TaxTMI 
TaxTMI 
2024 (4) TMI 1070
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....reinafter referred to as "the AO"] in reopening the case of the appellant for reasons which are wrong, contrary to facts and position in law; 1.2. The CIT(A) erred in upholding the action of the AO in reopening the case of appellant without appreciating that the AO erred in not providing a copy of the necessary sanction under section 151 of the Act to reopen the case of the Appellant. The CIT(A) / AO failed to appreciate that assuming that the necessary sanction has been obtained, the same appears to be mechanical as no prudent person duly instructed in law based on the reasons recorded could sanction such invalid reopening proceedings; 1.3. The CIT(A) / AO failed to appreciate that it is incumbent to first dispose off the objections to reopening and wait for a period of 4 weeks thereafter before proceedings to begin reassessment proceedings. The CIT(A) / AO failed to appreciate that: a. the notice under section 143(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") dated 28.09.2020 passed prior to disposal of objections vide order dated 20.09.2021; b. the draft assessment order dated 26.09.2021 and the assessment order under s....
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....ut prejudice to the above, the AO / CIT(A) ought to have determined the current year business loss excluding the sale consideration of sale of the alleged penny stock aggregating to Rs. 62,03,5357- and allowed set off of such loss against the additions made under section 68 of the Act; 5. Without prejudice to the above, the AO / CIT(A) ought to have restricted the addition to the extent of profit / loss on sale of alleged penny stock after giving the benefit of purchase cost of such equity shares." 6. The above grounds/sub grounds of appeal are without prejudice to each other;" 3. Brief facts of the case is that the assessee's case was reopened under section 148 of the Act on the ground for non-disclosure of the transaction related to shares of M/s ACI Infocom Ltd (in brevity ACI) and M/s Tilak Ventures Ltd (in short, Tilak), which are listed in BSE and Ld.AO has treated this transaction as penny stock transaction. Relying on the information received from DDIT(Inv), U-8(2), Mumbai the transaction of both these shares of the companies are treated as penny stock transaction. The assessee during the impugned assessment year had declared these scrips and transactio....
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....able in public domain reflects the bell shape pattern. This is the typical pattern / nature of any penny scrip. ii) Gross total income of the company M/s. ACI Infocom Ltd. for the A.Y. 2011-12 to 2014-15 is NIL and paid tax on MAT and Gross profit of M/s Tilak Ventures Ltd. was Rs. Nil for AY 2011-12 to 2015-16. iii) Total current assets of M/s. ACL Infocom Ltd. and M/s Tilak Ventures Ltd. for the A.Y. 2011-12 to 2014-15 is nil and no significant business activity noticed. iv) Total fixed assets of the M/s. ACI Infocom Ltd. is Rs. 1,64,000/-, Rs. 2,19,134/-, Rs. 2,08,854/-& Rs. 2,02,934/-for the A.Y. 2011-12, 2012-13, 2013-14 & 2014-15 respectively. The total fixed assets of M/s Tilak Ventures Ltd. for the AY 2014-15 and 2015-16 were Rs. 3,36,258/-and Rs. 4,678/-. 6.3 Thus the investment into shares of such a company of no means is highly dubious. No person can invest their hard earned money into such company for earning of income if not otherwise arranged/manipulated. 6.4 Therefore, on above facts and circumstances that the company in whose shares the assessee has invested, are in fact dubious companies and that their Directors of this ....
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....law allows but at the same time, if it is found that there is a presence of bad faith or fraud or malafide intent in the transactions, then legal effect of the transactions are not to be considered. If the assessee's acts are not bona fide but are ambiguous, sham or make-believe it is open to question and doubt the transaction. The make-believe transactions, though seemingly legal, are not free from judicial scrutiny." 5. The Ld.AR further placed that the entire addition was made by surmises and conjectures and without finding any lacunae, the loss was added back. The assessment order page 54 para 10.2 is also reproduced as below:- "10.2 Assessee vide his letter dated 19.02.2021 has stated that assessee is in business of trading of shares and investment in shares of ACI Infocom Ltd. and M/s Tilak Ventures Ltd. based on the market movement. Assessee was asked vide notice u/s. 142(1) dated 01.09.2021 how the investment was made best on the market movement since it is very generalized reply, assessee was asked to furnish the details of market movement with rates of the shares for last two years before investment and to explain the logic behind such investment with the ....
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.... profit & loss account including closing stock of finished goods. Further, this amount of Rs. 6232560/- of transaction value of these scrip is also not reflecting in the capital gain schedule of return of income. Accordingly, it is clear that the assessee has not disclosed the transaction of Rs. 6232560/- in the scrip of M/s. AC I Infocom Ltd and Tilak Ventures Limited." 7. The Ld.AR further relied on the order of the Hon'ble High Court of Judicature at Bombay, Nagpur Bench in the case of ArvindSahdeo Gupta vs Income Tax Officer, Ward-1 & Others W.P No. 4793 of 2021 judgement dated August 8, 2023. The observation of the Hon'ble High Court on para 11& 12 are reproduced as below: - "11] Coming to the challenge as raised to the notice issued under Section 148 of the Act of 1961, it is seen that pursuant to the notice dated 24/3/2020, reasons for re-opening the case under Section 147 of the Act of 1961 were furnished by the Assessing Officer. According to the Assessing Officer, the petitioner had made investment in the purchase of shares and had earned profit from the sale of shares. An amount of Rs. 9,90,3147- was stated to be credited to the bank account of the petitioner....
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....During scrutiny assessment proceeding, the AO holds the sale value of shares of M/s ACI Infocom of Rs. 14,68,750/- as manipulated transactions which was claimed to be exempt u/s 10(38) after deduction of the purchase price in respect of the Assessment Year 2013-14 and treated the exempted long term capital gains of the assessee as unexplained cash credit u/s 68 of the IT. Act, 1961. 6. In appeal, the action of AO in rejection of exemption u/s 10(38) and . thereby addition so made by the AO, has been confirmed by the Ld. CIT(A) by observing that the business of ACI Infocom had been declining over the years and almost reduced to Nil which is evident from its financial statements and under such circumstances the price high recorded in the shares is extraordinary and beyond the dynamics and normal behaviours the stock market, This is possible only when the shares prices are rigged and manipulated. Later on the shares prices has fallen down sharply and substantially. The Id. CIT(A) has also observed that the investigation carried out by the Investigation Wing at Kolkata has already brought into light about the nefarious activities indulged in by (he brokers who work as a condui....