TaxTMI 
TaxTMI 
2025 (7) TMI 1230
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.... his original return of income on 26.03.2012 declaring 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 benef....
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....he search/survey, inquires conducted in the case of assessee, 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....
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....dictional Bombay High Court in the case of South Yarra Holdings Vs. 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 Nivya....
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....jurisdictional Bombay High Court in the case of Chanchal Bhagwatilal Gokhru Vs. Union of 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....
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....e material" on the basis of which appropriate conclusion is reached. In the absence of such material the reassessment proceedings would 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 transa....
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....at the directors of the Penny stock company were absconding and no satisfactory explanation was given by the assessee to such huge long term capital gain claimed as exempt u/s 10(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 decl....
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....s and that of Demat Account and Broker Notes of these transactions Later on." 15. He submitted that the assessee in response to the notice u/s 153A of the Act filed his return of income on 28.02.2014 declaring total income of Rs. 15,08,324/- which is the original 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. ....
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....High Court in the said decision has held that where assessee claimed exemption under section 10(38) on account of LTCG arose on sale of shares of a company, since there was no dispute that these shares were purchased by assessee online, payments were made through banking channel and shares were dematerialized and, further, sales were routed from demat account and, sale consideration was received through banking channels, impugned addition 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 C....
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....lleged penny stock company. As per details on record, the company, of which, shares were transacted by assessee was having name as M/s S V Electricals Limited. Kindly note the relevant dates matrix summarized in the above Events Chart (first 4-5 entries therein). Now, as per facts revealing from Events Chart, Assessee has acquired shares of M/s S V Electricals Limited in Dec 2009 and sold the same in January 2011. Thus, assessee was not holding any shares of the said M/s SV Electricals 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 deci....
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....ment has accepted the exempt LTCG. Now, vide "reasons" recorded in March 2018, the very same LTCG was proposed to be taxed. This is a clear reapplication of mind, and the same is contrary to the settled principles arising from landmark decision in case of CIT V. Kelvinator of India Ltd - 320 ITR 561 (SC). A copy of the said decision was submitted during the course of hearing. Learned CIT(A), at Para 5.4 of his appellate order has referred to a decision of Honorable Bombay High Court in case of Chanchal Bhagwatilal Gokhru v. UoI - 152 taxmann.com 214, wherein, identical 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....
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.... assessment, and that too, on mere suspicions. It appears, learned AO's action of recording "reasons" of reassessment were totally incorrect. 4. Prayer Assessee submits that appeals preferred by I-T department are incorrect and as such deserve to be dismissed." 28. He accordingly submitted that the order of the Ld. CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue be dismissed. 29. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited 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 ....
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.... used to facilitate introduction of unaccounted income of members or beneficiaries in the farm of exempt capital gain or short Term Capital Loss in their books of accounts. The assessee Shri Ashish Omprakash Mantri is one such beneficiary and the amount involved in his case is Rs. 1,60,30,716.35/-. As per information received, the share price of /s. Nivya Infrastructure & Telecom Services Ltd rose from Rs. 39/- on 21/07/2009 to Rs. 2,050/-on 05/01/2011 and dipped to Rs. 47.20 on 10.07.2012. However, financials of the company for the relevant period do not show any substantial change so as to support such a huge share price movement. The company does not have business to justify the sharp rise in market prices of the shares. The sharp rise in the market price 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 exe....
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....ings the information related to the issue under consideration was embedded in such a manner that the some could not have been discovered except with a diligence. Hence, explanation 1 to section 147 is also applicable to this case. In this case the return of income was filed for the year under consideration and assessment u/s 143(3) r.w.s 153A of the Art was made on 22.03.2016. Since 04 years from the end of the AY has expired in this case, the requirement to initiate proceedings u/s 147 of the Act are reason to believe that the income for the year consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the AY under consideration. It is pertinent to mention here that the reasons to believe 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 assessme....
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....or earning such bogus long term capital gain. We find when the assessee challenged the action of the Assessing Officer, the Ld. CIT(A) quashed the re-assessment proceedings, the reasons of which have already been reproduced in the preceding paragraphs. 31. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. Admittedly the original assessment was completed u/s 143(3) r.w.s. 153A of the Act. It is also an admitted fact that during the course of assessment proceedings the Assessing Officer has raised specific queries on the issue of long term capital gain from sale of shares of NITSL and the assessee had replied to the same, the details of which are already reproduced in the preceding paragraphs. We find the Assessing Officer, after considering the various submissions filed by the assessee from time to time, has completed the assessment. 32. 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. Th....
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....ted within few person/entities. 2.2. The DDIT (Inv) has traded in the above script namely M/s Nivyah Infrastructure & Telecom Services Ltd during the F.Y. 2010-11 to the tune of Rs. 35040000000000000000. 2.3. The DDIT (Inv) Unit - 8 (3) Mumbai has given a finding that enquiries have been conducted in the penny scrip namely M/s Nivyah Infrastructure & Telecom Services Ltd vis-a-vis facilitating introduction of unaccounted income of members of beneficiaries in the form of exempt Capital gain or Short term Capital Loss in their books of account. These transactions are mostly in view of cash of equal amount and commission is charged over and above at certain fixed percentage for providing such accommodation entry. These accommodation entries were taken from various beneficiaries for introducing their unaccounted cash into their books of accounts without paying the due taxes. 2.4 The detailed investigation 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 ava....
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....Infrastructure and Telecom Services Ltd" in which the petitioner could have dealt. The petitioner's objections were rejected by the Assessing Officer by passing an order on 28.9.2018. The order on objections, does not deal with the petitioner's primary contentions that the petitioner had not dealt with any company by name "M/s Nivyah Infrastructure and Telecom Services Ltd" during the period relevant to the subject assessment. This order dated 28.9.2018 disposing of the objections is completely silent on the above objections while rejecting the petitioner's objections. 6. The respondent's Assessing Officer has filed an affidavit-in reply dated 5.2.2019 of the Assessing Officer. However, the reply does not deal with this objection taken in the petition. Nevertheless, Mr.Suresh Kumar the learned counsel for the revenue submits that all these issues will be subject of consideration during the re-assessment proceedings. Thus, this Court should 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 r....
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....on received in the context of the facts on record. The impugned notice is bad-in-law, as it has not been issued by the Assessing Officer on his satisfaction that there is reason to believe, that income chargeable to tax has escaped assessment. 9. In the above circumstances, the impugned notice is un- sustainable in law and therefore, is quashed and set aside. 10. Accordingly, Petition allowed." 33. We find the Hon'ble Bombay High Court in the case of Chanchal Bhagwatilal Gokhru vs. Union of India (supra) 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. The relevant observations of the Hon'ble High Court read as under: "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 P....
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....ire process is triggered on a change of opinion as to the calculation of tax payable by the assessee. As stated hereinabove, it is evident that bald assertions of the transaction being "an accommodation entry made in collusion & connivance with the entry provider" are used to re-open the assessment. It is well settled judicial principal that, the true test of income chargeable to tax escaping assessment is whether there exists fresh "tangible material" on the basis of which appropriate conclusion is reached. In the absence of such material the reassessment proceedings would 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. R....