TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 261
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....The assessee is a registered SEBI Stock-Broker company. The AO has issued notice u/s.148 of the Act on 18.03.2021 expressing his desire to reopen the assessment for AY 2017-18. Pursuant thereto, the assessee is noted to have filed the RoI reiterating the return filed originally. The AO is noted to have issued statutory notices, pursuant to which, the assessee brought to his notice that it is a SEBI Stock-Broker which performs buying & selling of shares on stock exchange for its clients and that for the purchase/sales made by the clients, necessary debits/credits are received from/to the clients. It was clarified that the transaction mentioned in respect of M/s. Orange Mist Productions Pvt. Ltd., (hereinafter referred to as 'M/s. Orange') pertains to buying & selling of shares on stock-exchange for which payments and receipts are done by/to M/s. Orange. However, the AO was not satisfied with the reply given by the assessee and was of the view that the assessee company is a beneficiary of receiving bogus accommodation entry of Rs.7,15,11,173/- from M/s. Orange during the relevant year and made addition u/s.69A of the Act to the tune of Rs.7,15,11,173/- u/s.69A of the Act. Aggrieved, ....
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....cial year under consideration. And as per such information, M/s. Orange was not involved in genuine business activities and has made suspicious transaction with various parties including the assessee company. According to the AO, on analysis of the return of income (RoI), the turnover accepted by the assessee was only Rs.4,01,42,244/- as per Form 3CD and other documents (Form 26AS), therefore, he had formed his reason to believe that income as escaped assessment. On the strength of this vague reason, according to Ld AR, the AO has erroneously assumed the jurisdiction to reopen the assessment. Therefore, he wants us to uphold the legal issue and quash the notice issued u/s 148 of the Act. 6. Per contra, the Ld.DR vehemently opposed the legal issue raised by the assessee and submitted that a reading of reasons recorded would reveal that even though the assessee had received fund from M/s. Orange to the tune of Rs.7.15 Crs. but the assessee has only shown turnover at Rs.4.01 Crs. which fact according to the Ld.DR shows that there is a suppression of income which tantamounts to escapement of income. According to Ld DR, the department had information that M/s. Orange was involved in ....
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....is flawed. He reminded us that the transaction which had taken place in the client accounts can't be termed in the hands of the assessee and hence, couldn't have been compared with either the turnover or the income of the assessee. Thus, according to Ld AR, the AO misdirected himself by considering the funds transferred by M/s. Orange for buying & selling of stocks & shares through the assessee acting as a stock-broker as the turnover/income of the assessee and thus, confused himself with the nature of the business carried on by the assessee, as if he was a normal trader without appreciating that the assessee is a stock-broker, whose turnover is only brokerage & commission on transaction of buying & selling of stocks & shares of his clients and one of the client being M/s. Orange. Thus, Ld AR submitted that it is evident that the AO on wrong assumption of facts has usurped jurisdiction prematurely on the basis that despite M/s. Orange has given funds of Rs.7.15 Crs. to the assessee still assessee has shown only Rs.4.01 Crs. and that M/. Orange was not involved in genuine business activities which according to the AO are suspicious and therefore, he formed the reason to believe the ....
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....d by the competent officer before the issue of the notice. 9. The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment. The reasons should not merely disclose need for an inquiry which may result in detection of an income escaping assessment. Undoubtedly, at the stage of recording the reasons for reopening the assessment, all that is necessary is the formation of prima facie belief that an income has escaped the assessment and it is not necessary that the fact of income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something tangible which indicates even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that an income has escaped assessment. Merely because detailed investigation was not carried out and if so, could have led to detection of income escaping assessment, cannot be the reason enough to hold the view that income has escaped assessment. It is also important to bear in mind the sub....
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....t, it cannot include a mere suspicion or ipse dixit of the AO. The belief of the AO should lead him to form an honest and reasonable opinion based on reasonable grounds. This proposition has been laid down by the Hon'ble Supreme Court in the judgments of ITO vs. Lakhmani Mewal Das (supra)and Navinchandra Mohanlal Parik vs. WTO (124 ITR 68). The reasonability of the grounds which led to the formation of belief warranting reopening is tested from the point of view whether or not they are germane to the formation of belief that income escaped assessment. The Hon'ble Supreme Court endorsing the Full Bench decision of the Hon'ble Delhi High Court in CIT vs. Kelvinator of India Ltd. (320 ITR 561) held in its order, ".....that Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have link with the formation of belief." Therefore, if the fresh tangible material which the AO has in his possession is relevant to have nexus to the formation of belief then, of course, the AO would have the necessary jurisdiction to take action under the Act. What is required to be examined is not ....
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....of jurisdiction u/s. 147 of the Act. From the reasons already set out above, it emerges that, the AO had taken note of receipt of funds of Rs. 7.15 crores by the assessee from M/s Orange Mist Productions Pvt Ltd during the year. According to AO, M/s Orange Mist Productions Pvt Ltd was not involved in genuine business activities and that it had made suspicious transactions with various parties including the assessee. After purported analysis of the return of income, 3CD etc. of the assessee and taking note of the admitted turnover of Rs. 4.01 crores, the AO formed his belief that income had escaped assessment and, hence required to be reopened u/s. 147 of the Act and consequently issued the impugned notice u/s 148 of the Act. 12. We find that the aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, or any tangible material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Rather, it appears that the reasons were recorded by the AO on his own subjective notions and opinion. The AO ....
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....t Productions Pvt Ltd, the AO had formed his belief that income had escaped assessment. According to the Ld. DR, the AO after verifying the ITR and Form 3CD of assessee was of the view that, if the assessee was in receipt of Rs. 7.15 crores from M/s M/s Orange Mist Productions Pvt Ltd, then correspondingly its turnover ought to have been higher than such receipt of funds. He submitted that, because the turnover reported in P&L A/c of assessee was only Rs. 4.01 crores, which was lower than the amount transacted with M/s Orange Mist Productions Pvt Ltd, the AO formed a belief that income chargeable to tax would have escaped assessment. 15. The Ld. AR, on the other hand, explained that, the AO had failed to appreciate the basic fact that, the assessee was a stock-broker, who was maintaining two separate bank-accounts viz., one for its proprietary business transactions and second one for his clients for their trading. The Ld. AR submitted that, the transactions involving receipt and payment of funds from the bank account maintained for the client did not constitute its turnover and that assessee was only entitled to derive brokerage for the transactions conducted on their behalf. Th....
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....sented income escaping assessment was due to the fact that such receipt did not commensurate with the turnover of the assessee for the relevant year. For this, we gainfully refer to the principles laid down bythe Hon'ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (supra) already discussed above. According to us, the reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reason....
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....y the assessee in its fiduciary capacity and did not constitute its own proprietary receipt and thus, could not, by any stretch of imagination, be construed to be its turnover or for that matter income escaping assessment. 18. It is true that, the assessee received the impugned sum through banking channel from M/s Orange Mist Productions Pvt Ltd. But these monies were never received nor they were intended for the proprietary use by the assessee. It is evident from the contemporaneous facts placed before us that the payment of Rs. 7.15 crores was made by M/s Orange Mist Productions Pvt Ltd to meet its own contractual obligation with the Exchanges against their own proprietary trades and the monies collected by the assessee was in its capacity as Member-broker of the Exchange. The only consideration involved qua the assessee was the brokerage for facilitating this transaction on stock-exchange. We thus are in agreement with the Ld. AR that, the impugned receipt of funds from the principal-customer, M/s Orange Mist Productions Pvt Ltd by the assessee in its fiduciary capacity of Member-broker of the stock exchange could not possibly be alleged as the income of the assessee escaping....