TaxTMI 
TaxTMI 
2026 (1) TMI 250
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....e engaged in providing bogus Long Term Capital Gain entries in respect of two scripts (i.e., KGN Industries Ltd. and KGN Enterprises Ltd.). Followed by the inquiry/verification by the Assessing Officer, reassessment proceedings under Section 147 of the Act were initiated in case of the Assessee for the Assessment Years 2012-2013 and 2013-2014. The Assessing Officer noted that the Assessee had claimed Long Term Capital Gain exemption under Section 10(38) of the Act in respect of sale of shares of KGN Enterprises Ltd. (in short 'KGN Enterprises'), during the relevant previous years. The aforesaid reassessment proceedings culminated into passing of the Assessment Order(s) under Section 143(3) read with Section 147 of the Act whereby the transaction of purchase/sale of share of KGN Enterprises were held to be pre-determined transactions and additions were made in respect of the same in the hands of the Assessee under Section 68 of the Act. Being aggrieved, the Assessee challenged the validity of reassessment proceedings as well as the additions made in the hands of the Assessee on merits in appeal before the Learned CIT(A). Assessee's challenge to validity of reassessment proceedings w....
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....whereas the Assessing Officer ought to have initiated proceedings under Section 153C of the Act. It is the contention of the Assessee that the reasons recorded for reopening the assessment provided that the reassessment proceedings have been initiated on the basis of information/material discovered during the search proceedings conducted on a third party and therefore, the Assessing Officer was required to take reference to Section 153C of the Act. 4.1. Per contra the Learned Departmental Representative supported the assumption of jurisdiction by the Assessing Officer under Section 147 of the Act and submitted that the Assessee had not raised any objections in this regard either during the assessment proceedings before the Assessing Officer or during the appellate proceedings before the CIT(A). Therefore, the additional ground raised by the Assessee should not be entertained in any case. 4.2. We have considered the rival submissions (oral as well as written) on the additional ground and have perused the material record including the judicial precedents cited by both the sides. 4.3. During the course of hearing Learned Authorized Representative for the Assessee had extensiv....
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....e assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search. 10. On a plain reading of Section 153A of the Act, 1961, it is evident that once search or re....
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....;total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy." 4.5. On perusal of the provisions contained in Section 153A of the Act and their interpretation as adopted by the Hon'ble Supreme Court by way of above judgment, it becomes clear that once search and seizure is made under Section 132 of the Act, a manda....
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....r person: xx xx (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year- (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such asses....
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....f an additional ground. It was submitted by the Learned Authorised Representative for the Assessee that the additional ground raised by the Assessee was a pure question of law and therefore, the same can be admitted and adjudicated by this Tribunal even though it has been raised for the first time as additional ground before this Tribunal. On a without prejudice basis, it was also contended that even if the aforesaid additional ground is not considered to be a pure question of law, the facts relevant for adjudication of the issue raised therein formed part of the assessment records and should be called for and taken into consideration by this Tribunal. Therefore, the issue that assessed for consideration is whether in the facts and circumstances of the present case the additional ground raised by the Assessee can be regarded as a pure question of law. In this regard, it would be pertinent to note that appeal before us pertains to an HUF Assessee. According to the Revenue reassessment proceedings were initiated on the basis of information received from Deputy Commissioner of Income Tax (Investigation Wing), Ahmadabad to the effect that KGN Group of Companies was engaged in providing....
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....ble Supreme Court has, in the case of Commissioner of Income-tax Vs. Jasjit Singh [2023] 155 taxmann.com 155 (SC), held that the Assessing Officer of Other Person would have jurisdiction to frame assessment under Section 153C read with Section 153A of the Act in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the incriminating material is received by the Assessing Officer of Other Person from the assessing officer of the searched person. In the case before us, neither a satisfaction note has been drawn by the assessing officer of the searched person nor has any material been handed over to the Assessing Officer of the Assessee. Therefore, the scheme contained in Section 153C of the Act would become unworkable in case present case and accepting submission made on behalf of the assessee would lead to absurdity. While it has been contended by the Learned Authorized Representative for the Assessee that in the present case provision of Section 153C of the Act would be attracted, there is nothing on record to support the aforesaid contention raised by the Learned Authorized Representative for the Assessee. The aforesaid sub....
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....fact & law raised by the Assessee by way of additional ground, this Tribunal would be required to inquire into new facts and material not forming part of record of the present Assessee. Therefore, we hold that the additional ground raised by the Assessee cannot be regarded as a pure question of law in the facts and circumstances of the present case and the same would require examination of facts which do not form part of the record. Accordingly, the additional ground raised by the Assessee for the first time before this Tribunal cannot be admitted as hereby rejected. 4.9. During the course of hearing extensive reliance was placed by the Learned Authorized Representative for the Assessee on the judgment of the Hon'ble High Court of Rajasthan in the case of Shyam Sunder Khandelwal & Ors. (Supra). On perusal of the said judgment, we find that the same is not applicable to the facts of the present case. In that case the Revenue had not even set up a case that reassessment proceedings were based upon material other than incriminating material found during the course search and this has been so recorded by the Hon'ble High Court in Paragraph 29 of the said judgement which reads as und....
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....stitution, quashed the proceedings initiated under reassessment proceedings initiated under Section 147 of the Act. In that case also the judgment of the Hon'ble Supreme Court in the case of Abhisar Buildwell Private Ltd. (Supra) dealing with the interpretation of provisions contained in Section 153A of the Act and the judgment of Hon'ble High Court of Rajasthan in the case of Shyam Sunder Khandelwal & Ors. (Supra) were taken into consideration. We note that in Paragraph 13 of the said judgment, the Hon'ble Bombay High Court has concluded that from the record produced before the Hon'ble High Court it was clear that: (a) there was a search and seizure action on 04/10/2018, on the business premises of one 'Shilpi Jewellers Pvt. Ltd.', which has been the basis for the reopening of the petitioner's assessment, (b) the reasons for reopening state that certain incriminating evidences (in the form of various loose papers and data back-ups of various electronic devices) were found and seized. (c) search action was against Shilpi Jewellers Pvt. Ltd., its associate concerns, as well as revealed that all these persons had accepted large unsecured loans from various ....
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....Therefore, disputed question of fact & law raised by the Assessee for the first time cannot be admitted/adjudicated by this Tribunal. Perusal of the judgment of the jurisdictional High Court in the above case shows that the relief granted by the Hon'ble High Court was based upon the facts peculiar to that case. The scope of powers of the Hon'ble High Court to summon and examine records in writ/supervisory jurisdiction is much wider that the limited scope available to this Tribunal in appellate jurisdiction. As noted hereinabove in the facts of the present case the Tribunal is precluded entertaining the additional ground raised by the Assessee since the same raises a mixed question of fact and law disputed by the Revenue requiring inquiry into fresh material/facts not forming part of the record. At this point we deem it appropriate to refer to Paragraph 22 & 23 of the aforesaid judgment of the Hon'ble Bombay High Court which are set out hereinunder: "22. Applying the principles of law as discussed hereinabove, we are of the clear opinion that the foundation of the present case was certainly a search action which was undertaken by the Revenue against one Shilpi Jewellers Pvt....
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....asis Supplied) On perusal of the above, it becomes clear that after examination of record the Hon'ble Bombay High Court had concluded that (a) the foundation of reassessment proceedings was a search action and (b) in the said search & seizure action, materials were seized and such materials were further explored and enquired. Therefore, the Hon'ble High Court was of the view that the material gathered during search was further explored/examined during search proceedings itself. In the present case, we have already concluded hereinabove that the record supports the contention of Revenue that further enquiries were carried out after the search proceedings. There is nothing on record from which even an inference can be drawn to the contrary. Therefore, the judgment of the Hon'ble Bombay High Court in the case of Sejal Jewellary (Supra) is distinguishable on facts and does not advance the case of Assessee. 4.12. As regards the applicability of non-obstante clause contained in Section 153C is concerned, the same would apply only when the provisions of Section 153C get triggered and therefore, does not have application in the facts of the present case. It is pertinent to note that ....
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....pleted assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act subject to fulfilment of the conditions as envisaged/mentioned under Sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs." Thus, the observation made by the Hon'ble Bombay High Court in Paragraph 20 above on which reliance was placed on behalf of the Revenue were made in the context of Section 153A of the Act. As noted herein above the scheme of Section 153A of the Act differs from the scheme of Section 153C of the Act. The provisions contained in Section 153A of the Act get triggered on search having been conducted under Section 132 of the Act whereas the p....
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....e Tax Act, 1961 for A.Y.2012-13." 4.13. At this juncture, it would be pertinent to refer to the judgment of Hon'ble Delhi High Court in the case of PCIT Vs. Naveen Kumar Gupta [2024] 168 taxmann.com 574 which was put to the parties during the course of hearing. In that case, the Hon'ble Delhi High Court had, after referring to the judgement of Hon'ble Supreme Court of India in the case of Abhisar Buildwell P. Ltd. (Supra), rejected identical contention raised by the assessee in that case after considering facts similar to the case before us holding as under: "38. The question whether reassessment under Section 147 of the Act can be initiated in cases of material seized or information emanating from a search conducted under Section 132 of the Act or any assets or documents requisitioned under Section 132A of the Act, where the conditions for initiating the assessment under Sections 153A and 153C of the Act are not satisfied, is no longer res integra. 39. In Abhisar Buildwell (P) Ltd.(supra) the Supreme Court had authoritatively held that even in cases where assessment under Section 153A of the Act cannot be initiated on account of the conditions for initiation o....
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....dings under Section 153C of the Act is subject to additional conditions and it was not necessary that a notice under Section 153C of the Act be issued. Section 153B of the Act also stipulates the time limit for completion of assessment in cases under Section 153A of the Act. In terms of Section 153B(1) of the Act, assessment in respect of each of the six years, as referred to in Section 153A(b) of the Act, are required to be completed within the period of two years from the end of the financial year in which the last of the authorization for search under Section 132 of the Act or acquisition under Section 132A of the Act were executed. The assessment in respect of the year relevant to the previous year in which the search was conducted under Section 132 of the Act or requisition made under Section 132A of the Act is also required to be completed within the aforesaid period. 51. It is necessary to note that there is a clear distinction between the provisions of Sections 153A and 153C of the Act. The AO under Section 153 of the Act has the discretion to assume jurisdiction. If the jurisdictional conditions are satisfied, it is not necessary for the AO to assume jurisdiction ....
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....eassessment under Section 153C of the Act, recourse to Section 147/148 is not ousted. The non obstante provision kicks-in only on the AO assuming the jurisdiction under Section 153C of the Act, that is, if the AO exercises its jurisdiction to initiate the machinery provisions of Section 153C of the Act to make an assessment/reassessment of the assessee's income for the stipulated period. The non obstante provisions do no come into play, if the AO does not take recourse to provision of Section 153C of the Act. 59. The non obstante clause as used in Section 153C of the Act cannot be read to completely exclude the provisions of Sections 143 or 147 of the Act in cases where the assessee's income is sought to be assessed inter alia on the basis of the information found during search proceedings. However, it will not be open for the AO to take recourse to Section 147 of the Act, where the AO has taken steps under Section 153C of the Act. Thus, if the conditions for exercise of jurisdiction under Section 153C of the Act are satisfied and the AO issues a notice as required under Section 153C of the Act, any reassessment under Section 147 of the Act would obviously, be impe....
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....nd the income assessed / reassessed must be relatable to the material found as held by this Court in Kabul Chawla and affirmed by the Supreme Court in Abhisar Buildwell (P) Ltd. (supra). 62 to 64 xx xx . 65. In the facts of the present case, the Revenue disputes that a satisfaction note by the AO of the searched person (Jain Brothers) was forwarded to the AO of the Assessee along with the requisite documents. Thus, in the facts of the present case, the jurisdictional conditions to initiate further steps under Section 153C of the Act were not satisfied. However, the AO had received certain information from the AO. A report was also received from the Investigation Wing, Mumbai regarding the Assessee purchasing units of a penny stock during the financial year 2010-11. Based on the aforesaid information, including the information received from the Investigation Wing, Mumbai, the AO issued a notice dated 23.08.2018 under Section 148 of the Act. Admittedly, there is nothing on record to indicate that the AO of the searched person had recorded a satisfaction note and transmitted the relevant material containing information regarding the Assessee to the AO. There is also ....
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....ing Officer of the Assessee but also the opinion of Assessing Officer of the searched persons (to not prepare the aforesaid satisfaction note) and that too without examining the relevant material which does not form part of the record. Therefore, for this reason also the contention raised by the Assessee cannot be accepted. 5. We are also of the view that the Assessing Officer had sufficient fresh tangible material to form a belief that income liable to tax had escaped assessment. The report of the Investigation Wing, coupled with the material gathered by way of verification/inquiry carried out by the Assessing Officer constituted sufficient tangible material to initiate reassessment proceedings in the case of the Assessee. In the present case the return of income was filed by the Assessee for the Assessment Year 2012-2013 was processed under Section 143(1) of the Act and no scrutiny assessment was framed on the Assessee under Section 143(3) of the Act. Therefore, it was irrelevant whether the income has escaped assessment on account of failure on the part of the Assessee to disclose the true and complete facts. During the course of hearing it was contended on behalf of the Asse....
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....mere guesswork. Here, in the present case the Assessing Officer had formed the belief that income chargeable to tax had escaped assessment on the basis of fresh tangible material. It is admitted position that the Assessee had claimed long term capital gains exemption under Section 10(38) of the Act in respect of sale of shares of KGN Enterprises, a script in relation to which adverse findings were recorded in the report of the Investigations Wing as well as the orders passed by SEBI which prima facie showed that the trades undertaken in the said script were pre-arranged transactions undertaken to take advantage of provision of Section 10(38) of the Act. In view of the aforesaid, we do not find any merit in the contention advanced on behalf of the Assessee in relation to Ground No.1 and therefore, the same is dismissed. Ground No.2 6. We would now take up Ground No.2 raised by the Assessee challenging the addition of INR.59,24,273/- made under Section 68 of the Act. 6.1. The facts relevant for adjudication of this ground are that the Assessee, a Hindu undivided family, filed return of income for the Assessment Year 2012-13 on 17/07/2012 declaring total income of INR.8,04,80....
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....at a price much higher than the actual price of shares. The said company was dysfunctional and its registered office was closed. Considering the overall facts, summons under Section 131 of the Act were issued on 08/12/2017 to record the statement of the Assessee. The Assessee complied with and his statement was recorded. Thereafter, a show-cause notice, dated 18/12/2017, was issued to the Assessee, requiring the Assessee to show cause as to why exemption claimed under Section 10(38) of the Act should not be rejected and why the sale proceeds should not be treated as unexplained cash credit under Section 68 of the Act. In response to the aforesaid notice, the Assessee filed Reply on 22/12/2017, submitting that the Assessee has purchased 10,050 shares of KGN Enterprises Ltd. at INR.2,512/- and the same for INR.59,24,273/- during the relevant previous year. The long term capital gain of INR.59,21,761/- earned by the Assessee was claimed to be exempt under Section 10(38) of the Act. The sale of 44,200 shares for consideration of INR.1,87,66,525/- stated in the reasons recorded for re-opening the assessment was factually incorrect. The shares were purchased in off market transaction by ....
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....k broker Manoj Securities. On perusal of material on record, we find that the Assessee has placed on record only a Confirmation, Letter dated 11/04/2009, which reads as under: "Sureder Garg HUF 2247/B Hill Drive Phoolwadi Chock, Bhavnagar - 264002 Sir We have sold 96000 Shares (Ninety Six Thousand only) of KGN Enterprises Ltd. in Physical Form for Rs. 24,000/- (Rupees Twenty Four Thousand only). For Manoj Securities Authorized Signature Enclosed please find Shares" 6.8. Thus, Assessee had taken a stand that the Assessee had paid purchase price of INR.0.25 per share for purchasing 96000 Shares on 11/04/2009. It has also been submitted on behalf of the Assessee that the purchase consideration was paid by cheque. However, on perusal of bank statement, we find that the first transaction reported therein pertains to 03/09/2012. Thus, apart from a copy of abovesaid Confirmation Letter, dated 11/04/2009, issued by Manoj Securities there is nothing on record to corroborate that the Assessee had purchase 96000 shares of KGN Enterprises on 11/04/2009 and discharge purchase consideration by way of cheque. In view of the a....
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....r had recorded that the transactions of purchase and sale of shares by the Assessee was a pre-determined transaction undertaken to take benefit of the long term capital gain exemption available under Section 10(38) of the Act. 6.11. It is admitted position that 96000 shares of KGN Enterprises Ltd. were dematerialized and credited to the D-mat Account of the Assessee on 31/03/2011. During the Assessment Year 2012-2013 Assessee had sold 10,500 equity shares for a consideration of INR.59,24,273/-. Thus, the Assessee had sold share of KGN Enterprises Ltd. at the selling price of INR.564.20 per share as against the purchase price of INR.0.25 per share and had claimed Long Term Capital Gains exemption of INR.59,21,761/- under Section 10(38) of the Act in respect of sale of 10500 equity shares of KGN Enterprises Ltd. for the Assessment Year 2012-2013. The contention of the Assessee is that the transactions of sale of shares of KGN Enterprises are genuine transactions and in support of the same the Assessee has placed reliance upon copy of Demat Account, bank statement and contract notes issued by the share broker. On perusal of the contract notes placed at Page No.7 to 10 of the Paper ....
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....both of which are available on the in public domain. We find that the Assessing Officer had also annexed with the Assessment Order, a copy of the Investigation Wing Report, and therefore, the Assessee had the opportunity to deal with the same to during the appellate proceeding before the CIT(A). As regards opportunity of cross-examination of the persons whose statements were recorded by the Investigation Wing is concerned, we find that the denial of the same has not resulted in any prejudice to the Assessee as the findings returned by the Assessing Officer and the CIT(A) are not solely based upon such statements. In our view, even if the statements are not taken into consideration, the Assessee would be in the same position since the Assessee had failed to discharge the onus cast upon by Section 68 of the Act to provide explanation regarding the nature and source of credit. Further, the Assessing Officer had carried out independent enquiry and verification. In this regard we find that the Assessing Officer had relied upon the data gathered from the BSE regarding the trades under consideration and the exit providers (Refer to Paragraph 18 of the Assessment Order for the Assessment Y....
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.... may deem for adjudication of the issue as per as per the aforesaid directions. In terms of the aforesaid addition of INR.59,24,273/- made by the Assessing Officer is set aside and issue raised in Ground No.2 is restored back to the file of Assessing Officer. Accordingly, Ground No.2 raised by the Assessee is treated as allowed for statistical purpose. ITA No.583/Mum/2024 [Assessment Year 2013-2014] 7. Now we would take up appeal preferred by the Assessee for the Assessment Year 2013-2014 directed against the Order, dated 31/01/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the 'CIT(A)'], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 28/12/2018, passed under Section 143(3) read with Section 147 of the Act. 8. The Assessee has raised following grounds of appeal in ITA No.583/Mum/2024 [Assessment Year 2013-2014] : "1. The re-opening of the assessment of the appellant by the issue of notice under section 148 without satisfying the jurisdictional conditions precedent to assuming jurisdiction under section 147 is without jurisdiction and bad-in-law and consequently....