2023 (3) TMI 918
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....ity shares held by the appellant for more than one year by invoking the provisions of section 68 of the Income Tax Act, 1961. 3. That he was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in making an addition of Rs. 3,67,670/- on account of alleged expenses allegedly paid by the appellant for arranging the alleged entries in respect of long term capital gain by invoking the provisions of Section 69C of the Income Tax Act, 1961. 4. That he was further not justified to negate the claim of the appellant that the assessment framed by the Ld. Assessing Officer by ignoring the basic principles of natural justice and relying on certain statements of various persons without affording any opportunity to cross examine such persons was not bad in law." 2. Briefly the facts of the case are that the assessee has filed her return of income declaring total income of Rs. 9,27,190/- on 30/07/2013. Thereafter information was received from Pr. DIT (Investigation), Kolkata regarding entry of bogus Long Term Capital Gains (LTCG) at platform of Calcutta Stock Exchange and basis the same, the AO recorded the reasons to believe that income of the assessee has ....
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....dependent conclusion has been drawn regarding escapement of income by the assessee. In this regard our reference was drawn to the reasons recorded by the AO prior to issuance of notice u/s 148 which are contained at pages 11 to 19 of the Department's paper book and it was submitted that exactly identical reasons were recorded in case of other family members of the assessee and the matter is squarely covered by the recent decision of Coordinate Chandigarh Benches in case of family members of the assessee namely Smt. Sudesh Rani, Smt. Ritu Garg and Smt. Urmila Rani (in ITA Nos. 1338 to 1340/Chd/2018 dt. 12/01/2023). It was accordingly submitted that the very basis of initiating the reassessment proceedings cannot be sustained in the eyes of law and therefore, the consequential proceedings also deserve to be set-aside. 6. Per contra, the ld. Sr. DR submitted that the information received by the Assessing Officer from the Pr. DIT (Investigation), Kolkata contains factual information and on the basis of this information, the AO prima facie formed a belief that the income has escaped assessment. It was submitted that the from the reasons recorded by the Assessing Officer, it is amply cl....
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....y the AO to reassess under the provisions of section 147 of the Act does not stand to reason. The AO was in possession of information by way of an Investigation Report by the Investigation Wing of Kolkata which had unearthed a scam of accommodation entries of LTCGs by a cartel of brokers and operators. That the appellant was a beneficiary of the said scam could not have been more evident from the return of income for the year under consideration, in which there was a claim of exemption from long term capital gains of Rs. 1,16,75,588/- under the provisions of section 10(38) of the Act from the sale of shares of a dubious company, whose acquisition cost was a mere Rs. 4,84,000/- and which gave the appellant a return of around 2400% in a span of just a year. The AO did form a prima facie belief of escapement of income on the basis of an indubitable and credible information in respect of the appellant. All the essential ingredients for reopening the case of the appellant were satisfied and due procedure was followed in assumption of jurisdiction to assess the appellant. The grievance qua the reopening of the case is nothing but an exercise in nitpicking and an attempt to abuse the proc....
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....r section 147 is a potent power not to be lightly exercised and certainly cannot be invoked, casually or mechanically. The heart of the provision is the formation of belief by the Assessing officer that income has escaped assessment. The reasons recorded have to be based on some tangible material and that should be evident from reading of the reasons. The Assessing officer being a quasi-judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the investigation wing might constitute the material on the basis of which he forms the reasons to believe, the process of arriving at such satisfaction cannot be a mere repetition of the report of the investigation wing and in the said case, it was held that the reasons to believe doesn't contain the reasons rather the conclusions of the Assessing officer one after another which are at best reproduction of the conclusion of the investigation report, which in effect is a borrowed satisfaction. It was accordingly held in the said case that the Tribunal has therefore rightly held that the initiation of proceedings under section 147 to reopen the assessment doesn't satisfy t....
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....23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the origin....
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....G Polyvinyl ltd (supra) has held that the information received from the Investigation wing cannot be said to be tangible material per se without further enquiry being undertaken by the Assessing officer and there is no live link between the tangible material and formation of reasons to believe that income had escaped assessment and the relevant findings read as under: "12. Recently, in its decision dated 26th May, 2017 in ITA No. 692/2016 Pr. CIT v. Meenakshi Overseas, this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions "one after the other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the ....
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....Investigation). The second sentence is a direction given by the very same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. These three sentences are followed by the following sentence, which is the concluding portion of the so-called reasons : Thus I have sufficient information in my possession to issue notice under section 148 in the case of SFIL Stock Broking Ltd. on the basis of reasons recorded as above." 10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as "reasons" on the basis of which he was proceeding to issue notice under section 148. We are afraid that these cannot be the reasons for proceeding under section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had had ap....
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....ve to see if it satisfies the rigour of the provisions. The observations of this court in Multiplex Trading & Industrial Co Ltd (supra) are relevant in this respect and are set out below; "In our view, the question whether the assessee could have been stated to disclose fully and truly all material facts have to be examined in the light of facts of each case and also the reasons that led the Assessing Officer to believe that income of an assessee has escaped assessment. In a case where the primary facts have been truly disclosed and the issue is only with respect to the inference drawn, the Assessing Officer would not have the jurisdiction to reopen assessment. But in cases where the primary facts as asserted by the assessee for framing of assessment are subsequently discovered as false, the reopening of assessment may be justified." 17. In the facts of this case, the primary facts have not been shown to be false. The five companies do exist. They did subscribe to the share capital of the petitioner. They did pay the money to the petitioner. All the five companies are assessed to tax. These are the primary facts. The reasons to believe rely upon a letter received from the Inv....
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....erence to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons: (iv) the exercise of considering the assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi-judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed." 13. Similarly, the Coordinate Chandigarh Benches in case of Future Tech IT system Private Ltd (supra) has held that where the AO acted merely upon the report of the Investigation wing and initiated the proceedings for reopening the assessment by issuing notice under section 148, the reassessment proceedings were not valid and deserve to be quashed. 14. Similarly, in case of M/s Century Fiscal Services Ltd (Supra), the Coordinate Chandigarh Benches have held that on perusal of the reasons recorded by the AO, it is very much evident that he has mainly relied on the information passed to him by the Investigation wing regarding accommodation....
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....ice and then it goes about discussing the type of penny stock companies, the entities involved in the transaction and the different legs of the transaction and survey conducted at the premises of Ashok Kumar Kalyan where he has named some nine companies including Access Global Limited as penny stock company which is used for providing accommodation entry in form of long term capital gains. We find that these are general descriptions and how the same are relevant in the case of the assessee is not borne out from the reasons so recorded. Even the contents of the investigation report so stated to be received by the Assessing officer doesn't form part of the reasons so recorded and has thus not been shared with the assessee. How Access Global Limited which is a listed entity has been held as penny stock companies and whether any investigation/verification carried out by the Assessing officer is not borne out of the reasons so recorded. 17. In third and fourth part of the reasons so recorded, the AO talks about the fact that M/s Access Global Ltd is a Calcutta Stock Exchange listed company having paid-up capital of Rs.28,87,30,000/- and it talks about three companies namely M/s Seavi....
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....nd claimed exempt is liable for taxation which has escaped assessment and such reasons to belief must be based on tangible material. As we have noted above, the whole focus of the Assessing officer is on M/s Access Global Ltd whose shares have been sold and sale consideration thereof has been shown in the return of income and he has infact failed to carry out preliminary enquiry and examine the return of income that the assessee had originally purchased shares of M/s Maple Good Ltd and on its amalgamation, was allotted shares of M/s Access Global Ltd in exchange for its existing holding and whose cost of acquisition has been claimed as eligible deduction and net sale consideration has been claimed as exempt as long term capital gains. 19. Thereafter, in part seven of the reasons so recorded, he has stated that "it is therefore clear that the assessee has also taken bogus long-term capital gains and has shown exempt income on the managed transactions/bogus long-term capital gain and therefore, I have reasons to believe that undisclosed income of Rs. 1,04,28,197/- has been converted into bogus long-term capital and has escaped assessment within the meaning of section 147 of the Ac....