TaxTMI 
TaxTMI 
2025 (5) TMI 2312
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....he entire scheme of JM Financial Mutual Funds was allegedly structured to facilitate tax evasion for the beneficiaries?" 2. "Whether, on the facts and circumstances of the case, the Learned CIT(A) erred in failing to appreciate the findings in the assessment order, which highlighted that the assessee received tax-free dividends while simultaneously claiming a loss on the sale of units, and that the assessee had deliberately engaged in a pre-planned transaction of purchasing and selling units with the intention of benefiting from exempted dividends, despite knowing the fall in NAV after the record date, thereby rendering the claimed loss on sale as not genuine?" 3. "Whether on the facts and circumstances of the case, the Learned CIT(A) erred in confirming the exemption claimed by the Assessee and subsequently deleting the addition of Rs. 61,01,94,438/- with respect to dividend received from mutual fund schemes exempt u/s 10(35) of the Act on account of dividend stripping from Mutual Funds? 4. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in deleting the addition of Rs. 61,01,94,438/- when the Survey action on M/s JM Financial Mutual ....
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....ancial has manipulated the method of accounting so as to artificially inflate the distributable surplus whereby a portion of capital is paid out to the investors in the form of dividend. The AO further held that since the assessee has received dividend and also has made a loss on redemption of the Mutual Funds which are managed by JM Financial the assessee has claimed bogus exemption and STCL. Accordingly, the AO treated the dividend income as taxable and accordingly reduced the STCL claimed by the assessee to Rs. 94,55,642/-. 5. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) deleted the addition made by the AO by holding that the survey and the SEBI report which is relied on by the AO are not valid since there is no SEBI enquiry or order on JM Financial. The CIT(A) further held that the statements of the employees of JM Financials which is relied on by the AO do not mention that the manipulation has been done for the purpose of providing tax benefits to the investors or the assessee in specific. The CIT(A) relied on the decision of the Jaipur Bench of the Tribunal in the case of Agencies Rajasthan (P) Ltd. vs. ITO 109 taxmann.com 139. The revenue is i....
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.... received a dividend of Rs. 50,30,41,376/- from the investments made in JM Equity Fund and a sum of Rs. 10,71,53,062/- from investments made in JM Mutual Fund and has also claimed STCL of Rs. 61,96,50,080/- from the sale of said Mutual Funds.. During the survey proceedings in the case of JM Financials statements have been recorded to the effect that JM Financial had manipulated the accounting methodology so as to artificially inflate the distributable surplus and that the company has flouted the SEBI Guidelines by classifying a portion of the capital as distributable surplus and thereafter artificial pay out of dividend to investors. It is also alleged that fictitious STCL are booked after the distribution of capital as dividend. The AO during the course of search found the Mutual Fund statements and ledger accounts evidencing that the assessee has received dividend from the Mutual funds managed by JM Financials and has also booked STCL from the sale of the said Mutual Funds. Therefore, the AO held that the assessee is a beneficiary of the sham transaction and has entered into such transaction in order to reduce the tax liability. Accordingly, the AO treated the dividend income ear....
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....of Department that between 23rd April, 2015 and 15th June, 2015 the mutual fund received an inflow of Rs. 19.18 crores. Thereafter between 15th June 2015 and 18th June, 2015 there was an inflow of Rs. 2719.33 crores in the mutual fund. Between 20th June, 2015 to 27th Dec., 2015 a further inflow of Rs. 2259.28 crores was made in the mutual fund and between 28th Dec., 2015 to 30th June, 2016 there was a further inflow of Rs. 4698.28 crores into the mutual fund. In this, petitioner's investment was only Ra 1.10.00.000 on 17th June, 2015 and Rs. 6,00,00,000 on 25th Aug. 2015. 16. It is thus clear that petitioner is only a small fry in the larger scheme of things and in fact himself a victim of the alleged fraud of JM Financial and again being victumised by the AD. Even in the order where it is mentioned that statement of the key management personnel of the mutual fund was recorded, there is nothing to indicate that petitioner was part of the alleged sham mutual fund. In fact in para 7.4 of the impugned order referred to by Mr. Singh, in the statement of Mr. Suvendu Rakshith, it is recorded that the sales team has been passing on the hints to the distributors about the pros....
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....exempted dividends with full knowledge about the fall in the NAV after the record date and the payment of tax free dividend and therefore, loss on sale was not genuine. We find no merit in the above argument of the Department. At the outset, we may state that we have two sets of cases before us. The lead matter covers assessment years before insertion of s. 94(7) vide Finance Act, 2001 w.e.f. Ist April, 2002. With regard to such cases we may State that on facts it is established that there was a 'sale. The sale-price was received by the assessee. That the assessee did receive dividend. The fact that the dividend received was tax free is the position recognized under s. 10(33 of the Act. The 23 assessee had made use of the said provision of the Act. That such use cannot be called abuse of law. Even assuming that the transaction was pre-planned there is nothing to impeach the genuineness of the transaction. With regard to the ruling in McDowell & Co. Ltd. vs. CTO (1985) 47 CTR ISC) 126 (1985) 154 ITR 148 (SC), it may be stated that in the later decision of this Court in Union of India vs Azadi Bachao Andolan 263 ITR 706(SC) it has been held that a citizen is free to carry on it a....
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....A and 94(7). However, it is the duty of the Court to examine the circumstances and reasons why s. 14A inserted by Finance Act. 2001 stood inserted w.e.f. lst April, 1962 while s. 94(7) inserted by the same Finance Act as brought into force w.e.f. 1st April. 2002 (emphasis, italicised in print, supplied) 18. It is settled law that the reasons for the formation of the belief that there has been escapement of income must have a rational connection with or relevant bearing on the information. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and his view that there has been escapement of income of the assessee from assessment in the particular year. It is settled law that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched which would suggest escapement of the income of the assessee from assessment. The powers of the ITO to re-open assessment, though wide, are not plenary. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The live link or close nexus s....
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....ubject to right of appeal and revision, finality about orders made in Judicial and quasi judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the ITO in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the asses respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs." (emphasis, italicised in print, supplied) It is also trite law that while the Court cannot investigate into the adequacy or ....
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....7th Oct. 2022 under s.148 of the Act are hereby quashed and set aside. 21. Rule is thus made absolute." 9. The Hon'ble High Court quashed the notice for the reason that the allegations are against JM Financial and do not implicate the assessee in any manner and that there is nothing to indicate that assessee had participated knowingly in a sham transaction to reduce his tax liability or to earn dividend or book short-term capital loss. In assessee's case also, we notice that the AO has not brought anything on record to implicate the assessee that he in any manner is involved in the sham transaction. We notice that the AO has treated the Mutual Fund statements and the ledger account found during the course of search as incriminating material to make the addition. As already mentioned the assessee is an NBFC which as part of its business activity has invested in the Mutual Funds of JM Financial. Considering the facts of the present case and the decision of the Jurisdictional High Court, we are of the view that there is no infirmity in the order of CIT(A) in deleting the addition made by the AO by denying the exemption of the dividend income received by the assesse....
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....t the AO observed that the appellant has traded in the scrip namely M/s Pearl Electricals/Mystic Electric. The appellant had shown opening balance of 1,12,619 shares @Rs.365/- per share for the value of Rs.4,11,05,935/-. These shares have been revalued at Rs.92,34,758/- @Rs.8.20/- per share showing loss of Rs.3,18,71,177/-. The AO noted that the Investigation Wing of the income tax department has investigated the facts related to the scrip of M/s Pearl Eelc. It was found that the scrip is penny stock which has been rigged by various accommodation entry providers and the various beneficiaries have availed the benefit of the same by showing bogus gains/losses. The AO analysed the details of rise and fall of the scrip and held that the same is not backed by any fundamentals. The AO concluded that the scrip of M/s Pearl EC was controlled and managed to provide bogus gains/losses as per the requirement of beneficiary. Therefore, the AO disallowed the business loss claimed of Rs. 3,18,71,177/- due to revaluation of closing stock of this scrip. 21.2 In the financial year 2013-14, the Appellant had purchased 1,12,619 equity shares of the face value of Rs.10/- each of Pearl Electri....
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....e that the appellant is naïve investor and purchased only the shares of alleged penny stock. It is also a fact that enquiries have been carried out by the SEBI in scrip of M/S Pearl Electric and it was found that this scrip was manipulated; however, there is no finding against the appellant. There is no fact on record which indicates that the appellant is involved in any connivance with the persons who manipulated the scrip. The appellant has traded in several scrips regularly; one of such share is Pearl Electric. The facts show that the transactions are in regular course of trading business activity. 21.5 The appellant purchased 112619 shares of Pearl Electrical for Rs.10 per share on 18.03.2014. Total purchase prices of Rs.5,27,41,730/- has been paid through banking channels. These shares were purchased online on stock exchange through the brokers, Kotak Mahindra Bank and India Infoline. These purchases have not been doubted by the AO. Further, the AO has not carried out any inquiry regarding the alleged purchase of scrip of Pearl Ele. The disallowance is made only on the basis of report received from the Kolkata Investigation Unit. The appellant has furnished all t....
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....o infirmity in the order of the CIT(A). 15. We heard the parties and perused the material on record. The assessee has accounted for a loss in the Profit & Loss account arising out the revaluation of the closing stock which includes the alleged penny stock M/s. Pearl Electronics (earlier M/s. Mystic electronics). The AO disallowed the same by placing reliance on the report of the Investingation Wing. We in this regard notice that the AO in the order passed under section 153A has merely elaborated the modus operandi as to how bogus Long term or Short Term Gain / losses are booked by the parties, but has not recorded any specific findings pertaining to the assessee. Further the AO has also not recorded any adverse findings with regard to the documents furnished by the assessee substantiating the purchase of the impugned documents. We further notice that the CIT(A) has given relief to the assessee after examining the issue on merits and after considering the documentary evidences furnished by the assessee. Therefore there is merit in the contention that there is no infirmity in the findings of the CIT(A). We also notice that for the year under consideration the assessment under sect....