TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1230
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....claring total income at Rs. 15,08,324/- and long term capital gain on sale of share at Rs. 1,44,35,387/- was claimed as exempt u/s 10(38) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). A search & seizure action u/s 132 of the I.T. Act was carried out at the business and residential premises of Mantri Group of Jalna on 02.05.2013 wherein the assessee was also covered. Accordingly assessment u/s 143(3) r.w.s. 153A of the Act was completed on 22.03.2016 by determining the total income at Rs. 16,79,230/- and agricultural income at Rs. 54,990/- against the returned income of Rs. 15,08,324/-. 4. Subsequently information was received from the office of the DDIT (Inv.), Unit-8(3), Mumbai that the assessee has sold his investment in penny stocks of M/s. Nivyah Infrastructure & Telecom Services Ltd. (hereinafter referred to as 'NITSL') amounting to Rs. 1,60,30,716/- during the assessment year under consideration. Further, it was stated that the company NITSL which is a penny stock company, has facilitated various beneficiaries to claim LTCG exempt from tax under section 10(38) of the Act. The assessee was one of the beneficiaries of this penny stock company listed on BS....
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....ssessee, the brokers, operators and the entry providers and the nature of transaction entered into by the assessee, the Assessing Officer disallowed the claim of Long Term Capital Gain of Rs. 1,44,35,387/- claimed exempt u/s 10(38) of the Act and added the same under section 68 of the Act. 7. Further, the Assessing Officer held that the accommodation entries regarding sale of shares have been obtained by the assessee after paying certain charges i.e. commission as is the case with all such penny stocks involving accommodation entries in the form of bogus LTCG/STCG. As these charges are not recorded in the books, such commission was presumed @ 2% of the sale amount of Rs. 1,60,30,716/-. The amount of commission paid was accordingly arrived at Rs. 3,20,614/- and was added as unexplained expenditure u/s 69C of the Act for arranging accommodation entries. The Assessing Officer accordingly passed the order u/s 143(3) r.w.s. 147 of the Act on 24.12.2018 assessing the total income at Rs. 1,64,35,230/- by making addition of Rs. 1,44,35,387/- on account of disallowance of capital gain u/s 10(38) of the Act and Rs. 3,20,614/- on account of unexplained expenditure u/s 69C of the Act. 8. Bef....
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..... ITO 104 taxmann.com 216. The Honourable Bombay High Court in the said judgement having similar facts has held that the notice u/s 148 of the ITA, 1961 issued is bad in law. Operative Para of the said judgement is reproduced below: "8. From the reasons, it is evident that the impugned notice has been issued on the basis of information received from the Deputy Collector Income Tax (Investigation) alleging that M/s Nivyah Infrastructure & Telecom Services Ltd is a penny stock listed on the Bombay Stock Exchange and that the petitioner had dealt with the same leading to escapement of income. On receipt of information, the least that is expected of the Assessing Officer is to examine the same in the context of the facts of this case and satisfy himself whether the information received does prima facie lead to a reasonable belief that income chargeable to tax has escaped assessment. In this case, the reasons indicate that the Assessing Officer has not carried out such exercise and accepted the report of the Deputy Collector of Income Tax (Investigation) Mumbai to conclude that the petitioner had dealt with Nivyah Infrastructure and Telecom Services Ltd during the previous year releva....
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....India [2023] 152 taxmann.com 214. The Honourable Bombay High Court has held that where addition based on penny stock transaction had already been considered while making scrutiny assessment u/s 143(3), notice for reopening u/s 148 for same transaction could not be issued as there was no fresh tangible material. Operative Para of the said judgement is reproduced below: "3. The Petitioner had filed her return of income for AY 2014-15 on 28th July 2014. The Assessing Officer ("AO") had passed an order u/s 143 (3) of the Act on 18th November 2016, whereby he added Rs. 1,07,18,922 to the total income on account of withdrawal of exemption claimed by the Petitioner u/s 10(38) of the Act and the Petitioner paid tax on the same. Thereafter, the Petitioner was also granted waiver of penalty for the AY 2014-15 on 31st January 2018 on application u/s 273A of the Act by the PCIT-18, Mumbai. 4. Evidently a notice u/s 148 of the Act dated 26th March 2021 is issued after a period of four years following which a return of income was filed by the Petitioner on 14th April 2021. This was followed by Notice u/s 143(2) dated 10th November 2021 and notice u/s 142(1) dated 15th November 2021 seeking....
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....ould be invalid. This principle has been upheld by the Apex Court as well as the jurisdictional High Courts in various rulings. Furthermore, this Court has held that reconsideration of the material available at the time of original assessment proceedings tantamount to change of opinion and therefore invalid. 8. In view of the settled legal position and considering the facts of the present case, we pass the following order- i. The impugned notice dated 26th March 2021 issued by Respondent No.2 for AY 2014-15 are quashed and set aside and all action in furtherance thereto is prohibited; ii. Rule made absolute in above terms. No costs 6.4 In the instant case, the above decision of the Hon'ble Bombay High Court squarely applies. The appellant had already declared & claimed the exemption u/s 10(38) in his original return of income. The Assessing Officer had also duly verified the return of income during the course of assessment proceedings and passed order u/s 143(3) r.w.s. 153A of the Act, 1961 by accepting the transaction of exempt LTCG. The reason for reopening was recorded on the basis of information received from DDIT(Inv.) Mumbai and notice for reopening u/s 148 was is....
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....38) of the Act. Even the company NITSL did not respond to the notice u/s 133(6) of the Act. He accordingly submitted that the order of the Ld. CIT(A) be reversed and that of the Assessing Officer be restored. 14. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A). He submitted that during the course of 153A proceedings the assessee had given full details, according to which the assessee was allotted 2,50,000 shares of M/s. S.V. Electricals Ltd. on 01.12.2009 which were credited to the assessee's D-MAT account maintained with Adinath Stock Broking Pvt. Ltd. on 16.02.2010. He submitted that between 10.01.2011 to 11.02.2011, 1,02,043 shares of M/s. S.V. Electricals Ltd were sold by the assessee through his D-MAT account maintained with Adinath Stock Broking Pvt. Ltd on 14.03.2012. The name of the company was changed from M/s. S.V. Electricals Ltd to M/s. Nivyah Infrastructure & Telecom Services Limited. The assessee filed his return of income on 26.03.2012 declaring total income of Rs. 15,08,324/- and exempt long term capital gain of Rs. 1,44,35,387/-. A search action u/s 132 of the Act was conducted in the case of Mantri group on 02.05.2....
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....returned income. 16. Referring to pages 24 and 25 of the paper book, he drew the attention of the Bench to the reply given by the assessee to the specific queries raised by the Assessing Officer during 153A proceedings on 26.02.2016 which read as under: "Date 26.02.2014 From M.S.Bhakkad Chartered Accountants, Jalna To The Assistant Commissioner of Income Tax, Central Circle 1 Aurangabad Subject: Ashish O. Mantri (PAN AAXPM9270F) AY 2011-2012 Sir, During the course of hearing on earlier occasion, you were pleased to ask us to fie following details. We submit the following explanation and details for your kind consideration. 1. We enclose herewith confirmation of parties for the year under assessment. 2. We enclose herewith ledger account of agriculture income for your record and perusal. 3. The details of capital gain on sale of plots is already filed along with computation of income for the year under assessment in our earlier submission. We enclose herewith Purchase and sale deeds of the said plots sold for your record and perusal. 4. We enclose herewith copy of Financial Statements of SV Electricals along with movement of Share Prices for your rec....
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....made by Assessing Officer under section 68 treating such LTCG as bogus was unjustified. 20. Referring to the decision of the Hon'ble Bombay High Court in the case of Chanchal Bhagwatilal Gokhru vs. Union of India (2023) 454 ITR 451 (Bom), he submitted that the Hon'ble High Court in the said decision has held that where addition based on penny stock transaction had already been considered while making scrutiny assessment under section 143(3), notice for reopening under section 148 for same transaction could not be issued as there was no fresh tangible material. 21. Referring to the decision of the Hon'ble Allahabad High Court in the case of PCIT vs. Smt. Renu Agarwal (2023) 153 taxmann.com 578 (Allahabad), he submitted that the Hon'ble High Court in the said decision has held that where AO disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accommodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made ....
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....lectricals Limited after January 2011. Now, the name of the said company was changed on 14/3/2012. Thereafter, an internal report appears to have been made by Mumbai office of I-T (INV). From perusal of Para-2 of the "reasons", it appears to have been stated that, assessee has sold shares of M/s Nivyah Infrastructure & Telecom Private Limited for amount of Rs. 1,60,30,716. Nowhere, in the "reasons", name of M/s SV Electricals Limited is stated. As such, the actual transaction of exempt LTCG declared by the Appellant was glossed over while recording "reasons" by the learned AO. Thus, there was no any independent application of mind of learned AO, while recording of the "reasons". Learned CIT(A) has followed decision of Honorable Bombay High Court in case of South Yaara Holdings vs. ITO - 104 Taxmann.com 216 at Para 5.3, wherein, identical facts existed and wherein, Honorable Bombay high Court has observed that "reasons" were recorded without due application of mind. b) Amount difference: From perusal of 2nd para on page-1 and last para on Page-2 of the "reasons" reveal an alleged LTCG amount of Rs. 1,60,30,716 which has escaped assessment. As against, the 2nd last para of the 1s....
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....ical facts were present. It was held therein that, reapplication of mind is not permitted in a reassessment u/s 147. d) Absence of any new 'tangible material' revealing from "reasons": Perusal of the "reasons" for reassessment reveals that, the very same data of price fluctuation of M/s Nivyah Infrastructure & Telecom Services Ltd along with the audited accounts, etc. was relied upon for recording "reasons" of reassessment. Now, the very same data was already existing on files of the learned AO in the search based assessment, which was duly mind applied. In other words, there was absence of any fresh tangible material for the presently considered "reasons" of reassessment. Hence, the "reasons" of reassessment are incorrectly recorded. e) Statements of three brokers: During the course of 147 proceedings, learned AO has extended copies of the statements of three brokers, named as follows- (i) Mr. Navneetkumar Singhania of Kolkata (ii) Mr. Beni Prasad Lahoti of Kolkata (iii) Mr. Shiv Sundar Banka of Kolkata Copies of these statements are submitted at Page-64 onwards in Paper-Book. Perusal of these statements reveal that, nowhere, assessee has been named by these th....
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....d before us. We find the original assessment in the instant case for the assessment year 2011-12 was completed u/s 143(3) r.w.s. 153A of the Act on 22.03.2016 determining the total income of the assessee at Rs. 16,79,230/- as against the returned income of Rs. 15,08,324/-. The Assessing Officer in the said order has allowed the claim of long term capital gain of Rs. 1,44,35,387/- claimed as exempt u/s 10(38) of the Act after considering the reply of the assessee to the specific queries put by him. We find on the basis of information obtained from the Investigation wing that the assessee has sold his investments in penny stock company NITSL, reopened the assessment after recording the reasons. The reasons recorded for c: OFFICE OF THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, AAYAKAR BHAVAN, NEAR HOLY CROSS ENGLISH SCHOOL, CANTONMENT, AURANGABAD (Ph. 0240-2373001) No.ABD/ACIT/CC-1/147-Reasons/2018-19/63 Date: 10.05.2018 To Ashish Omprakash Mantri, Abhay Oil In....
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....e of this entity is not supported by financial fundaments of the company. Both purchase and sale of share are concentrated within few persons / entities. The exit providers do not have credit worthiness. They are either non-filers or have filed nominal return of income and have not paid tax. On verification of the records of the assessee available with this office, it is noticed that the assessee has claimed exemption u/s 10(38) of Rs. 1,44,35,387/-. However, no details regarding this LTCG has been mentioned such as the name of the company of which the stocks have been traded, purchase cost of shares and sale consideration etc. As the information received has established that the assessee has entered into transaction of purchase and sale of stock of M/s Nivya Infrastructure & Telecom Services Ltd which is a penny stock company, the case of the assessee needs to be assessed afresh so as to unearth the mechanism of converting unaccounted money into accounted for via investment in penny stock company. On in depth verification, it is clear that the assessee has employed the services of penny stock company i.e. M/s Nivya Infrastructure & Telecom Services Ltd. to convert his own unac....
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....eve that income has escaped assessment for the AY under consideration have been recorded above. I have carefully considered the assessment records containing the submissions made by the assessee in response to various notices issued during the assessment proceedings and have noted that the assessee has not fully and truly disclosed the following material facts necessary for his assessment for the year under consideration. 1. The assessee has received an amount of Rs. 1,60,30,716.35/- as LTCG via purchase and sale of stock of M/s Nivya Infrastructure & Telecom Services Ltd which is a penny stock company. However, the same has not been offered for taxation this LTCG is not real. It is evident from the above facts that the assessee had not fully and truly disclosed material facts necessary for his assessment for the year under consideration thereby necessitating re-opening u/s 147 of the Act. It is true that the assesses has filed a copy of annual report and audited profit and balance sheet along with return of income where various information/material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made....
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....We find an identical issue had come up before the Hon'ble Bombay High Court in the case of South Yarra Holdings vs. ITO (supra). In that case also the assessee had sold the shares of M/s. S V Electrical Limited which has subsequently been changed to NITSL and the order was passed u/s 143(3) of the Act on 01.11.2013. The Assessing Officer received information from the DDIT (Inv) Wing on 23.03.2018 which is the same date in case of the assessee also. The reasons were recorded in March, 2018 and the notice was issued to that assessee on 29.03.2018. (In the case of the assessee the date of notice is 28.03.2018). There also the Assessing Officer rejected the objections made by the Assessing Officer and the additions were made for alleged penny stock. When the assessee challenged the validity of re-assessment proceedings, the Hon'ble High Court quashed the re-assessment proceedings by observing as under: "3. For the Assessment Year 2011-12 the petitioner filed its return of income on 29.9.2012 declaring an income of Rs. 12.52 lacs (rounded off). The return was taken up for scrutiny assessment by the Assessing Officer. On 1.11.2013 the Assessing Officer passed an order under section 143....
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....ation report containing the modus operandi of tax evasion through penny stock and discussion in entry operators from brokers and scripts has been provided along with the letter of DDIT (Inv) Mumbai. 2.5. Our assessee is one of the beneficiary who have availed accommodation entries by way of traded in shares to the tune of Rs. 3504000,000000000005 in M/s Nivyah Infrastructure & Telecom Services Ltd with a view to ultimately reduce tax liability and or to bring capital in the form of equity or debt or tax exempt income or a combination of the above transaction, therefore, it is necessary to verify the actual amount of bogus LTCG analyzing the D-mat statement and bank account statement. 3. In this case return of income as fixed for the year under consideration and regular assessment u/s 143 (3) was made on 27.11.2013. Since 4 years from the end of the relevant year has expired in this case the requirements to initiate proceedings u/s 147 of the IT Act are reasons to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year under ....
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.... not interfere at this stage. 7. It is a settled position in law that re-opening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer to issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that re-opening notice is to be issued. 8. From the reasons, it is evident that the impugned notice has been issued on the basis of information received from the Deputy Collector, Income Tax (Investigation) alleging that M/s Nivyah Infrastructure & Telecom Services Ltd is a penny stock listed on the Bombay Stock Exchange and that the petitioner had dealt with the same leading to escapement of income. On receipt of information, the least that is expected of the Assessing Officer is to examine the same in the context of the facts of this case and satisfy himself whether the information received does prima facie lead to a r....
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....3) of the Act on 18th November 2016, whereby he added Rs. 1,07,18,922 to the total income on account of withdrawal of exemption claimed by the Petitioner u/s 10(38) of the Act and the Petitioner paid tax on the same. Thereafter, the Petitioner was also granted waiver of penalty for the AY 2014-15 on 31st January 2018 on application u/s 273A of the Act by the PCIT-18, Mumbai. 4. Evidently a notice u/s 148 of the Act dated 26th March 2021 is issued after a period of four years following which a return of income was filed by the Petitioner on 14th April 2021. This was followed by Notice u/s 143(2) dated 10th November 2021 and notice u/s 142(1) dated 15th November 2021 seeking details to which the Petitioner filed a response dated 24th November 2021 and objected to the re-assessment by communication dated 28th January 2022. The objections were disposed of on 11th February 2022. Another notice was issued on 25th February 2022 which led to filing of this Petition. 5. Since the impugned notice u/s 148 of the Act has been issued after the expiry of four years from the end of the relevant AY, Respondents have to show that the jurisdictional requirement is satisfied that there was failur....
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....rch 2021 issued by Respondent No.2 for AY 2014 15 are quashed and set aside and all action in furtherance thereto is prohibited: ii. Rule made absolute in above terms. No costs." 34. We find the Hon'ble Allahabad High Court in the case of PCIT vs. Smt. Renu Agarwal (supra) has held that where AO disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accommodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by AO had rightly been deleted. The relevant observations of the Hon'ble High Court read as under: "3. The basic question involved in the present appeal is with regard to deletion of some amount which was added by the Assessing Officer on the allegation of penny stock. 4. The appeal of the respondent - assessee was allowed against the assessment order. The appeal filed by the assessee was allowed by the CIT (Appeal). Against the appellate order the Revenue had filed the aforesaid Income Tax Ap....