AI Drafter 
TaxTMI 
TaxTMI 
2022 (1) TMI 1416
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....nd circumstances of the case, learned ITAT has erred in law and on facts in not deciding the case on merits i.e. without appreciating the facts of the case and the cogent material and circumstantial evidences gathered by the Assessing Officer during the case of assessment proceedings?" 2. The case of the assessee was reopened as the information was received from the Investigation Wing of Kolkata, which carried out survey/search operations and in large number of penny stock companies the share prices were allegedly artificially raised on the stock exchange in order to book bogus claims of Long Term Capital Gain/Loss. The information as per EFS/ITS data/Penny Stock reflected that the assessee had shown Long Term Capital Gain of Rs.20,76,924/- on which STT had been paid and which is claimed as exempt and scrip being Global Securities Ltd. is one of the Penny Stock Companies utilized by the Stock Brokers for providing the bogus accommodation entries. Therefore, examining suspicious sale transaction of shares (penny scrip), process began. 2.1 The case was reopened and a notice under Section 148 of the Income Tax Act, 1961 ('the Act' hereinafter) was issued on 17.02.2017 after obta....
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....ort through online mode and STT. 2.6 The Assessing Officer had not only rejected the reply of the assessee and concluded that huge Capital Gain earned by the assessee within a very short period of time and investment in penny stock was neither the result of coincidence nor of the genuine investment activity, but was on account of a well planned and executed scheme in which the company, brokers, buyers and sellers of the scripts worked in tandem to achieve predetermined objectives. Hence, the LTCG under Section 10(38) of the Act had been denied and the said amount had been assessed as undisclosed sources under Section 68 of the Act. Accordingly, the amount of Rs.20,76,924/- claimed as exempt income against the sell of scrip of Global Securities Ltd. during the financial year 2012-2013 (Assessment Years 2013-2014) was treated as undisclosed income under Section 68 of the Act and penalty proceedings under Section 271(1)(c) had been initiated separately for furnishing inaccurate particulars of income. 2.7 This was challenged before the Commissioner of Income Tax (Appeals)-3, Vadodara ('the CIT' hereinafter). The CIT concurred with the Assessing Officer upheld not only the action ....
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....of the assessee had been confined to the reassessment proceedings which is termed as a technical issue by the Tribunal. 3.2 According to the Tribunal, the assessee is an individual, who derived income from other sources and LTCG during the year under consideration. The case was reopened since the information received from Investigation Wing of Kolkata, which carried out survey/searched operations that in large number of penny stock companies the share prices were artificially raised on the stock exchanges in order to book bogus claims of the LTCG/Loss. 3.3 It further noted that the assessee had shown LTCG on which STT has been paid which is claimed as exempt and scrip Global Securities Ltd. is one of the penny stock companies utilised by brokers for providing accommodation entries. Therefore, the case of the assessee was reopened under Section 147 of the Act to examine the suspicious sale transaction in shares (penny scrip) and a notice under Section 148 of the Act was issued after obtaining necessary approval. 3.4 The assessee challenged the validity or reassessment for the first time before the Tribunal, this was by way of an additional ground that the assessee raised th....
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.... The Information as per EFS/ITS data/penny stock reflects that the asseessee has shown Long Term Capital Gain of Rs.20,76,924/- on 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 Shares and Stock Brokers Ltd during the course of Survey Operation u/s. 133A of the Act. In view of the proceedings conducted by the Investigation Wing, Kolkata and after perusal of the information received form the Investigation wing, Kolkata as well as available data, I have reason to believe that income to the extent of Rs.20,76,924/-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 t....
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.... the procedures which are valid under the law and must adhere to substantive as well as procedural law. The levy and collection of the taxes always should be strictly in accordance with law. The words reason to believe is extensively discussed, which means that the belief needs to be 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 rumor. He would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or there is no material or relevant to the "belief", as required by the section. 3.11 According to the Tribunal, 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 under Section 147 of the Act. Therefore, the Tribunal allowed the appeal of the assessee by holding that the Assessing Officer's reasons recorded fall in the zone of "reasons to suspect" and not "reasons to believe" and therefore, it quashed the reassessment proceedings. 4. Aggrieved revenue is before this Court rais....
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....art of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) locate outside India, chargeable to tax, has escaped assessment for any assessment year : Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation I-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely - ....
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....o his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.]" 148: Before making the assessment, reassessment or recomputation under Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income charge able to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Office....
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....count or documents are seized or requisitioned in case of any other person. Explanation 3.-For the purposes of this section, specified authority means the specified authority referred to in section 151.]" 6. This Court in case of HariKishan Sunderlal Virmani, reported in 394 ITR 146 (Guj.-HC) on the issue of reopening was considering as to whether any reassessment proceedings can be permitted on the basis of the information received from the another agency, when the Assessing Officer was required to form an independent opinion on the basis of the material on record that the income has escaped the assessment for the relevant year. The Court held that without forming any such opinion solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification. "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, it appears that though the client code of the assessee with the broker Guinness Securities Limited was WW/2647, modified client code was found t....
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....period of four years in exercise of powers under section 147 of the Act is bad in law and contrary to the provisions of section 147 of the Act. Under the circumstances, on the aforesaid ground alone, the impugned reassessment proceedings deserve to be quashed and set aside. 5.5 In view of the above and for the reasons succeeds. stated above, present petition The impugned notice issued under section 148 of the Income Tax Act, 1961 and reopening of the proceedings for A.Y. 2009-10 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." 7. The Apex Court in case of Sheo Nath Singh vs. ACIT, reported in 82 ITR 147 (SC) held that the Income Tax Officer needs to satisfy the requirement of the statute. The material which the Assessing Officer had before him for issuing the notice were referred to vaguely and all that had been stated was that from the communications it appeared that the alleged creditors were name-lenders and the transactions were bogus. According to the Apex Court, the belief must be that of an hone....
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....Court. "7. The reasons thus recorded do not proceed only on the information supplied by the Investigating Wing. The Assessing Officer having applied his mind and processed such information, formed his belief that the income chargeable to tax has escaped assessment. Neither the application of mind, nor the formation of belief that income chargeable to tax has escaped assessment on the basis of information available at the disposal of Assessing Officer, have to be expressed in any rigid format in the reasons recorded. Hence, as these two essential requirements can be gathered from the reasons recorded, the notice for reopening cannot fail on such basis. Division Bench of this Court in case of Dishman Pharmaceuticals & Chemicals Ltd. v. Dy. CIT (OSD) [2012] 346 ITR 228/30 taxmann.com 67 (Guj.) made following observations: "From the above judicial pronouncements, the following principles can be culled out : [i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act beyond four years from the end of the assessment year, the following two conditions must be satisfied (a) that the Assessing Officer must h....
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....ome chargeable to tax had escaped assessment, the re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue. 10. In case of Central Provinces Manganese Ore Co. Ltd. v. Income Tax Officer, Nagpur (Supra) the Supreme Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee had declared very low price in respect of the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under- voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening....
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.... the next day after receipt of the letter of Shri Bagai does not mean that the Income Tax Officer did not apply his mind to the information contained in the said letter of Shri Bagai. On the basis of the said facts and information contained in the said letter, the Income Tax officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information on the basis of which he could have reasons to believe that income of the assessee chargeable to tax had escaped assessment for the relevant assessment years. For the reasons aforementioned, we are unable to uphold the impugned judgment of the High Court. The appeal is, therefore, allowed, the impugned judgment of the High Court is set aside and the Writ Petitions filed by the respondents are dismissed. No order as to costs." 12. In case of Income Tax Officer v. Selected Dalurband Coal Co. Pvt. Ltd. (Supra), the assessment was reopened on the basis of the information ....
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....n a writ petition. It was observed as under : "23. The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the assessing officer treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that transactions involving Rs.27 lakhs mentioned in the table in Annexure P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The assessing officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the DIT (INV-V) as regards the transactions entered into by the assessee company with number of concerns which had made accommodation entr....
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....edly, as noted earlier, the Assessing Officer during the original assessment had examined the transactions. However, such examination would necessarily. be on the basis of disclosures made by the assessee in the return filed and during the scrutiny assessment. If the Assessing Officer has information to form a reasonable opinion that prima facie the entire transaction itself was sham and bogus, as reference to such transaction during the original assessment and raising certain queries in this respect would not prevent him from reopening the assessment on the principle of change of opinion. As noted, the opinion would be formed on the basis of disclosures. When disclosures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. In the present case, as noted, Assessing Officer received additional information after the original assessment was over, on the basis of which he formed a belief that the entire transaction was a sham transaction. At this stage, where the Court is examining the validity of notice of reopening, it is not necessary that the Assessing Officer must have conclusive evidence to hold that invariabl....
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....ed and obtained accommodation entry in the form of loans and advances, the reasons lack basis. The Director Mr. Dalmia of Basant Marketing Pvt. Ltd. as contended also does not reveal anywhere and, therefore, it is premature on the part of the Assessing Officer to so record the reasons. It is further urged that the affidavit of Rishabh Dalmia stating on oath that the loan transactions with the petitioner are genuine for having been carried out only through cheques, prima facie vindicates that the entire exercise is based on suspicion. The entire thrust, therefore, is that issuance of notice is nothing but a fishing inquiry. 19. As discussed at length while adverting to the law, that sufficiency of reasons recorded by the Assessing Officer need not be gone into by this Court. Of course, the Assessing Officer when forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings as fresh facts revealed the nondisclosure full and true. Such facts were not previously disclosed ....
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....e assessee and not treating them as genuine loans and advances. Furnishing the details of names, addresses, PANs, etc. also would lose its relevance if subsequently furnished information, which has been made basis for issuance of notice impugned, concludes that Basant Marketing Pvt. Ltd. is merely a dummy company of one Shri Arun Dalmia, which provided the accommodation entries to various beneficiaries. 21. This Court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr. Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material....
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....e unsustainable information. 8.3 The material whether has a rational connection or live link with the formation of the requisite belief can be gone into by the Court. Upon the basis of any subsequent valid information, if the officer forms reason to believe that the twin conditions provided under Section 147 of the Act are satisfied. That no full and true disclosure of the fact have been made by the assessee at the time of original assessment and hence, the income chargeable to tax has escaped the assessment by forming his own belief based on his own reasons to belief. The Court need not interfere. 9. This being a well laid down position of law that the Court needs to inquire to a limited extent is as to whether there exist a sufficient material on record for the Assessing Officer to form a requisite belief and whether there was a live link existing of the material and the income chargeable to tax had escaped the assessment. 10. Undoubtedly, there exists a material on record that after the original assessment was concluded, the information had been received from the Investigating Wing, Kolkata, which carried on the survey and search operations, where it was established tha....
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....d from other source without forming any independent opinion on the basis of the material on record that income has escaped the assessment. His suspicion of the assessee dealing with the shares and claiming of LTCG would not provide the sufficient grounds for reopening. 13. The exercise which is based on suspicion is not permissible for reopening and any notice for reassessment in such circumstances would need to be termed as a fishing inquiry only. 14. In case of Vilas Vrajlal Parekh HUF (supra) it was a case where the Principal Director of Income Tax (Inv) Kolkata, had undertaken the exercise of accommodation entry of LTCG, and identified large number of beneficiaries who had availed huge amount of bogus entries of LTCG and identified about 64811 beneficiaries involving bogus LTCG amounting Rs.38,000 crore. The revenue has highlighted the modus operandi of the business of penny stocks and pointed out that the company involved in that case which was Tuni Textile Ltd. The company Tuni Textile Ltd., was used in providing bogus accommodation entries of LTCG by certain entities like broker etc., the assessee had purchased 60,000 shares and on 04.08.2010 and sold it on 26.03.2012.....