the assessee on 19.09.2013 and in reply to the notice issued by the AO u/s. 148 on 03.11.2016, letter has been filed by the assessee dated 09.12.2016 stating that return filed on 19.09.2013 may be considered as return in response to the notice u/s. 148 of IT Act. For Assessment Years 2014-15 and 2015-16 also, the facts are similar. Hence this is admitted position of fact that there is no failure on the part of the assessee to file return of income u/s. 139 of IT Act. 15. Now we examine the second precondition. As per the second precondition u/s. 144 as reproduced above, it should be the case of the AO that the assessee failed to comply with all the terms of a notice issued under subsection (1) of section 142 of IT Act or assessee has failed to comply with a direction issued under sub-section (2A) of section 142 of IT Act. In the present case, this is not the case of the AO that any direction was issued by him under sub-section (2A) of section 142 of IT Act. This is also not stated by the AO at any place in the entire assessment order that there is failure on the part of the assessee to comply....
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....Preface 4. Before I deal with the specific details of this particular case, to put up the facts in perspective, it is necessary to give a background of investigation carried out by the investigation wing of the department. 4.1. The Directorate of Investigation, Kolkata carried out a country wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG) which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statuary period after which LTCG is exempt u/s 10(38) of the Income tax Act, 1961. In the meantime the operators rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a predetermined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal pr....
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....ry identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014. ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI. iii) The TOP 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily surrendered by such assessees. iv) In Kolkata, where this investigation was started some of the beneficiaries who had taken entries of nearly Rs. 40 crores have voluntarily surrendered it for taxation without any further enquiry. v) Several assessees have filed revised return since the enquiry and have taken back their claim of exemption. 4.4. The Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from Income Tax Department as well as from its own surveillance system and th....
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....ircuitous transaction made through operated Jama Kharchi companies. While answering Q. 19 & 20, Shri Sen had explained the mod us operandi of this jacking process. 5. Increase of share price of BCSL, PSIL non commensuration with financial results: The financial results of three companies are attached with for your information. It may be mentioned that price of share of all three scripts was sky rocketed without having any awesome profit, EBIDTA margin, EPS, bonus, dividend etc. It is seen that, all the parameters which are essential for increase of price of share not present or favorable. In spite of this, if share price is increased multi folded then it is definitely due to artificial increase by circular trading of shares forming cartel. This has been evidenced from the trading details verified by SEBI on BSE Exchange. This is a direct evidence that share price of three companies were artificially hiked to create nongenuine I.TCG to you along with other beneficiaries. 5.6. Unrealistic returns on Investments: It is seen that from your stock summary itself that, other category A & B companies listed in BSE & NSE, normal returns are in the range of 4% to 55%. The companies....
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....f dummy directors, control over layering companies, modus operandi of getting LTCG, specific modus operandi etc. His statement is direct evidence that your claim of LTCG is not genuine but arranged one. 5.9. Details of trade data & exit providers: These are the cross parties who have purchased shares from you and provided exit entry. In case of BCSL the change in share holding pattern every March, is provided to you. Here there are number of exit providers but only trade data above Rs. 25 lakhs is provided to you. It can be seen that all these are Kolkata based paper companies. It may be noted that one of the promoter i.e. Prime Capital Limited of BCSL is nothing but company operated by Shri Jagdish Purohit. Further investors in BCSL, like BhuvaniaVinimaya Pvt Ltd; Zensar Merchandise Pvt Ltd; Gulistan Vanijya Pvt Ltd; BrijdhamDealcom Pvt Ltd; Finetrade Mercantile Co. Pvt Ltd; Krishana Devi Purohit; Flame Dealers Pvt Ltd; Divya Drishti Traders Pvt Ltd; ATN International Ltd; Silicon Valley Infotech Ltd; IVlachindranathMultitrade Pvt Ltd are nothing but Jama Kharchi companies and controlled and perated by Shri Jagdish Purohit, Kolkata and these so called investors had provided yo....
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....are brokers, and Brokers maintains KYC for such bogus clients also, but these clients does not exists at their given registered address. In many cases it was found that such client companies are missing, or existing nowhere. Even the person of share broker could not find its clients. When share brokers were confronted with this, they either accepted that such clients are bogus or they failed to make any reasonable explanation. Master Table of the Cash Trail SL NAME OF JAMAKHARCHI/BOGUS CLIENT COMPANY AMOUNT OF CASH TRAIL (Rs.) NAME OF CONCERNED SHARE BROKER 1 DEBDARU PROMOTERS PVT. LTD 28 Crores RELIGARE SECURITIES LTD 2 DUARI MARKETING PVT LTD 162 CRORES THE CALCUTTA STOCK EXCHANGE LTD. 3 HEADFIRST VINIMAY PVT LTD 8 CRORES THE CALCUTTA STOCK EXCHANGE LTD. 4 CAMELLIA VINIMAY PVT LTD 24 CRORES THE CALCUTTA STOCK EXCHANGE LTD. 5 Kapeswar Vintrade Pvt Ltd 157 Crores THE CALCUTTA STOCK EXCHANGE LTD. 6 LAVANDER EXIM PVT LTD. 17 CRORES THE CALCUTTA LTD STOCK EXCHANGE 7 LADIOS TRADING PVT LTD 206 CRORES THE CALCUTTA STOCK EXCHANGE LTD. 8 MAHAMANI TRADE LINK PVT LTD 103 Crores THE CALCUTTA STOCK EXCHANGE LTD. 9 AMIT SARAOGI ....
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.... Following is the broker wise sale in your case. A statements various brokers was recorded by DDIT (Inv), Kolkata. In those statement, brokers had narrated entire modus operandi and confirmed role of paper companies as an operator for scrips like BCSL, FTL& PTI. Thus it is found that there is a group of persons working in tandem to provide arranged capital gain by receiving cash in lieu of it. It is seen that some exit providers / cross purchasers have helped you for sale of your shares. M/s Divya Drishti Traders Pvt Ltd is one of such party. A sample cash trial of this concern with other party is also mentioned above. It is seen that other exit providers / concerns who have purchased your shares have traded through 'The Calcutta Stock Exchange Ltd.' (Source: Trade data). Statement of Sri Amit Saraogi, who is sub broker of 'The Calcutta Stock Exchange Ltd.' was recorded on 30.12.2014. He has confessed that as a broker they were actively engaged in providing entries in the form of LTCG in collusion with other operators. The confession by brokers is also a circumstantial evidence against you that our LTCG is arranged one. 6. Considering the above circumstantial and direct evi....
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...., there was no requirement of AO which was required to be complied with by the assessee. In Para 4 of this notice, the AO himself says that these are general preface and in this Para, the AO is noting about background of investigation carried out by the investigation wing of the department and hence, in this Para also, there is no requirement of AO which was required to be complied with by the assessee. In Para 5 of this notice, the AO has jotted down certain circumstantial / direct evidences which are against the assessee's claim of LTCG. In Para 6 of this notice, the AO says that in view of the circumstantial and direct evidences noted by him in Para 5 of this notice, it is proven that the Long Term Capital Gain shown by assessee is not genuine one and it is cash credit u/s. 68 of IT Act, 1961 representing undisclosed income and hence, for these reasons, the AO proposed to make addition u/s. 68 of IT Act in respective Assessment Years. Thereafter in Para 7 of the notice, the AO has stated that from the statement of Shri Jagdish Purohit, it is observed that commission @ 3% has been charged for providing arranged capital gains to various parties and since the assessee is one of the....
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....d opinion, in the facts of present case as discussed above, this judgment of Hon'ble Calcutta High Court is squarely applicable in which it was held that if the conditions precedent for the assumption of jurisdiction under Section 144 of the Act are not present, the order of assessment u/s. 144 must be struck down as being without jurisdiction. Respectfully following this judgment, we hold that in the present case also, the conditions precedent for the assumption of jurisdiction u/s. 144 were not present and therefore, the assessment order passed by the AO u/s. 144 of IT Act deserves to be struck down and we struck down the same in all these four years. 19. In view of above decision, the other grounds in respect of validity of reassessment proceedings and in respect of merit of various additions have become academic but sill, we feel it proper to decide the second technical aspect i.e. validity of reassessment proceedings raised by the assessee as per Ground No. 4 to 6 and 9 to 10. 20. There are various objections of the assessee on this aspect. First objection is this that as per the reasons recorded by the AO as available on pages 147 to 149 of the paper book, combined reasons ....
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....has taken accommodation entry from M/s Mahasagar Securities Pvt. Ltd., (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of Rs. 10,32,289/- and based on this concrete information, the AO issued notice u/s 148 after recording the reason for the same. Under these facts, validity of reopening was upheld by the tribunal in that case. In the present case, as per the reasons recorded by the AO for reopening as available on pages 147 to 149 of the paper book, the AO has noted the year wise company wise LTCG as per return of income filed by the assessee for these four years and thereafter, the AO has noted fact about carrying out of a countrywide investigation by Directorate of Investigation, Kolkata to unearth the organized racket of generating bogus entries of LTCG which is exempt and then he has noted the modus operandi adopted by the operators. The AO has also noted in brief about the result of the investigation and in the same also, there is no mention of any particular beneficiary or a particular script used for that purpose by the operators. Then the AO has noted about passing of some orders by SEBI but in this Para also, no name is appearing. Then he has noted....
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..... For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares." 23. From the above Para containing modus operandi of the racket of bogus entry operators, it is noted that as per the same, shares in question are held for one year. In the present case, the shares of the first company i.e. M/s Blue Circle Services Ltd. were purchased on 14.09.2010 and were sold during 15.11.2011 to 21.06.2013, which means that these shares were held by the assessee for 2.75 years approx. The shares of the second company i.e. M/s PS IT Infrastructure & Services Ltd. (Formerly known as Parag Shilpa Investment Ltd. PSIL). were purchased on 20.07.2012 and were sold during 04.03.2014 to27.03.2015. It means that these shares were also held by the assessee for 2.75 years approx. This is basic human nature that if these transactions are bogus/accommodation entry only and not real and genuine transactions, the parties will try to close the chapter at its earliest after the expiry of one year and they will not continue it for such a long period of 2.75 years approx.....
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....f the assessee from assessment. The fact that the words "definite information" which were there in s. 34 of the Act of 1922, at one time before its amendment in 1948, are not there in s. 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence." 26. In the light of this judgment, we now examine the facts of the present case to find out as to whether, in the present case, it can be accepted that reasons for the formation of the belief of the AO had rational connection with or relevant bearing on the formation of belief of the AO. Hence, we reproduce the reasons recorded by the AO from pages 147 to 149 of the paper book. The same are asunder:- "It is seen that assessee has filed return of income on for A.Yrs. 2012- 13 to 2015-16 claiming Long Term Capital Gain on sale of shares of M/s Blue Circle Services Ltd, M/s Fact Enterprises Ltd & M/s PS IT infrastructure & Services Ltd (formerly known as Parag Shilpa Investments Ltd). A.Y. Name of the Scrip ....
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...., although listed on exchange, are always closely held and are controlled by the promoter of the Penny Stock Company and the Operator who is arranging for the bogus LTCG/Loss. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. If the beneficiary say, '8' bought 10,000 shares of company "P" @ Rs. of 1/- per share and sold it @ Rs. 1000/- per share, he would make on paper capital gain of Rs. 49,90,000/-. In his bank account there would be a cheque deposit of Rs. 50,00,000/- paid by the paper company that buys the shares. The receipt is prima facie exempt from tax under section 10(38) of the Income Tax Act, 1961. The Directorate of Investigation, Kolkata investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trial of transactions was also examined and, in a large number of transact....
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....erprises Ltd as exempt income which is prima-facie bogus claim and it requires to be taxed. Issue notice u/s 148 of the IT Act,1961." 27. From the reasons reproduced above, it comes out that the AO has noted year wise company wise details of LTCG shown by the assessee and thereafter, the AO has noted about the investigation carried out by Directorate of Investigation, Kolkata along with Modusoperandi of Penny Stock Operators along with manipulation of share market, accommodation entry for bogus LTCG. Finally, the AO says that a survey u/s 133A was carried out by the DDIT (Inv.) Bangalore in the case of the present assessee on 12.05.2015 and on 20.09.2016 by the AO of the assessee. But there is no whisper about the material found in these two surveys. Thereafter, the AO comes to the conclusion that based on evidences gathered during the survey proceedings and statements of various persons in connection with two companies i.e. M/s Blue Circle Services Ltd. and M/s PS IT Infrastructures & Services Ltd. recorded by various authorities of Income Tax Department, he is satisfied that the assessee has claimed LTCG from these two companies as exempt income, which is prima facie bogus cl....
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....ecorded by the AO also, sale of shares of this second company has taken place in two years i.e. A. Y. 2014 - 15 & 2015 - 16. Hence, we examine the details of LTCG for A. Y. 2014 - 15 as available on page 310 of the paper book and we find that the shares of this company were acquired on 20.07.2012 and sold during 04.03.2014 to 28.03.2014. As per the details of LTCG for A. Y. 2015 - 16 available on page 349 to 350 of the paper book, we find that the shares of this company were acquired on the same date i.e. 20.07.2012 and sold during 01.04.2014 to 27.03.2015. From these details, it comes out that the shares of both these companies were held for a very long period as against the compulsion of holding for one year to make the gain LTCG. The shares of the first company were acquired on 14.09.2010 and were sold during 15.11.2011 to21.06.2013. Similarly the shares of the second company were acquired on 20.07.2012 and were sold during 04.03.2014 to27.03.2015. We have already noted in Para 23 above that this is basic human nature that if these transactions are bogus/accommodation entry only and not real and genuine transactions, the parties will try to close the chapter at its earliest afte....