TaxTMI 
TaxTMI 
2024 (10) TMI 74
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....y issuing notice u/s 148 of the Income Tax Act, 1961 (Act) and passing the order u/s 144B r.w.s. 147 of the Act without appreciating that there is no income chargeable to tax which has escaped the assessment within the meaning of section 147 of the Act. 1.2 The AO and DRP erred in reopening the assessment u/s 148 of the Act and passing the assessment order u/s 144B r.w.s. 147 of the Act without providing the information and material relied upon by him which are listed as under * Statement recorded of following person during the survey action: (a) Shri Sanjay Chhabaria, Fund Manager (b) Shri Bhanu Katoch, CEO (c) Shri Suvendhu Rakshith, head of sales team (d) Shri Deepan Doshi, Institutional Sales head (e) Mrs. Diana D'sa, the compliance head * Annexure 10 of the communication of information provided to the Appellant. * General document stated in the insight provided to the Appellant. 2.1 (a) The AO and DRP erred in disallowing/taxing Rs. 5,47,81,701/- being dividend earned by the Appellant on Units of JM Balanced Fund - Quarterly Dividend Plan by holding that the dividend is earned by the Appellant by allegedly entering into a sham transaction. (b) The AO ....
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....t of dividend income from the said mutual fund. Therefore, the AO reopened the assessee's case by issue of notice under section 148 of the Act. Subsequently, pursuant to the directions of the Hon'ble Supreme Court in the case of Ashish Agarwal (Civil Appeal No. 3005/2022 dated 04.05.2022) the notice under section 148 was treated as notice issued under section 148A(b) of the Act. After considering the objections filed by the assessee, the AO passed an order under section 148A(b) on 27.07.2022 stating that the dividend income received by the assessee from JM Financial Asset Management Ltd. is from sham transaction generated using colourable devices and that the dividend has laid to generation of bogus STCL of mutual funds. The AO issued fresh notice under section 148 subsequently and the assessee filed the return in response to notice under section 148 of the Act. The AO called on the assessee to furnish further detail with regard to the impugned transactions. The assessee filed the relevant details pertaining to the impugned transactions and submitted that If the JM Financial Asset Management Limited has manipulated the accounting methodology or not followed any guidelines i....
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.... 08.03.2024) the Hon'ble High Court has quashed the notice issued under section 148A. Therefore, the ld. AR argued that the AO is not correct in disallowing the dividend income without giving the opportunity to assessee to examine the statement recorded from persons during survey and without giving any corroborative material to support the claim that the assessee in any way involved in the fictitious transactions. 6. The ld. DR on the other hand vehemently argued that the assessee cannot raise the contentions against issue of notice under section 148A before the Tribunal since the assessee has participated in the 148 proceedings. The ld. DR further submitted that the objections raised by the assessee against notice under section 148A have already been dealt with by the AO. The ld. DR also submitted that assessee is one of the beneficiaries of the bogus transaction carried out by JM Financial Asset Management Ltd. and therefore the AO has correctly disallowed the dividend income claimed by the assessee as well as revenue. 7. We heard the parties and perused the material on record. During the year under consideration, the assessee has received a dividend income of Rs. 5,47,81,7....
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....as considered the similar issue involving the alleged fictitious transaction with JM Financial Asset Management Ltd. and held that "13. It is necessary to observe that the officer has conveniently not mentioned the date on which he received the information because the earlier notice for reopening on the basis of dividend earned by petitioner was issued on 2nd June, 2021 and closed on 26th July, 2022. We should note that the notice now issued also does not indicate when the information was uploaded and when the IT Department flagged the information under high risk CRIU/VRU information Admittedly, petitioner had sought various documents from the Department. Without providing any information as requested, the impugned order was passed. Surprisingly, the AO has relied upon information which has not been made available to petitioner. Petitioner has admittedly been found blameworthy of acts which he has not been permitted to defend on merits. Petitioner was not given an opportunity to meet and explain his actions based on information withheld from him on one hand but used against him on the other. 14. Without providing any information, as sought for by petitioner, the impugned orde....
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....pex Court in McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC). Paragrapha 18 and 20 of the Judgment of the apex Court in CIT vs. Walfort Share & Stock Brukers (P) Ltd. (2010) 233 CTR (SC) 42: (2010) 41 DTR (SC) 233: (2010) 192 Taxman 211 (SC) read as under: "18. The next point which arises for determination in whether the 'loss' pertaining to exempted income was deductible against the chargeable income. In other words, whether the loss in the sale of units could be disallowed on the ground that the impugned transaction was a transaction of dividend stripping. The AO in the present case has disallowed the loss of Rs. 1.82.12.862 on the sale of 40 per cent tax-free units of the mutual fund. The AO held that the assessee had purposely and in a planned manner entered into a pre-meditated transaction of buying and selling units yielding exempted income with the full knowledge about the guaranteed fall in the market value of the units and the payment of tax-free dividend, hence, disallowance of the loss. 20. The real objection of the Department appears to be that the assessee is getting tax-free dividend: that at the same time it is claiming loss on....
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....ve the dividend received will not be ignored under s. 94(7). If the argument of the Department is to be accepted, it would mean that before 1st April, 2002 the entire loss would be disallowed as not genuine but, after 1st April, 2002, a part of it would be allowable under s. 94(7) which cannot be the object of s. 94/7) which is inserted to curb tax avoidance by certain types of transactions in securities. There is ont more way of answering this point. Secs. 14A and 94(7) were simultaneously inserted by the same Finance Act, 2001. As stated above, s. 14A was inserted w.e.f. 1st April 1962 whereas s. 94(7) was inserted w.e.f 1st April 2002. The reason is obvious. Parliament realized that several public secter undertakings and public sector enterprises had invested huge amounts over last couple of years in the impugned dividend stripping transactions so also declaration of dividends by mutual fund are being vetted and regulated by SEI for last couple of years. If s. 94(7) would have been brought into effect from 1st April, 1962, as in the case of a 144, would have resulted in reversal of large number of transactions. This could be one reason why the Parliament intended to give effect ....
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.... and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite Information which were there in s. 34 of the Act of 1922 at one time before its amendment in 1948 are not there in s. 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the ITO to reopen assessment though wide are not plenary. The words of the statute are reason to believe and not reason to suspect. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the IT authorities ....
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....aph. it says In the course of survey, it was found that JM Balanced Fund-Annual Dividend Option Regular Scheme (the Plan) of JM Financial had manipulated accounting methodology so as to artificially inflate the distributable surplus In the next paragraph, it says investors, in order to reduce their tax liability, entered into these sham transactions and received dividend and short-term capital loss. The assessee is one the persons who claimed fictitious short-term capital loss. In the next paragraph, it says, the assessee is one of the beneficiaries, who have received dividend and claimed fictitious losses in equity/derivative trading in JM Equity Hybrid Fund-Quarterly Dividend of JM Financial Asset Management Ltd., to the tune of Rs. 3,41.12.651/- during the financial year 2015-16 relevant to the asst. yr. 2016-17. Therefore, the AO is also not clear whether the assessee had booked loss or claimed dividend in the JM Balanced Fund-Annual Dividend Option Regular scheme or JM Equity Hybrid Fund-Quarterly Dividend This also indicates non application of mind by the AO. 20. For all these reasons above, notice dt. 20th Aug. 2022 under a. 148A(b) of the IT Act, 1961 (the Act), ord....