TaxTMI 
TaxTMI 
2022 (2) TMI 568
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....ioner was accepted under Section 143 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') without scrutiny of the return. For reopening of the assessment, the assessing officer issued the impugned notice. In order to issue the notice, the assessing officer had recorded detailed reasons. The reasons read as under: "Reasons for the belief that income has escaped assessment 1. Brief details of information collected/ received by the AO During the searches conducted by the department, it is discovered that various syndicates have arranged accommodation entry of bogus LTCG, bogus STGC, bogus Long/Short Term Capital Loss through trading of shares of Penny stocks. The modus operandi found is that the investors/beneficiaries hold these shares for one year or so and then sell it to one of the shell private limited companies of the operator. The price of the shares are manipulated by regular trading by set of people. These facts were confirmed by the stake holders viz. Operators/Syndicate members/Brokers which were providing accommodation entries in statements recorded during action u/s 133A/131 of the IT. Act. It has been categorically accepted by them that such penny s....
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....em. They get the net commission income from the transactions. Their name however, seldom appears in the actual transactions. ii) The Brokers They are registered brokers through whom shares are traded both online and off-line. They are fully aware of the nature of transactions and get paid a commission over and above their normal brokerage. Some of the big broking houses are also indulging in such transactions mostly through sub-brokers. This company has given a large number of terminals to subbrokers who are dealing into this type of transactions. iii) The Entry Operators. They are individuals who control a large number of paper/shell companies which are used for routing cash for the transactions as well as buying and selling shares during the process of price rigging. They work for commission to be paid by the Syndicate Members. To cut cost sometimes in smaller operations, the same group perform more than one function. 2.2 The Transaction The transaction involves three legs. (i) Purchase of share by the beneficiary: In this the beneficiary is sold a fixed number of shares at a nominal rate, The price and the number of shares to be purchased are decided on the ....
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....of India hereinafter referred to as 'SEBI initiated investigation relating to buying, selling or dealing in the shares of certain scrips to ascertain whether there was any violation of the provisions of the Securities and Exchange Board of India Act, 1992. Vide order no. WTM/AB/EFD-I/DRA-1/14/2019-20, SEBI passed interim orders under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 banning trading in some penny stocks including M/s Lifeline Drugs and Pharma Limited (Now known as Arihant Multi Commercial Limited) restrained certain market entities from accessing securities market on the basis of its investigation suspecting evasion. Thus, the script is already proved to be penny stock in nature and SEBI has done substantial amount of work to investigate the persons and circumstances upon which the manipulations in the prices has been done in this script. The undersigned has gathered the financials of the scrip. It is observed that there is constant cyclic rise and fall in the price of share. Snap shots of the rise and fall of both the scrips are reproduced hereunder: The above graphs show the phenomenal price rise that has occurred in t....
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....al * By selling his shares to entities which do not even exist and are of no means and could not have bought the shares from their own funds * Despite SEBI, the domain regulator finding that there was price rigging and manipulation in trading of the scrip * Assessee investing in limited scrips mentioned above whose financials were not strong. * Assessee not being a regular investor in Market. As per CIB information available in the case of said assessee, it is noticed that the assessee has sold shares of "Life Line Drugs & Pharma Limited" during F.Y. 2014-15. The assessee has sold 1,08,000 shares of Life Line Drugs Pharma Limited (Scrip Code 506113) for a total sale consideration of Rs. 2,54,47,000/ during F.Y. 2014-15. It is also observed that the assessee has claimed exempt income of Rs. 3,43,94,500/-u/s 10(38) of the Income Tax Act, 1961 in his return of income for A.Y. 2015-16. Out of the said exempt income, amount of Rs. 2,47,99,000/-was earned only from trading in shares of Life Line Drugs & Pharma Limited. The scrip "Life Line Drugs & Pharma Limited" has been identified as one of the penny stocks that were the part of the "Penny Stock Manipulation Scam base....
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.... true and full disclosure of the material facts necessary for assessment under proviso to Section 147 As the assessee had made transactions of sale of shares of penny stock company i.e. "Life Line Drugs & Pharma Limited" during F.Y. 2014-15 which is involved in rigging of its share prices. Thus, it is clear that the income of Rs. 2,47,99,000/- which is said to have been earned by the assessee on the sale of shares of "Life Line Drugs & Pharma Limited" during the F.Y. 2014-15 and claimed as exempt income in the form of LTCG, is merely a way to route his income from undisclosed sources into books of accounts. This makes it clear that despite the fact that assessee has shown the income as exempt and shares has been shown as investment, it has not made true and full disclosure of the material facts necessary for assessment under proviso to section 147 of the Act. 11. Applicability of provisions of Section 147/151 to the facts of the case In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case the only requirement to initiate proceeding u/s 147 is reason to believe which has ....
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....d later on it was reiterated in the case of Deputy Commissioner of Income Tax and another vs. Zuari Estate Development and Investment Company Limited, (2015) 15 SCC 248. In the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra), it was held and observed as under: "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 st....
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....Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. 19. Inevitable conclusion is that High Court has wrongly applied Adanis case [1999] 240 ITR 224 (Guj) which has no application to the case on the facts in view of the conceptual difference between Section 143(1) and Section 143(3) of the Act." 6. With this background, we may revert to the sole contention raised by the learned counsel for the petitioner, namely, that reasons recorded by the assessing officer are not reflecting the live link or connection for formation of the belief that the income chargeable to tax has escaped assessment. Here also taking recourse to the decision of the Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra), we must remember that the requirement under the law is that the assessing officer has reason to believe. This term "reason to believe" cannot be equated with the final conclusion that eventually if the assessment is allowed, invariably the income which is escaped from assessment....