TaxTMI 
TaxTMI 
2020 (7) TMI 38
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.... of assessment as well as on the merits of the case. As per ground number [1] of the appeal, assessee has challenged reopening of the assessment. As per ground number [2] assessee has challenged the addition of Rs. 56,43,084/- made by the learned assessing officer on account of the sale consideration on sale of equity shares under section 68 of The Income Tax Act. Therefore, though assessee has raised several grounds but they are merely challenging the reopening of the assessment and challenging the addition on the merits. 03. The brief facts of the case show that assessee is an individual. He filed his return of income originally on 29/7/2011 declaring total income of Rs. 74,22,010. Above return was processed under section 143 (1) of the act on 4/3/2013. 04. Subsequently the information was received from investigation wing by the Department that the scheme was hatched by the various players to obtain and provide accommodation entries of the bogus long-term capital gain through manipulation of the stock market. From the perusal of the information and data received from the investigation wing, the learned AO noted that assessee is one of the beneficiaries who booked bogus long....
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....ry of bogus loss. Penny stocks are those stocks which trade at very low price and whose market capitalisation is very low. The low price of the penny stock makes manipulation of the share price very easy. 3. From the perusal of the information data, it is observed that Shri SureshKumar Agarwal [ PAN: ABVPK1318H] is one of the beneficiaries, who booked bogus long-term capital gain. The detail of such transaction is annexed and is part of the satisfaction note. 4. From the transaction given in the seat attached, it is observed that Sri Sureshkumar Agarwal has sold 50,000 scripts of "Nouvea Multi‟ for Rs. 5643084 in financial year 2010 - 11 to different parties. In the script, NOUVEAU GLOBAL VENTURES LIMITED total trade of Rs. 2038723071/- have been done in the annexed transaction details. From the perusal, it is evident that most of the purchases are on abnormal rates and were done by the identified paper/ Jamakharchi companies controlled by entry operators, most of them on oath admitted to have engaged in providing entries. 5. I have examine the details provided by the investigation directorate of Kolkata, details are available in the ITD system is a....
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....on which securities transaction tax has been paid and therefore it is exempt under section 10 (38) of the act. Assessee submitted that all the purchases and sale of shares was through stock exchange with recognized stockbrokers and the transactions were made through banking channels as per the securities exchange Board of India and Bombay stock exchange norms. He submitted shares sold by the assessee were purchased by different persons through stockbrokers through online trading platform of Bombay stock exchange at different point of time. The assessee received the sale consideration through his broker through proper banking challenge as per the Bombay stock exchange and securities and board of India norms. It was further stated that the assessee had purchased the shares on 12/12/2007 at Rs. 35 per share and sold the same at an average selling price of Rs. 113/- per share in August 2010. Therefore, the price of the shares moved approximately 3.23 time support after holding the investment for a period of three years. He submitted that assessee had those shares in his demat account for three years. Thus, the claim of exemption u/s 10 (38) is genuine. 10. The learned assessing offi....
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....from assessing officer several times. AO did not supply it . Therefore, the appellant was not supplied with the foundation material in forming the basis for assumption of jurisdiction under section 147 of the act. iv. There is no allegation that appellant had not disclosed fully and truly, all-material facts necessary for assessment is the allegation of the assessing officer. v. Edifice of the assumption of jurisdiction was the information supplied by the investigation wing, which was never supplied to the appellant. vi. Proceedings have been initiated based on no material much less any tangible and relevant material and as such, reasons recorded do not constitute valid reasons to believe for initiation of proceedings under section 147 of the act. vii. Reasons of reopening are only based on the borrowed satisfaction and there is no satisfaction of the assessing officer. viii. Initiation of reassessment proceedings is also based on non-application of mind much less independent application of the mind. ix. Proceedings initiated are based on surmises conjectures on suspicion and therefore the same are without jurisdiction. ....
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....d tranche on 16 August 2010 32665 shares were sold at an average rate of Rs. 110.18 per share amounting to Rs. 3599009/- wherein the securities transaction tax of Rs. 4508 was paid. Thus he submitted that on sale of 50,000 shares of Rs. 56,31,798/- , assessee has deposited securities transaction tax of Rs. 7054/- resulting into the net payment received by the assessee of Rs. 56,22,799/-. He submitted that the sale of the shares have been reflected in the Demat account, the copy of Ledger account for sale of shares in the books of the broker, the receipt of consideration in the bank statement for FY 2010 - 11. He therefore submitted that the sale of the shares are also on online stock exchange platform of the Bombay stock exchange where the time and date stamp are accorded, it cannot be considered as a non-genuine. iv. The assessee is also a habitual investor in the various scripts. He submitted the detailed list of shares held by the assessee and capital gain earned in earlier years. He submitted that the assessee has earned in 2007 - 08 the long-term capital gain on Swastik Marble private limited and LIC future plans. In 2013 - 14 the assessee has earned the long-term cap....
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.... vii. Neither the copy of the statement of the alleged entry operators are supplied to the assessee nor cross-examination of these parties was also given. For this proposition he relied on the decision of the honourable Supreme Court in 125 ITR 713 Kishanchand Chelaam versus CIT and Andaman Timber Industries versus Commissioner of Central Excise 2015 (324) E.L.T. 641 (SC), 2017 (50) S.T.R. 93 (SC), 2016 (15) SCC 785. He also referred to the several decisions of the honourable Delhi High Court and coordinate benches. viii. Assessee has purchased the shares before three years, maintained those shares in his Demat account for three years, sold those shares on stock exchange; there is no allegation of any entry provider with respect to the transactions made by the assessee through its broker. He submitted that the assessee has maintained the shares in the Demat account of the appellant maintained with Vivek Financial Focus Limited [ Depository Agent ] for all these years. He also submitted the copy of Ledger account of the appellant in the books of the broker, copy of the demat account showing holding of 50,000 shares, copy of contract note for purchase of shares, copy o....
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....0/-. In the return of income the assessee has shown sales of 50,000 shares of Nova Multimedia ventures Ltd on 17/8/2010 for Rs. 56,22,799 which were purchased by the assessee on 12/12/2007 for a total consideration of Rs. 17,56,121/- resulting into the long-term capital gain claimed to be exempt under section 10 (38) of the income tax act of Rs. 38,66,678/-. Subsequently the information from the investigation wing was received that the above impugned company in which the assessee has sold the shares and earned the long-term capital gain is a penny stock company and it is being operated by the various entry operators who provide accommodation entry by a distinct modus operandi where the shares are shown to have been purchased at low price of non descript companies, their prices are rigged on stock exchange and then at that price , exit providers are identified where in the sources of money is generated through trails who buy the shares at given date and time and in fraction of seconds the transaction take place at stock exchange platform at predetermined prices resulting in to gain in the hands of the beneficiaries. In the demat account the shares are parked to give it a colour of g....
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....as held that :- "16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had 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. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to be....
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....which they have traded, the amount of transaction, the date of exit by the beneficiaries by selling of those shares, the stock exchange where the transactions took place on online platform of the stock exchange. In such report, the name of assessee appears along with his permanent account number, the amount of transaction carried on by the assessee, the company in which the assessee traded and the date of trading. Now the issue is whether such report is material available to the assessing officer based on which process of reopening can be commenced on not. Our answer to this question is yes. If such an exhaustive detail is available in a material before the assessing officer, it cannot be said that there is nothing in that material against the assessee. The reliance placed by the learned authorised representative heavily on the decision of the Supreme Court in case of ITO versus Lakmani Mewal das 103 ITR 437 (SC) is misplaced. We have already held that the material is available the assessing officer which is not a pure fancy, not merely a suspicion, not a gossip at all, not a rumor and not at all a conjecture or surmises. 20. Now the question arises whether there is any nexus be....
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....of beneficiaries. Such statement also shown that assessee has dealt in 50,000 shares of the penny stock company in the particular financial year 2010 - 11. Therefore, on the basis of the name and permanent account number available he found the details in the ITD system and information contained in the income tax return of the assessee. On the looking at the return of the assessee he found that assessee has shown the long-term capital gain on sale of the shares but has not offered same for taxation but has claimed exemption u/s 10 (38) of the act. Therefore there is a clear-cut application of mind on the information (material) received by the assessing officer having direct nexus with the belief of the escapement of income. Now the assessee has challenged that the learned assessing officer has not independently applied his mind. It is merely a statement was no evidence placed by the assessee before us to show that the learned assessing officer has not placed any villains on record. The burden of saying so is always on the assessee to prove that that the assessing officer did not independently apply his mind on the material available for reopening of the assessment. Such is the verdi....
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....is a definite escapement of an income. It may happen that if it discovers or finds satisfies himself that there is no escapement of the taxable income later on hearing the side of the assessee, he may not reach at the conclusion that their reason escapement of income. Therefore, reason to believe has to be a tentative belief not a certain answer to the escapement of income. Otherwise, the law would not have made a provision of recording reason and then issuing the notice to assessee, it could have straightway provided that the assessment would be made on the basis of the material available but that is not the case. Thus, it does not mean a subjective satisfaction on the part of the assessing officer. It is merely a prima facie belief. 24. Thus even assessing officer acts as a reasonable and prudent man on the basis of information gathered there is a good case for reopening of the assessment being held valid. 25. The next contention of the learned authorised representative is that the learned assessing officer has mentioned in the reasons recorded that the investigation conducted by the directorate of investigation Calcutta and statement of various entry operators recorded by ....
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.... the information related to the assessee. In this case it has been done. 26. As per para number 4.31 of his the argument of the learned authorised representative it is submitted that in the instant case the approval obtained by the assessing officer is a mechanical approval and hence initiation of proceedings of the 6147 of the act on this ground itself is valid trust of he has also referred to the truth of judicial precedents on this issue. However, the learned authorised representative could not show us that varies the copy of the approval based on which he is alleging that such approval is mechanical. In view of this argument of the learned authorised representative deserves to be rejected. 27. In view of our above finding on the reopening of the assessment, we do not find any infirmity in the order of the learned assessing officer as far as the reopening of the assessment is concerned and confirmation thereof by the learned Commissioner of income tax appeals. Accordingly, we hold that there is no infirmity in the reopening of the assessment by the lower authorities. Thus, Ground number one and all its up ground are rejected. 28. Now we come to ground number [2] , which....
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....stant case the assessee had purchased the shares on 12.12.2007 at Rs. 35 per share and sold the same at an average selling price of Rs. 1 13 for share (average of all selling prices) in August 2010. Meaning thereby the price of the shares moved approximately 3.23 times of fault after holding the investment for a period of three years approximately. Further, so far as issue of transactions done with identified paper/jamakharchi companies controlled by entry operator is concerned, we waste to submit that all the transactions of sales had been done through screen-based trading on the recognized stock exchange. The assessee does not have any details about the identity of the persons to move he sold shares. In this regard, we would like to appraise your good self that it is undisputed in case of screen-based trading, all trades executive in OPEC screen, wherein the persons do not get to choose counterpart to the trade. The automated system itself matches orders on apprise/time priority basis and hence is not possible for anybody to have access over the identity of counter party dealing in any transaction. Since the counter party identity not displace, one can never have any cho....
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....n the illegal business of (also known as syndicate member). The share broker said the entry operators are involved in this scheme. The basic aim of the scheme was to root the unaccounted income of long-term capital gain beneficiaries into their account/books in the garb of long-term capital gain. This entry of long-term capital gain is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares in the books as long-term capital gain. For implementing the scheme, sales of some penny stock companies were used. The same modus operandi adopted for providing accommodation entry of bogus loss. Penny stocks are those stocks which trade at very low price and whose market capitalization is very low. The low price of the penny stock makes manipulation of the sale price very easy. 6.1 On perusal of the information data, it was observed by the AO that the appellant was one of the beneficiaries, who booked bogus long-term capital gain. From the given transaction, it was observed that the appellant at sold 50,000 scripts of ‟Nouvea Multimedia‟ four Rs. 5,643,000 zero 84/- in financial year 2000 - 11 to different parties. I....
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....ently the shares remained in the Demat account as claimed by the assessee for three years and iv. sold from the same Demat account through the same broker online trading platform of Bombay stock exchange at the prevailing market price of that particular share. v. Sales contract notes vi. Consequent payment were also received by account payee cheque. vii. The assessee also submitted the copies of the account of the assessee from the books of the broker. Therefore, the assessee has discharged the prime of onus cast up on him. In the circumstances we are reminded of the decision of the honourable Delhi High Court which dealt with the taxability of accommodation entry and consequent pendulum of action required from the side of the assessee as well as AO in case of Commissioner of Income-tax v. Nova Promoters & Finlease (P) Ltd.* [2012] 18 taxmann.com 217 (Delhi)/[2012] 206 Taxman 207 (Delhi)/[2012] 342 ITR 169 (Delhi)/[2012] 252 CTR 187 (Delhi) wherein it has been held as under:- "38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the compl....
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....he information available with him. The learned assessing officer had the investigation wing report available with him. Undoubtedly in the report of the Principal Director Of Investigation, Kolkata dated 27 April 2015 contains the name of 84 companies, out of which one company at serial number 71 is Nouvea global venture limited (NOUVEAU) wherein total alleged transactions of Rs. 2,038,723,071/- took place. It is alleged to be bogus transaction. The assessee has shown that he has earned the long-term capital gain exempt u/s 10 (38) of the income tax act of this company. In the same report at Chapter number 3, the list of all these 84 companies are given with reference to action taken on them by Securities and Exchange Board of India [ SEBI]. At serial number 71 is the name of this company against which no such action has been mentioned. Further, at para number 10 of the report it has shown that there are 18 exit providers and 5 accommodation entry providers in the whole scheme. Thus, if it is true that assessee has obtained a bogus long-term capital gain, assessee should have obtained the accommodation entry of the purchase of those shares from any of the accommodation entry provide....
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.... the assessee as to whose account is debited for transferring the shares in the Demat account of the assessee. He should have also examined whether the shares are transferred in the Demat account of the assessee are from the same person who has sold the shares on online trading platform of the Bombay stock exchange. This information could have been availed from the depository. viii. We have also been informed that there is standard operating procedure set up by the department for the guidance of assesseeing officer to investigate the peeny stock cases. None of those steps were found in this case All these information could have been obtained by the assessing officer by issue of 133 (6) notice to the depository as well as to the stock exchange and the respective broker. However, despite having the basic information available with the assessing officer he has chosen to sit and become a mute spectator. When the assessee has provided the complete information, which would have been available with the assessee in the documentary format, the role of the assessing officer starts as an investigator of the information furnished by the assessee, when he recorded the reason, ....