TaxTMI 
TaxTMI 
2024 (7) TMI 901
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.... in making the addition of Rs. 41,34,571/- by disallowing the loss claimed by the assessee as fictitious loss from share transaction in equity derivatives without considering the submission of the assessee. 3.1 It is noted that the ld. AR of the assessee has filed an application dated 21- 05-2024 under Rule 11 of the Income Tax Rules, 1963 for admission of following additional grounds. ''1 On the facts and in the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in issuing notice u/s 148 on incorrect facts, hence, the issuance of the same is ab initio void. ''2. On the facts and in the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in making addition on a different ground despite that the ground on which notice u/s 148 was issued did not subsist.'' 3.2 In the application, the assessee has submitted that due to inadvertence, these additional grounds could not be taken up as these are purely of legal in nature and arise out of the order of the AO/ ld. CIT(A). These additional grounds do not require any additional evidence and the same deserves to be admitted for which the ld. AR of ....
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....ellant earned fictitious profit from Hem Securities Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs 10,15,600/- and fictitious profits as well as losses through Maverick Share Brokers Ltd. The AO has given the details of the transactions of such fictitious profits/loss earned/incurred by the appellant on page no. 6 to 19 of the assessment order. Accordingly, the AO issued notice u/s 148 of the Act to the appellant after recording reasons to believe and after seeking necessary approval of the competent authority. In completing the Gent, the AD made addition of Rs. 41,34,571/- being fictitious profit earned. Aggrieved by the said addition, the appellant is in appeal and has raised 03 grounds which are adjudicated as under- 7. Ground no.1 is relating to reopening of assessment u/s. 147 of the Act During the impugned AY, AO received information from the office of Deputy Director of Income Tax, Unit-1(1), Mumbai, according to which the appellant had ma de fictitious profits in equities and derivative trading in illiquid derivative on BSE/NSE amounting to Rs. 51,47,700/-. This information came to the knowledge of Income Tax Depa....
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....om the Investigation Directorate was to reopen the assessment as provided in Section 147 of the Act and make the verification. As the appellant had not shown any details of such fictitious transactions and the information in the possession of the AO was that appellant had received profits/incurred losses through fictitious transactions, the AO had reason to believe that the appellant's income had escaped assessment. 7.3 Hon'ble Gujarat High Court in the case of Purviben Snehalbani Panchhigar v. Asstt. CIT [2019] 101 taxmanın.com 393/(2018) 409 ITR 124 (Guj.) had an occasion to examine an identical case of that of the appellant, the Court has observed in paras 6 and 8 as under:- ''6. The return filed by the assessee were accepted without scrutiny, Since there was no scrutiny assessment, the Assessing Officer had to occasion to firm any opinion on any of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application it is equally well settled that at the stage of re-opening of the assessment, the court would not minutely examine the possible additions which Assessing Officer wishes to make. The scr....
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.... Fr. CIT v. Gokul Ceramics [2016] 71 taxmann.com 341/241 taxman 1 (Guj.), the Division Bench had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made following observations in para 9 which read thus:- "It con thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show-cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the les manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused considered, applied his mind and recorded the finding of belief that income 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 Excis....
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....15,107 The Petitioner may have its own version about the receipt of the amount of Rs. 6.74 crores. However, these are matters which can be locked into of the stage of reassessment. Based on the material available with the respondents, we cannot say that they either had no reason to beleve or that their reasons to believe were based on some non-extend material or extraneous and irrelevant material 7.8 In view of the above, I am satisfied, that the AO had sufficient information in his possession to form a reasonable belief that the appellant income had escaped assessment by virtue of the fact that the appellant had not shown any details of fictitious transactions in the return filed. Accordingly, notice issued u/s. 148 of by the AO is upheld. Ground No.1 is dismissed 8. Ground No.2 is relating to the addition of Rs 41,34,751/- as profit-from business. The AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight portal in which it was informed that the appellant had made fictitious profits in equities and derivative trading in illiquid derivative on BSE/NSE amounting to Rs. 51,47,700/-. This information came to ....
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....ions as the same was subjected to tax as the appellant had offered the same in the return of income. 8.2 Further, it was pleaded that the Project Falcon 2, the details of which were made available showed the modus operandi of various manipulated transactions using expiry trade and it was pleaded that the appellant is not the part of the said manipulated transactions. However, the information gathered by the Investigation Wing, Mumbai showed that the appellant was part of the manipulative transactions through its brokers. The appellant has not produced any evidence to prove that the loss was borne by respective brokers through banking channels. In view of the same, the ratio of the decisions referred by the appellant are not found applicable to the facts of the appellant's case. Accordingly, Ground No.2 is found to be without merit and accordingly dismissed.'' 4.2 During the course of hearing, the ld.AR of the assessee submitted that the ld. CIT(A) is not justified in confirming the action of the AO in passing order u/s 147 of the Act and also erred in confirming the addition of Rs. 41,34,571/- for which the ld.AR of the assessee submitted as under:- ''In th....
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....basis of information from the Investigation Wing that the assessee had received fictitious profits of Rs. 51,47,700/-. There is no finding on this issue by the Learned Assessing Officer. No fictitious profits have been found. The profits earned through Hem Securities and CM Goenka Stock Brokers P. Ltd stand accepted by the Learned Assessing Officer. Thus, the reasons on which proceedings u/s 147 were taken have not subsisted at the stage of concluding the assessment proceedings. In view of this, there was no scope available to the Learned Assessing Officer to make addition by disallowing the loss. Further, the Investigation Wing had not passed any information in respect of the assessee regarding fictitious loss, therefore also, the Learned Assessing Officer was not justified in disallowing the loss. The same has wrongly been disallowed. The Hon'ble ITAT is requested to delete the addition made by the Learned Assessing Officer and sustained by the Learned CIT(A).'' 4.3 On the other hand, the ld. DR vehemently argued the case and strongly refuted the submissions of the assessee by relying upon the orders of the lower authorities. 4.4 The Bench has heard both the parties and....
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....AO has erred in law in issuing notice u/s 148 on the basis of incorrect facts as he did not undertake any exercise to verify whether there were any fictitious profits of Rs. 51,47,700/-. in the hands of the assessee on account of trading on BSE. In fact, the profits earned on trading in BSE were as under :- 1. Profit from trading through Hem Securities Ltd (Broker) Rs. 10,13,973/- 2. Profit from trading through CM Goenka Stock Brokers P Ltd Rs. 40,99,184/- Total Rs. 51,13,157/- It is noted from the records that the above profits have been accepted as it is by the AO without terming the same as fictitious. The assessee had also disclosed these profits in the computation of income. In view of this, it is felt that the reasons recorded by the AO were incorrect in terming the profits earned on BSE by the assessee by trading. However, on the other hand, the assessee also suffered loss of Rs. 41,34,571/- on BSE trading from transactions conducted through M/s Maverick Share Brokers P. Ltd. The Bench observed from the assessment order that the AO disallowed the loss on the ground that the same is fictitious. It is noted that in the reasons recorded for ....
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.... equity and derivatives. The AO has further mentioned that there was no need to cause any inquiry as all the relevant inquiries already stood made by the Investigation Wing, Mumabi (Colum No. 4 of the reasons recorded). This shows that the AO accepted the information as a thumb rule and did not undertake any exercise to verify the same. The relevant para of reasons recorded is quoted below :- "As all the inquiries have already made by the SEBI, hence no further investigation is needed. Hence, I have reasons to believe that the income to the extent of Rs. 51,47,700/- is escaped assessment for the provisions of sec. 147." The Bench noted that it is settled position of law that before issuing notice u/s 148, the AO is under obligation to cause inquiries and to have reasons for issuing notice u/s 148. No notice u/s 148 can be issued on borrowed satisfaction. The following case-laws in this regard are quoted :- (a) CIT Vs. Shree Rajasthan Syntex Ltd. (2008) 217 CTR 209 (Raj) Reopening of assessment on borrowed satisfaction by Assessing Officer of lesser on the basis of opinion arrived at by the Assessing Officer of lessee on the same set of documents was in....
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....rm of accommodation entries without showing in what manner the AO applied independent mind to the information renders the reopening void (d)ITO vs. M. B. Jewellers P. Ltd (ITAT Delhi)dt. 14.11.2014 A perusal of the above reasons demonstrate that the reasons recorded by the AO are not reasons acceptable to law. There is no independent application of mind. The AO had mechanically issued notices u/s 148 of the Act, on the basis of information allegedly received by him from the CIT, New Delhi 2. From the proforma for approval of notice, which is extracted above, it is clear that the AO was also not aware that the assessee had filed a return of income for the said AY. The ACIT has also not applied his mind. No satisfaction has been recorded by the Ld.ACIT. Only an approval is given. Thus in our view the reopening is bad in law (Signature Hotels (P) Ltd. Vs. ITO 338 ITR 51 (Delhi) followed). (e) ACIT vs. Devesh Kumar (ITAT Delhi)dt. 31.10.2014 Reopening solely on the basis of information received from the investigation wing & without independent application of mind is void. (f) Unique Metal Industries vs Income Tax Officer (ITAT Delhi) dated 2....
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....arrived. There is absolutely no such profit of Rs. 51,47,700/- in the share business conducted by the assessee. Even in the assessment order, the AO has not given the working of this alleged fictitious profit of Rs. 51,47,700/- with reference to the scrips in which trading was done. In the absence of these details, the assessee was bereft of giving any defence. It is settled position of law that initiation of proceedings u/s 148 on the basis of wrong/incorrect facts is invalid in the eye of law. The following cases are quoted in support :- 1. SHAMSHAD KHAN vs. ASSISTANT COMMISSIONER OF INCOME TAX - (2017) 395 ITR 0265 (Delhi), (2017) 248 TAXMAN 0152 (Delhi) 2. MUMTAZ HAJI MOHMAD MEMON vs. INCOME TAX OFFICER (2018) 408 ITR 0268 (Guj), Re-assessment-Validity of reasons-Applicability of correct provision-Assessee had filed return of income disclosing a sale consideration and after adjusting cost of improvement and indexed cost of acquisition, offered a sum by way of capital gain-AO noted that as per an information available with office, assessee had sold an immovable property for a consideration of Rs. 1,18,95,000/- for AY 2010-11, jointly with two other per....
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.... assessee had earned fictitious profits of Rs. 51,47,700/- on BSE in trading of equity and derivatives did not figure in the assessment order and there is no addition of this amount and also there is no addition with reference to fictitious profits. The issue of fictitious profits did not subsist, as such it was not within the purview of the AO to make addition on any other ground. The AO has indulged in making addition by way of disallowance of loss of Rs. 41,34,571/- suffered by the assessee in trading of shares. The submission of the assessee is that when the AO failed to make any addition of fictitious profits, which is the ground on which notice u/s 148 was issued, then, the AO was precluded in making addition on any other ground. The Courts have held in various decisions that in completing assessment proceedings u/s 148, the AO can make addition on other grounds if additions are made on the ground on which notice u/s 148 was issued, failing this, no addition on any other ground can be made. In view of this in the case of the assessee, the AO was not justified in making addition by rejecting the claim of loss of the assessee of Rs. 41,34,571/- suffered in share trading. The ad....
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.... the AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight porat in which it was informed that the appellant had made fictitious profits in equities and derivative, trading in illiquid derivative on BSE amounting to Rs. 16,08,223/-. This information came to the knowledge of Income Tax Department on the basis of Search Operation carried on by the Investigation Wing, Mumbai. The information received from the DDIT, (Inv.), Unit-1(1), Mumbai also enclosed the statements recorded u/s 133A of the Act of Mr. Harshvardhan Kayan of Kayan Securitiies (P) Ltd. during the course of survey u/s. 131 of the Act of Mr. Sanjay Periwal, showed that appellant had involved itself in such fictitious transactions on BSE and NSE. It was further stated through the information that the appellant earned fictitious profit from Bahubal Forex (P) Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs 44,836/- and fictitious profits as well as losses through CM Goenka Stock Brokers Ltd. of Rs. 5,01,923/-. The AO has given the details of the transactions of such fictitious profits/loss earned/incurred by the ap....
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....s provided in section 147 of the Act and after obtaining approval of the competent authority. Thus, the notice issued is valid as the same is issued after recording reasons on the basis of credible information from the Investigation Wing of the Department. Accordingly, the notice u/s. 148 of the Act is upheld. The submissions made by the appellant that there was no escaped income of the appellant and there was no failure to disclose fully and truly all material facts in the return are without any merit and hence, cannot be considered. 7.2 When the appellant had not given any information about the fictitious transactions in the return filed, the only option available with the AO on receipt of credible information from the Investigation Directorate was to reopen the assessment as provided in Section 147 of the Act and make the verification. As the appellant had not shown any details of such fictitious transactions and the information in the possession of the AO was that appellant had received profits/incurred losses through fictitious transactions, the AO had reason to believe that the appellant's income had escaped assessment. 7.3 Hon'ble Gujarat High Court....
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....ce, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove that statement is not the concern at that stage. This is so because the formation of belief the Assessing Officer is within the realm of subjective satisfaction (sce ITO v. Selected Dalunbend Coal Pvt Ltd. (1996 (217) ITR 597 (SC)] Raymond Woollen Mills Ltd. v. ITO (1999 (236) ITR 34 (SC)'' 7.4 In the present case the, AO has received the material on record which would prima facie suggest that the appellant had received profits on fictitious transactions which were not reflected in appellant's return filed. The judgment in the case of Pr. CIT v. Gokul Ceramics [2016] 71 taxmann.com 341/241 taxman 1 (Guj.), the Division Bench had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made following observations in para 9 which read thus:- "It con thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such rel....
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....authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under sections 147, 148 of the Income-tax Act, 1961, no fault can be found, 7.7 Similarly, Hon'ble Bombay High Court in the case of Hede Ferrominas Pvt. Lt reported in 147 taxmann.com 215 (Bombay) had occasion to examine whether there was sufficient material to form a reasonable belief that appellant's income had escaped assessment. The relevant para of the order is reproduced below:- 15. The Petitioner has not explained the amount of Rs 2,15,107 The Petitioner may have its own version about the receipt of the amount of Rs. 6.74 crores. However, these are matters which can be locked into of the stage of reassessment. Based on the material available with the respondents, we cannot say that they either had no reason to believe or that their reasons to believe were based on some non-extend material or extraneous and irrelevant material 7.8 In view of the above, I am satisfied, that the AO had suffi....
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....of fictitious transactions was disallowed and added to the total income. The contention of the appellant is that all the transactions are of similar nature and how the AO can give different treatment to profit and different treatment for loss. However, as seen from the assessment order the AO has not taxed the profits earned on fictitious transactions again as it would amount to double taxation. However, the fictitious loss claimed by the appellant has been disallowed and added to the total income. Merely because profit has not been added it cannot be said that AO has accepted the transactions in questions. The AO has merely not added the profit on fictitious transactions as the same was subjected to tax as the appellant had offered the same in the return of income. 8.2 Further, it was pleaded that the Project Falcon 2, the details of which were made available showed the modus operandi of various manipulated transactions using expiry trade and it was pleaded that the appellant is not the part of the said manipulated transactions. However, the information gathered by the Investigation Wing, Mumbai showed that the appellant was part of the manipulative transactions through i....
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....148 on 27-07-2022 the issue and facts which already stood considered in scrutiny assessment completed u/s 143(3) on 19-11-2018 and again completed u/s 148 on 22-02-2022. There is more than duplicity in the completion on assessment, hence, the same requires to be quashed. The ld. CIT(A) erred in confirming the action of the AO. 2. . On the facts and in the facts and circumstances of the case and in law the AO erred in issuing notice u/s 148 on incorrect facts, hence the issuance of the same is ab initio void. The ld. CIT(A) erred in confirming the action of the AO. 3. . On the facts and in the facts and circumstances of the case and in law the AO erred in passing order u/s 148(d) on 27-07-2022 for issuing notice u/s 148 again on 27-07-2022 on the ground that notice issued earlier on 31-03-2021 was not served by 31-03-2021. The ld. CIT(A) erred in confirming the action of the AO.'' 8.2 The Bench has admitted the additional grounds of appeal as raised by the assessee in view of the findings given in the case of the assessee in ITA No. 465/JP/2024 for the assessment year 2013-14 9.1 Apropos Ground No. 1 & 2 of the assessee and additional grounds (supra), the fac....
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....Operation carried on by the Investigation Wing, Mumbai. The information received from the DDIT, (Inv.), Unit1(1), Mumbai also enclosed the statements recorded u/s. 133A of the Act of Mr. Harshvardhan Kayan and u/s. 133A of the Act revealed that appellant had involved itself in such fictitious transactions on BSE and NSE. It was further stated through the information that the appellant earned fictitious profit from Bahuballi Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs. 27,67,800/-and fictitious profits as well as losses through Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. The AO has given the details of the transactions of such fictitious profits/loss earned/incurred by the order. 7.1 The amount of profit earned or loss incurred by the appellant was through Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. Both these companies were managed and controlled/operated by Mr. Harshvardhan Kayan, whose statements were recorded u/s. 133A of the Act. The activity carried on by these companies was to indulge in rigging of share prices and thereby earning profits or losses as per the requirements of....
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....ssessment Both these aspects have been examined by the Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd, [2007] 161 Taxman 316/291 ITR 500 of which following observations may be noted 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 wont 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 Delhi High Court in Central Provinces Manganese Ore Co. Ltd ν. ΠΟ (1991 (191) ITR 662), for initiation of action under section 147ja) (as the provision stood at the relevant time) fulfillment of ....
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.... 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 7.5 In the decision of Pushpa Uttamchand Mehta v. ITO (supra) Paragraph No. 14 of the said judgment is relevant which is reproduced hereunder- ''14. In Phool Chand Bajrang Lal v. ITO [1993 ] 69 Taxman 627/203 ITR 456 (SC), after reviewing the previous case low, and concluding that a valid re-opening is one, preceded by specific, reliable and relevant information, and that the sufficiency of such reasons is not subject to judicial review the only caveat being that the court can examine the record, if such material existed, it was held that the facts disclosed in the return, if found later to be unfounded or false, can always be the basis of a re-opening of assessment appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude" 7.....
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....mbai also enclosed the statements recorded u/s. 133A of the Act of Mr. Harshvardhan Kayan which revealed that appellant had involved itself in such fictitious transactions on BSE and NSE. It was further stated through the information that the appellant earned fictitious profit from Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs. 27,67,800/- and fictitious profits as well as losses through Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. The AO has given the details of the transactions of such fictitious profits/toss earned/incurred by the appellant in the assessment order. Accordingly, the AO issued notice u/s 148 of the Act to the appellant after recording reasons to believe and after seeking necessary approval of the competent authority. 8.1 The appellant in its submission merely stated that it has undertaken the transactions on BSE and NSE through banking channels and Security Transaction Tax (STT) has been paid on all the transactions. However, the appellant has not been able to give any other information beyond these facts it was submitted that profit from transactions with Hem Securities....