TaxTMI 
TaxTMI 
2021 (2) TMI 531
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....peals pertaining to Assessment Year 2013-14. For the sake of convenience, the facts as well as grounds of appeal narrated in the assessee's appeal in ITA No.05/SRT/2019, for AY.2013-14, in the case of Shri Nishant Kantilal Patel, is taken as the lead case. 4. The grounds of appeal filed by the assessee as per its lead case in ITA No.05/SRT/2019, for AY.2013-14, are as follows: "(1).On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in reopening assessment u/s 147 of the Act by issuing notice u/s 148 of the I.T. Act, 1961. (2). On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the assessing officer in disallowing the exemption of Rs. 20,76,924/- claimed by assessee u/s.10(38) on account of Long-Term Capital Gain and treating it as the accommodation entry and thereby making addition u/s. 68 of the Act. (3). On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of Assessing Officer ....
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....ns for reopening the case of the assessee was to examine the earning of suspicious capital gain from transaction in penny stock. In the reassessment proceedings, the assessing officer examined the assessee`s case on merits. The assessing officer noticed that assessee had claimed exemption of Long Term Capital Gain (for short 'LTCG') on of the scrip of Global Securities Ltd. On perusal of the assessment records of earlier years of the assessee it was noticed that such a huge amount of exempted capital gain has never been earned by the assessee in earlier years. During the course of scrutiny, it was noted that assessee had shown income from LTCG from sale of shares of Global Securities Ltd amounting to Rs. 20,76,925. This LTCG was claimed exempt as per Schedule EI in the return of income filed for the AY.2013-14. On going through the documents filed by the assessee it was observed that the assessee purchased the shares of Global Securities on 1.11.2011, the details of the same is given below: Name of Seller Name of Script No. of shares Date of purchase Amount How acquired Shri Mansukhbhai Devchandbhai M/s Global Securities Ltd 15,000 1.11.2011 18,750 ....
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....igation report prepared and disseminated by the Kolkata directorate. Similar investigations were also conducted by the Directorate of investigation at Mumbai and Ahmedabad. The basic aim of this dubious scheme was to route the unaccounted money of LTCG Beneficiaries into their account/books in the garb of LTCG. This entry of LTCG is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares into the books as LTCG. For implementing this scheme, shares of some penny stock companies were used. The same modus operandi is adopted for providing accommodation entry of bogus loss. In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices through the route of preferential allotment and off market transaction. These shares have a lock in period of 1 year as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive sha....
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....e found to be involved in manipulating the scrips of Global Securities Ltd. The assessing officer noted that documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities is that what is apparent in this case is not real, that these financial transactions were sham ones and that this entire edifice was only a colourable device used to evade tax. Thus, the claim of Long Term Capital Gain u/s 10(38) was denied by assessing officer and addition u/s 68 of the Act was made to the tune of Rs. 20,76,924/-. 10. Since, it was established by the Investigation Directorate, Kolkata that for getting accommodation entries for Bogus LTCG, a commission of approximately 5% was given to the entry providers by the assessee. Therefore, a sum of Rs. 1,03,846/- being 5% of Rs. 20,76,924/- claimed as Long Term Capital Gain, was disallowed under section 69C of the Income Tax Act. 1961 as unexplained expenditure. 11. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the assessing officer. Before the ld CIT(A), the assessee has not raised the technical issue of r....
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....urt in the case of GKN Drive Shafts (India) Ltd [125 Taxmann 963(SC)]. The ld Counsel submitted that notwithstanding this fact, the assessee can raise legal ground (about validity of reassessment under section 147 of the Act) at any stage, for that he relied on the decision of the Coordinate Bench of ITAT Agra in the case of Smt. Premwati Suman Vs. ITO, In ITA No.393/Agra/2018, order dated 22.03.2019. Therefore, ld Counsel prayed the Bench that additional ground of appeal wherein the assessee has challenged the validity of the reassessment proceedings under section 147 of the Act, may be admitted as it is being purely a legal issue. 15. So far, the reasons recorded by assessing officer to reopen the assessment under section 147 of the Act is concerned, Shri Rasesh Shah, has argued that reasons recorded by the assessing officer is bad in law as there is no tangible material before the assessing officer to invoke the provisions of section 147 of the Act. He pointed out that information received from Intelligence Wing of Kolkata is only an information and this information cannot become the reason to believe that income has escaped assessment. There should be live link between the m....
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....is ground alone, the application of the assessee is liable to be rejected. In the absence of any convincing reason being given by the assessee for not taking the additional grounds of appeal the discretion vested in the Hon'ble Bench deserves to be exercised by rejecting the application of the assessee. It is important here to point out that the assessee while taking the additional grounds has to show as to why such grounds was not taken while filling the appeal before the Hon'ble ITAT. The additional ground can be admitted only under compelling circumstance and on showing that the facts and circumstance have been changed after filing of the original appeal." Therefore, she pleaded that the impugned issue of validity of reassessment proceedings does not emanate from the order of ld CIT(A) hence the additional ground raised by the assessee should not be admitted by the Tribunal. 17. Ms Anupama Singla, further submitted that assessing officer got the information from Investigation Wing Kolkata who had carried out survey / search operations wherein it was established that in large number of penny stock companies share prices were artificially manipulated on the ....
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....e and EPS data while recording the reasons. The assessing officer also had the statements of Shri Sanjay Vora before him. Therefore, the assessing officer had sufficient tangible material before him, while recording the reasons. The assessing officer has correlated the information received from the Investigation wing with the EPS data and the return of income. Therefore, it would be out of place to say that there's non-application of mind on part of the assessing officer. Further, it has been submitted by the assessee, that the assessment is made by completely relying on the statement of Sanjay Vora. It's not true as the perusal of the Assessment order shows that the assessing officer has carried independent inquiries and brought cogent; material on record to disallow the claim of exemption of the assessee. She relied on various case laws wherein it is held that the information received from the Investigation wing is sufficient to constitute reasons to believe. The AO had sufficient tangible material at his command to form a bonafide belief. At the stage of issuance of notice, the only question is whether there was relevant material." San....
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....ue is that validity of reassessment proceedings does not emanate from the order of ld CIT(A) hence the additional ground raised by the assessee on technical issue should not be admitted by the Tribunal. We note that the assessee`s case was reopened under section 147 of the Act to examine the suspicious sale transaction in shares (penny scrip). A notice under section 148 of the Act was issued by assessing officer on 17.02.2017 after obtaining necessary approval from the higher authorities. The assessee, vide his Letter dated 31.3.2017, has requested the assessing officer to treat the original return of income filed on 29.03,2014, declaring total income of Rs. 7,77,230/- as return of income filed in response to notice under section 148 of the Act. Thereafter, reasons for reopening the case were furnished to the assessee by the assessing officer vide his letter dated 10.4.2017. However, the assessee did not object the validity of reassessment proceedings at the assessment stage. The assessee also did not raise any ground before the ld. CIT(A), challenging the validity of reassessment, however ground has been raised by assessee first time before this Tribunal. We note that additional g....
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....appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. 7. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner....
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....ing officer are valid. In such a controversial situation, we are of the view that first of all it would be necessary to examine the 'reasons recorded' by the assessing officer. The 'reasons recorded' by the assessing officer which is placed in paper book page No. 76 is reproduced below: "The assesse filed return of income for the year under consideration on 29.3.2014 declaring total income at Rs. 7,77,230/-. In this case, information is received from the Investigation Wing, Kolkata who had carried out survey / search operations wherein it was established that in large number of penny stock companies share prices were artificially raised/manipulated on the Stock Exchanges in order to book bogus claims of Long Term Capital Gain / Loss. The Information as per EFS / ITS data / penny stock reflects that the assessee has shown Long Term Capital Gain of Rs. 20,76,924/- on which STT has been paid which is claimed as exempt. This is one such case wherein the assessee has claimed that the Long Term Capital Gain amounting to Rs. 20,76,924/- arising out of sale of shares is exempt and the scrip name being Global Securities Ltd. which is one of the companies utilized ....
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.... in respect of assessee, which he has failed to do so. 21. We reproduce third para of the 'reasons recorded' for our convenience and analysis, as follows: "This is one such case wherein the assessee has claimed that the Long Term Capital Gain amounting to Rs. 20,76,924/- arising out of sale of shares is exempt and the scrip name being Global Securities Ltd. which is one of the companies utilized by Anand Rathi Share and Stock Brokers Ltd. for providing bogus accommodation entries. This fact was duly accepted before the Investigation Authorities, Kolkata Wing in the statement taken on oath u/s.131 of the I.T. Act of Shri Sanjay Vora, Regional Director, East Zone of M/s.Anand Rathi Shares and Stock Brokers Ltd during the course of Survey Operation u/s.133A of the Act." The statement taken on oath u/s.131 of the I.T.Act of Shri Sanjay Vora, Regional Director, East Zone of M/s.Anand Rathi Shares and Stock Brokers Ltd during the course of Survey Operation u/s.133A of the Act, does not contain the name of the assessee. The said statement does not relate to broker of assessee, moreover, the assessee did not sell shares through M/s Anand Rathi Share & Brokers but through Arc....
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...., as well. 24. As noted by us above in our analysis of reasons recorded. The words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and the assessing officer may Act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The assessing officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. There was no material or fact which had been stated in the reasons for starting proceedings in the assessee`s case on which any belief could be founded of the nature contemplated by section 147 of the Act. Hence, the requirements of section 147 of the Act were not satisfied and, therefore, the reasons recorded by the assessing officer are not valid, for this reliance can be placed on the judgment of the Hon`ble Supreme Court in the case of Sheo Nath Singh Vs. ACIT, 82 ITR 147(SC) wherein it was held as follows: "All that have been found in the records are reports in Form "B" made in connection with starting of proceedings under section 34(1A), each re....
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....e bogus and, therefore, proper investigation regarding the loans was necessary. It was observed that the Income-tax Officer had not set out any reason for coming to the conclusion that it was a fit case for issuing a notice under section 148 of the Income-tax Act, 1961. The material that he had before him for issuing notice had not been mentioned. The facts contained in the communications whichhad been received were only referred to vaguely and all that had been said was that from those communications, it appeared that the alleged creditors were name-lenders and the transactions were bogus. It was held that from the report submitted by the Income-tax Officer to the Commissioner it was clear that he could not have had reasons to believe that on account of the assessee's omission to disclose fully and truly all material facts, income chargeable to tax had escaped assessment. In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that th....
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....Virmani, 394 ITR 146 (Guj-HC), on the similar facts quashed the reassessment proceedings. The findings of the Hon`ble Court is reproduced below: "5.3 Thus from the reasons recorded, the reopening of the assessment is on the information/data supplied by the office of the Principal Director of Income Tax (Investigation), Ahmedabad and the information received from the Principal Director of Income Tax (Investigation), Ahmedabad vide his confidential letter dated 8/3/2016. From the information received, it appears that though the client code of the assessee with the broker - Guinness Securities Limited was WW/2647, modified client code was found to be WW/2108 and therefore, to verify the genuineness of the modification of the client code, by applying Lavenshtein Distance Analysis or digit edit analysis utility, distance was found to be 3 and therefore, it is believed that the code is not wrongly typed and it is termed as deliberate change and establishing non-genuineness and contrived nature of the code change. From the reasons recorded, it does not appear that verification of the material on record there is independent formation of opinion by the A.O. and that any income has ....
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....be quashed and set aside and are hereby quashed and set aside. Rule is made absolute accordingly. In the facts and circumstances of the case, there shall be no order as to costs." 26. The grounds or reasons which lead to the formation of the belief contemplated by section 147 of the Act must have a material bearing on the question of escapement of income of the assessee from assessment. As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. From our above analysis of reas....
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....s. 29,08,385/- and claimed the same as exempt u/s.l0(38) of the Act. Based upon the analysis from different sources as well as from the findings of the Investigation Wing that has carried out Search/Survey on the entry operators it was observed by assessing officer that entry in form of bogus LTCG through sale of penny stock claimed as exempt u/s. 10(38) of the Act was pre-arrange method adopted by the assessees to evade capital gain taxation. The Assessing Officer noted that in the assessee`s case under consideration, the assessee has purchased 35,500 shares of M/s. Sun & Shine Worldwide Ltd. on 30.10.2012 for Rs. 19,525/- The said 35,500 shares sold between February 2014 and March 2014 for rates ranging between Rs. 22.90 and Rs. 25.25 for a total consideration of Rs. 29,08,385/-. Therefore, the Assessing Officer issued show-cause notice to the assessee to explain these transactions. 32. In response to the show cause notice of the Assessing Officer, the assessee submitted written submission before the Assessing Officer which is reproduced below (to the extent relevant for our analysis): "We have carefully looked into the concerns raised by your honour and of the view t....
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....their 52- week low. The extent of the decline in some of these losers was eye-popping. Centron Industrial Alliance touched 38 paise, down 98.8% from its 52-week high of Rs. 32 and PMC Fincorp touched Rs. 3.59, down 98.5% from its yearly high.Hence, risks and rewards of dealing in small value shares are considerably high. (ii) Your honour would appreciate that fresh subscription in shares of a company which is not listed on the stock exchanges is always off market transaction. Similarly, purchase of shares is also off market transaction. Long Term Capital Gains are never disallowed when shares sold were initially the shares acquired in an IPO or as Bonus Shares (which are also Off Market). Even in the case of subscription to the shares of listed entity is also off market transaction and therefore, there is no substance in your honour's contention that the assesses had acquired shares through off market transaction. Your honour would appreciate that transfer of shares @ Rs. 0.55/- per share was very much justified based on the financial. (iii) The assesses had sold the shares in piecemeal manner over a period and not in one shot. The assessee sold the shares in ....
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....ity of the assesses, that the assessee did not know any directors of M/s Sun and Shine Worldwide Ltd. Had it been an accommodation entry transactions, the assessee would have certainly knowing any other directors of the company because the assessee would have met them before entering into understanding for such huge amount which is realised to the assessee in stock market transactions but which your honour suspect to be in the nature of accommodation entry but without implicating the assessee with concrete and cogent evidences. Till this moment nothing adverse against the assessee has, been brought on record. (viii) Further, though your honour have referred to statements of various persons viz. Shri Abhiset Basu, Pradip Dey, Rakesh Bajaj, Pradip Garg & Abhijit Dey, stating that they were indulged in providing accommodation entries in the shares of the company referred to in the show cause notice but have failed to provide corresponding supporting documents evidencing that your assessee was party to such transactions by providing corresponding bank statements and cash trail of respective parties. In absence of such authentic material, no adverse inference could be taken in ....
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....ness of contract notes or demat accounts have not been disputed even in the show cause notice, it is not your honours allegation that amount credited in the assessee's bank account have been received from person other than the assessee's stock broker. The facts relating to assessee's holding period are also confirmed by the seller viz. Corporate Commodity Brokers Pvt. Ltd, as well as broker M/s Tradebulls Securities Pvt. Ltd. and hence the holding period is also not in dispute. There is no dispute as to compliance of conditions specified in section 10(38) of the Act and under these circumstances receipt of legitimate sale consideration by the assessee on her dealings on stock market after making payment of STT cannot be said to be colourable device for the purpose of evasion of tax because tax is not liable to be paid due to operation of law and not otherwise. (xi) Addition of the 0.10 paisa deemed commission which is deemed to have been given to "operator", is rather a ridiculous fiction, which the revenue should refrain from deploying to extract more money as taxes then are rightly eligible. Since, there was no such arrangement, question of commission never a....
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.... long term capital gains who used to allot preferential shares of those listed companies to beneficiaries, to whom entry of long term capital gains has to be provided. After holding these shares for one year, clients used to sale such shares on very higher rates. Such shares are bought from beneficiaries by our companies mentioned at question no. 14. When party beneficiary, come to us for having accommodation entry, we used to get cash from them, get it deposited in various bank account and then finally, we used to transfer it to party/beneficiary's bank account. For doing so, we used to get a commission income in cash from party @ 0.10 paisa per 100 rupees of cheque amount. Our companies buy the shares after the prices raised through artificial synchronized trading." The assessing officer also observed that M/s. Sun & Shine Worldwide Ltd, the trading activities of the said script were very less during the period prior to FY.2013-14 and it was negligible trading were carried out during the period prior to 2012, wherein no buyers in the market for the said script. There was no extraordinary event which could justify the huge price rise and huge trading volume. The SEBI aft....
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....ntry. Nothing has been brought on record to indicate that amount invested by the assessee in shares was in the nature of accommodation entry. No financial transaction between promoters of M/s Sun & Shine Worldwide Ltd and the assessee have been brought on record that the assessee had paid any unaccounted funds to them in order to get the said money back by way of sale of shares through stock exchange. Both seller and purchaser on the stock market are unknown to each other when transactions are done at stock exchange. Shares sold by the assessee were open market transactions and not through black deal and therefore, transactions executed by the assessee at BSE through BSE registered stock broker cannot be treated as bogus or unexplained for the purpose of taxation. No such cogent evidence or material has been noticed by the Investigation Directorate or by the AO and therefore, merely because the assessee was able to get good return on her investment does not mean that it is bogus transaction. Such return is in the nature of long term gain within the meaning of provisions of Income-tax Act, 1961 and also it is exempted within the meaning of section 10(38) of the Act because sale tran....
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.... manipulated the price of shares. The Learned Departmental Representative submitted that assessee took the accommodation entries and the transactions done by the assessee is bogus which has been proved by the Information of the Investigation Wing of Kolkata and statement of Shri Anil Kumar Khemka taken on oath by the Investigation Wing under section 131/133A during the course of survey of proceedings. The statement of Shri Anil Kumar Khemka clearly says that he was one of the operators in Kolkata who has provided accommodation entries through his many bogus companies. Therefore, Assessing Officer has not made addition merely on the basis of suspicion and surmise, but he has made addition based on the investigations done in the matter. The assessee has utilized the services of the entry providers and the assessee is one of the beneficiaries from the entities operated by Shri Anil Khemka. Further, Shri Anil Khemka in his statement taken an oath under section 133A has stated that he received Rs. 0.10 paisa on such transaction as a commission of Rs. 2,87,047/- being the income from undisclosed sources and not offered for taxation during the year which were added by the Assessing Office....
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.... specified that "all the shares are compulsory traded in the dematerialized form by all the investor. Further, the assessing officer noticed discrepancy between the reply submitted by M/S. Corporate Commodity Brokers Private Limited, which stated that the assesse purchased these shares for Rs. 2 each while the assesse had claimed the cost price at Rs. 0.55 per share. Further, it was observed that the financial health of M/S. Sun and Shine Worldwide Limited, did not improve to an extent to have spiraled the price of shares many times within a short span of time. For a scrip to trade 13 times its face value, in a few months, only implies, if not price manipulation, a trail blazing performance, while in the instant case, the company's business or industry or future program is conspicuous by its absence.Ld. CIT(A) observed from the bank statements, that the assessee had opened the particular account for the purpose of this bogus sale transaction as no other entries were available." 39. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused ....
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....od and not in one shot. The Contract notes issued by Broker M/s Tradebulls Securities Pvt Ltd, indicates BSE Settlement number in which sale was executed, date on which sale was executed, price at which sale was negotiated, brokerage charged by them, STT paid by the assessee and deducted from the consideration payable to the assessee, BSE transaction charges, stamp duty and other charges deducted from the sale consideration clearly proves that assessee`s transaction is genuine. We note that transactions reflected in the assessee's demat account also mentions all transactions including settlement number of BSE in which such transaction was executed which matches with the corresponding settlement number appearing in contract note issued by the broker. This indicates that transactions are in accordance with the provisions of SEBI as well as BSE bylaws. We note that in assessee`s case no trail of movement of funds have been noticed or brought on record evidencing handing over of unaccounted funds to someone and rotation of the same to the assessee though cheques or electronic transfer from the broker. 40. We note that Assessing Officer has referred the statement recorded u/s 133A....
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....s do not correctly disclose the correct state of facts, vide decision of the apex Court in Pullangode Rubber Produce Co. Ltd. vs. State of Kerala (supra); (ii) In contradistinction to the power under s. 133A, s. 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement is recorded under s. 133A of the IT Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews & Sons vs. CIT (supra); (iii) The expression "such other materials or information as are available with the AO" contained in s. 158BB of the IT Act, 1961, would (not) include the materials gathered during the survey operation under s. 133A, vide CIT vs. G.K. Senniappan (supra); (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in Tax Case (Ap....
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....cash trail of respective parties. In absence of such authentic material, no adverse inference could be taken in the case of the assessee until or unless corroborative evidence of involvement of the assessee is brought on record. The assessee has also requested the assessing officer for cross examination of all such persons; however, the assessing officer has failed to do so. Hon`ble Supreme Court in the case of Andaman Timber Industries [281 CTR 214](SC) held that not allowing the assessee to cross examine the witness by the adjudicating authority though the statements of those witness were made the basis of impugned order is a serious flaw which makes the order nullity. On the same issue, the Hon`ble Calcutta High Court in the case of Eastern Commercial Enterprises 210 ITR 103 (cal) held as follows: "It is a trite law that cross examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against the party unless the party is put on notice of the case made out against him." 42.Conclusion: We note that there is no dispute regarding date of purchase of shares. Price of the shares Rs. 2/- instead of Rs. 0.55/- per share, co....