TaxTMI 
TaxTMI 
2021 (12) TMI 1127
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....ssed for the sake of convenience and brevity. 3.First, we shall take assessee`s appeal in ITA No.08/SRT/2019, for Assessment Year 2013-14. The grounds of appeal raised by the assessee are as follows:- "1. On the facts and circumstances of the case as well as law on the subject the learned assessing officer had erred in reopening the assessment u/s 147 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. 17,56,592/- 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 the Assessing Officer in making addition of Rs. 87,290/- on account of unexplained expenditure u/s 69C of the Act for commission payment for procuring the alleged accommodation entry." 4. Brief facts of the is....
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....esting in a penny stock. This activity of the assessee was neither the result of a coincidence nor of a genuine investment activity but were created through well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scripts worked in tandem to achieve the predetermined objectives. Therefore, the claim of LTCG u/s 10(38) was denied by the assessing officer, and the amount of Rs. 17,56,592/- was added to the total income u/s 68 of the Act. 6. The assessing officer also observed that 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. 87,290/-( being 5% of Rs. 17,45,592/- claimed as LTCG), was disallowed u/s 69C of the Act as unexplained expenditure. 7. Aggrieved by the order passed by the Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has confirmed the action of the Assessing Officer. Aggrieved by the order of Ld. CIT(A) the assessee is in appeal before us. 8. We note that assessee did not raise objections against the reasons reco....
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....ally raised 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. 17,56,592/- 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. 17,56,592/- 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. The said 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 Directsor, East Zone of M/s Anand Rathi Shares and Stock Brokers Ltd., during the course of Survey Operation u/s 133A of the Act. In view of the above facts, I have reason to believe that income to the extent of Rs. 17,56,592/- has escaped assessment for A.Y 2013-14 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary in the return of income. H....
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.... "The assessee 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 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 Share....
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....e. The Assessing Officer has to record the reasons 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.AnandRathi 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 thro....
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....cordance with law - not only substantive one but the procedural law, 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....
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....certain creditors of the assessee were mere name-lenders and the loan transactions were 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 which had 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 mu....
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.... bad in law. We note that Hon`ble High Court of Gujarat in the case of Harikishan Sunderlal 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 mater....
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....ning of the proceedings for A.Y. 2009-2010 cannot sustain and the same deserves to 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....
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....has erred in confirming the action of Assessing Officer in making addition of Rs. 3,29,188/- on account of unexplained expenditure u/s 69C of the Act for commission payment for procuring the alleged accommodation entry." 14. Succinct facts are that during the course of assessment proceedings, the Assessing Officer ( in brief 'A.O.') observed that the assessee declared Long Term Capital Gain on sale of shares at Rs. 33,15,263/- and claimed the same as exempt u/s.10(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 Long Term Capital Gain (LTCG) through sale of penny stock claimed as exempt u/s 10(38) of the Act was pre-arranged method adopted by the assessees to evade capital gain taxation. In the present case, the assessee has purchased 35,500 shares of M/s Sun and Shine Worldwide Ltd, on 30.10.2012 for Rs. 19,525/- . The said 35,500 shares sold between February, 2014 to March, 2014 at rates between Rs. 22.90/- and Rs. 25.25/- for a total consideration of Rs. 33,15,263/-. The Assessing Offic....
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....urchase apart from other ingredients like authentic supporting documents and investment through banking channel and stock exchange platform, and the same have been proved by the assessee therefore addition made by the assessing officer may be deleted. 19. On the other hand, Learned DR for the Revenue contends that the SEBI after thorough investigation has certified that such transactions are rigged and are carried out to convert black money into white. Therefore, the credit in the bank account of the assessee cannot be treated as explained and, therefore, liable to be added u/s 68 of the Act. The ld DR further pointed out that assessee miserably failed to discharge the onus with any supporting documentary evidence and it is clearly proved that it was an entry of bogus long term capital gain by paying unaccounted income. Therefore, ld DR prays the Bench that order passed by the assessing officer may be upheld. 20. 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 the fact of the case including the findings of the ld CIT(A) and other materials....
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....ssessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capital gains in a short period, does not mean that the transaction is bogus, as all the documents and evidences have been produced before assessing officer. The shares were sold in piecemeal on different date through recognized stock exchange at quoted price. 23. Regarding the statement of Shri Anil Khemka, alleged entry provider, which is reproduced in Assessment Order at Page 8, we note that said statement recorded neither implicate Sun & Shine Worldwide Ltd nor the broker Tradebulls Securities Pvt Ltd and nor the assessee. We note that physical delivery of shares is proved by the memorandum of transfer of shares stated in the share certificate being registered on 30.10.2012. Regarding the escalation of prices of shares of M/s. Sun & Shine Worldwide Ltd., that is, the prices have increased by 140 times over the period of 17 months. At this juncture, it is submitted by ld Counsel that prices of shares are determined by the market forces and not solely on the basis of financial statements. 24. We also note that Assessing officer and CIT(A) has relied on the case of Suma....
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....are Broker has already been furnished in the course of assessment proceedings. The AO have not brought any material indicating that said amount proposed to be taxed has not been received from the Share Broker or the sum received is from the sources other than the sale consideration claimed against sale of shares. In view of these facts, we are of the view that addition should not be made under section 68 of the Act. 26. In the light of the documents and evidences submitted by the assessee, we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee. We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidences in the form of bills, contract notes, demat statement and bank account to prove the gen....