INCOME TAX OFFICER-1(1)(1), MUMBAI vs. SOHNI DEPAK TANNA, MUMBAI
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SANDEEP SINGH KARHAIL, JM
PER PRASHANT MAHARISHI, AM:
This appeal is filed by the income tax officer – 1 (1) (1), Mumbai (the learned AO) (ITA number 2245/M/2022) and Mrs Sohni Deepak Tanna (the assessee) has filed cross objection number 135/M/2022 for assessment year 2014 – 15 against
The learned AO aggrieved with appellate order has preferred appeal on following grounds:-
on the facts and in the circumstances of the case and in law, the learned CIT (appeals), national faceless appeal Centre, Delhi order in not adjudicating on the core issue of character of the script of looks health services Ltd
on the facts and in the circumstances of the case and in law, the learned CIT (appeals) erred in deleting the disallowance made by the AO of the assessee’s claim of long-term capital gain of ₹ 124,648,690/– overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back are unaccounted income in the form of fictitious long-term capital gain claimed as exempt under section 10 (38) of the income tax act
on the facts and in the circumstances of the case and in law, the learned CIT (appeals)
on the facts and in the circumstances of the case and in law the learned CIT (appeals) erred in ignoring the material on record and the surrounding circumstances which showed that the share price of Mrs looks health services Ltd was rigged on stock exchange and the assessee was one on several beneficiaries who indulged in dubious transactions thereby enabling her to declare undisclosed income in the garb of long- term capital gain exempt under section 10 (38) of the act
Assessee has also raised the ground in Cross objection that the National faceless appeal Centre erred in upholding the reopening of the assessment under section 148 by the income tax officer. The assessee submits that the reopening of assessment is not in accordance with the provisions of the act. The appellant submits that the order passed under section 143 (3) read with section 147 be quashed.
Brief facts noted from assessment proceedings shows that assessee is an individual deriving income from business and profession, capital gains and other
Subsequently the assessment was reopened by issue of notice under section 148 of the Act on 5/3/2019. In response to that notice assessee submitted a letter dated 8/4/2019 informing that the return under section 148 has been filed on 5/4/2019. Assessee requested for the copy of the reasons recorded for the reopening, which was provided to the assessee on 16/05/2019. On 12 June 2019 assessee raised objection against the reopening of the assessment which was disposed of by an order dated 21/6/2019 and the notice under section 143 (2) was issued on 6/9/2019.
The reason of reopening of the assessment was recorded as under:-
Brief Details Of The Assessee: –
The assessee is an individual assessed to tax in this charge. The assessee has filed return of income for assessment year 2014 – 15 on 28/11/2014 declaring income at ₹ 8,932,890/– and the same is processed under section 143 (1) on 1/3/2016 and refund was paid on 30/3/2016. No scrutiny assessment has been done in the year under consideration.
The information was received from Deputy Commissioner Of Income Tax, circle – 3 (3) Ahmedabad vide letter dated 24/4/2017 that during the course of assessment proceedings for assessment year 2014 – 15 in the case of Mr Varun Naginbhai Patel abnormality was observed in the claim of short-term capital loss (STCL) in the statement of total income. The claim of STCL was regarding purchase and sale of script namely Looks Health Services Ltd. It was also found that this was an arranged transactions by Mr. Patel to set off long-term capital gain of Rs 2.33 crore and thereby avoided payment of due tax.
A detailed verification revealed that there was an abnormal spurt and thereafter decline in the price of the said script during the period 2012 – 16. A list of bulk deals in the script during the period 2012 – 16 was analysed and it was seen that there are 116 beneficiaries, including one Mrs. Sohni Deepak Tanna (PAN :ACETT3611J). Further report from investigation Wing, Ahmedabad dated 13/12/2016 is received wherein the rigging in the price of script namely M/s looks health services Ltd was intimated. Further, BSE limited intimated that investigation
The analysis revealed a few categories of entities that entered into transactions. One such is the person with no buy but sell at higher brackets with an object of claiming short/long- term capital gain and purchase of shares are made through alleged off market transactions:-
DATE TRANSACTION QUANTITY PRICE TOTAL REMARKS TYPE
9/05/2013 sell 1,33,600 283.2 3,78,35,520 As per available data, no purchase 17/9/2013 Sell 73,600 287 2,11,23,200 record found. Assuming the assessee has 9/10/2013 Sell 99,200 290 2,87,63,040 bought shares from of 9/11/2013 Sell 52,000 288.50 1,49,99,920 market, volume of accommodation 9/12/2013 Sell 64,000 295.9 1,89,36,00320 entry is ₹ 121,658,000/– (gain)
It is seen that the persons have sold large quantities of the script and no purchase that is available as per the bulk deals segment details provided by BSE limited. Thus, it is likely to have
Analysis of information collected/received
On verification of data and matching it with the income tax return (ITR – 4) filed by the assessee for assessment year 2014 – 15. It is seen that the assessee had declared gross total income of ₹ 9,042,894/- for assessment year 2014 – 15 with nature of income as professional income. The profit and loss account indicates sales/income of Rs. 2.64 crores and expenses etc of ₹ 1.41 crores thus net profit of ₹ 68.70 lakhs. The assessee has reported huge sum as exempt income amounting to ₹ 12.66 crores and thus no taxes have been paid on the same.
Enquiries Made By The AO As Sequel To Information Collected/Received
The scrutiny of the income tax return filed by the assessee indicates that exempt income as long- term capital gain (LTCG) from transaction on which STT is paid is ₹ 125,952,029/– which
Findings Of The AO
In view of above, there is a failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment. Further, the analysis of bank statement of HSBC Banks current account number 011320660001 reveal that there is a cumulative deposit of Rs 2 .83 crores during financial year 2013 – 14 relevant to the current assessment year 2014 – 15. Whereas the assessee has mentioned the total receipts as per the profit and loss account as Rs 2 .64 crore. Further, the amount of income earned during the year and claimed to be the exempt income is also not reflected in the bank statement available on record, thus the reason appellant variation in the amount is mentioned in the ITR, financial statements and the bank statement, which needs to be examined in detail. Further more the amount of bogus long-term
Reason to believe:-
considering the facts narrated above and the circumstances of the case, I have reason to believe that the taxable income of the assessee amounting to at least ₹ 125,952,029/– being bogus long-term capital gain has escaped assessment for this year for assessment year 2014 – 15 within the meaning of section 147 of the income tax act, 1961.
Applicability of the provisions of section 147/151 of the facts of the case:-
In this case a return of income was filed for the year under consideration but no scrutiny assessment under section 143 (3) of the act was made. Accordingly, in this case, the only requirement to initiate proceedings under section 147 is reason to believe which has been recorded above (above referred paragraphs).
It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated under section 2 (40) of the act was made and the return of income was only processed under section 143 (1) of the act. In
This case is within four years from the end of the assessment year under consideration. Hence necessary sanction to issue the notice under section 148 has been obtained separately from the joint broke additional Commissioner of income tax as per provisions of section 151 of the act.”
Assessee objected on 12 June 2019 to such reasons for reopening of assessment on following points:-
i. Alleged price rigging stating that though the learned AO has stated that the alleged price rigging has been recorded from the report dated 13/12/2016 of the investigation wing of the bath, however copy of the same has not been provided to the assessee and further assessee’s knowledge says that no action has also been taken either by securities and exchange board of India or Bombay stock exchange in respect of the said allegation of price rigging. Therefore the assessment
ii. Assessee submitted that it she has acquired the shares 4,50,000 shares of the company at ₹ 10 each during the month of February 2012 when the company was not yet listed on the stock exchange. Therefore, those shares were not available for online purchase. The consideration for purchase of the share was paid through banking channel. Further, the name of the company at that time was Monarch health services Ltd which was subsequently changed to looks health services Ltd on 8 March 2013. Thereafter this company got listed on the Bombay stock exchanges with a public offer of the securities. The assessee sold the shares in assessment year 2014 – 15 on BSE terminal through recognised broker in the open market at the price quoted on the terminal at the relevant time. Assessee also gave the name of the broker, number of shares sold, date of sale of security, settlement number and
iv. Large amount of exempt income is shown by the assessee as assessee has sold the shares. There is no evidence that
v. There is no material on the basis of which reasonable believe would have been formed for escapement of income and therefore reopening is on the basis of suspicion is and not on any concrete material.
The learned AO passed an order rejecting the objection on 21/6/2019, the AO provided the copy of the report under section 15 I of Securities And Board Of India Act read with rule 5 of SEBI (procedures for holding enquiry and imposing penalties by adjudicating officer) rules, 1995 dated 22 November 2017 by adjudication order number/JS/DRP/18/2017 in case of the assessee. It was further stated that the condition before issue of notice under section 147 is that the AO should have reason to believe that income chargeable to tax has escaped assessment and it does not require that at the very outset that there should be an established fact of a escapement. The AO further relied on the several judicial precedents and held that all the objections raised by the assessee are rejected.
Consequently, assessment proceedings took place where the assessee made the several submissions. AO issued notice under section 133 (6) to the looks
Assessee, aggrieved with the assessment order preferred an appeal before the learned CIT – A challenging the reopening of the assessment as well as the addition on the merit. The main contention of the assessee were:-
i. the basis of reopening was not a consequence of a researcher investigation on the entry operator is engaged in the provision of accommodation entries
ii. the company looks health services has not been mentioned in the department’s report on penny stock investigation
iii. action taken by the securities and board of India against the appellant was not related to the rigging/manipulation of the prices
v. the AO has not been able to show any involvement of entry operator in this case
vi. the SEBI has finalised the assessee only for procedural lapses stop
vii. the above script has never been suspended by exchange/Sebi
viii. the volatility of the script cannot lead to a conclusion that the same is bogus
ix. neither of the brokers of the company has appeared in the investigation report of the revenue
x. no opportunity of cross-examination is provided
xi. assessee has purchased the shares under private placement when the company was not listed by submitting the copy of the bank statement, reflecting the payment for purchase of shares, Demat account statement, bank statement of the payment received, broker note for sale of shares, details of change of name of the company et C.
xii. Assessee also submitted the trading/price movement in case of the above shares of company since 2012 to 2022. This data was
The learned CIT – A noted that health services private limited is not at all mentioned in the department’s report on penny stock investigation and neither the script, nor the broker of the appellant features in the above report dated 27/4/2015. Further the reliance by the learned AO on the adjudication order of Securities and Exchange Commission of India against the assessee, he held that the above penalty of ₹ 4.50 lakhs has been levied on the assessee for violation of regulation 13 (3) of SEBI (provision of insider trading) regulations, 1992 and regulation number 29/2) of SEBI (substantial acquisition of shares and takeovers) regulations, 2011 for the reason that the shareholder holding voting right of 5% failed to intimate exchange in shareholding to the company and the exchange. However the assessee has made such disclosure but was not reflected on the website of SEBI and therefore the penalty was levied on
Assessee has by way of a cross objection challenge the reopening of the assessment. The learned authorised representative referred to paper book page number 46 stating that the reasons clearly state that there is no application of mind by the learned assessing officer while recording the reasons for reopening of the assessment. It was stated that there is no scrutiny assessment took place in the case of the assessee and further the information is received from the various third parties have not been given to the assessee to rebut. He submitted that in the case of some third-party there was some
The learned departmental representative vehemently submitted that the information was received by the learned assessing officer and therefore there has to be only a prima facie belief of escapement of income is required to be verified. At that particular time when the reasons were recorded, the learned assessing officer was not required to record the clear-cut and exact escapement of income, otherwise there is no requirement of making further assessment under section 147 of the act. He submitted that the return of income filed by the assessee was not scrutinised. After filing of the return of income there is a receipt of information that assessee is one of the beneficiaries of transaction in the above stated company wherein there is an abnormal rise and decline in the price of the above script. The return of income was verified and in paragraph number 3 the learned assessing officer has mentioned that assessee has reported huge exempt income amounting to ₹ 12.66 crore. Further the learned assessing officer in paragraph number 4 has made the enquiry on comparison of the various figures of the balance sheet. He further referred to paragraph number 5 stating that the bank statement of the assessee was also verified wherein it was found that there is a cumulative deposit of Rs 2 .83
Coming to the appeal of the learned assessing officer The learned CIT DR made a written submission dated 5/5/2023 wherein it was submitted that:-
i. in fact the assessee has purchased the shares of Monarch health services Ltd which is mentioned in report of the investigation wing therefore the finding of the learned CIT – A shares of the company are not part of the investigation. He submitted that subsequently the name of this company as in changed to looks health services.
ii. He further submitted that there is an adjudication order of the securities and board of India against the assessee
iii. He further referred to his return submission wherein he submitted that assessee has purchased a set of very low price and sold the shares at the very highest price.
First we come to the cross objection filed by the assessee which is challenging the reopening of the assessment as it is a jurisdictional ground. We find that for assessment year 2014 – 15 the assessee has filed its return of income at ₹ 8,932,890/–. This return of income was not assessed under section 143 (3) of the act. The notice under section 148 of the act was issued on 5/3/2019 which is within four years of the end of the assessment year in which the income was first assessable. For reopening of the assessment there was a tangible material available with the assessing officer in the form of information of assessment in case of another assessee received from Deputy Commissioner Of Income Tax, Circle 3 (3), Ahmedabad. Further, there was an abnormal fluctuation in the price of the script in which the assessee has offered long-term capital gain that is exempt from tax. Further the report from investigation Wing, dated 13/12/2016 was also made available to the assessing officer wherein price
Coming to the merits of the addition, we find that the learned CIT – A has deleted the same as under:-
“5.1.3 All the facts and circumstances related to the impugned addition of Rs. 12,46,48,900 are duly considered. Facts of the case are that the Ld.AO by Order dt 18.12.2019 u/s 143(3) r.w.s. 147 determined the income of the Appellant at Rs. 13,35,81,580 in which addition was made u/s 68 on the account of Unexplained Cash Credit of Rs. 12,46,48,690 as, AO formed a belief that accommodation entry in the guise of bogus Long Term Capital Gain (LTCG) of Rs. 12,46,48,690 claimed as income exempt u/s 10(38) of the Act on sale of equity shares of M/s. Looks Healthcare Services Limited (LHSL) [earlier known as Monarch Healthcare Services Ltd.(MHSL)] andwhich is duly listed on recognised stock exchange. It was submitted by Ld. A/R of the lady appellant, through his 2 written submissions, that the company LHSL had not been mentioned in the department's report on penny stock investigation. The Appellant also submitted that
To appreciate that by the learned assessing officer has made addition in the hence of the assessee to is necessary to look at the assessment order wherein in paragraph number 7 the addition has been dealt with as under:-
“7. However, from the perusal of reply the scene that the assessee is only reiterated the facts narrated earlier while filing initial objections to the reopening and also during the course of assessment. Further it is seen from the Internet search on the official website of the securities and the board of India (SEBI) there is an adjudication order dated 22/11/2017 bearing number AO/JS/VRP/18/2017 in respect of the assessee Ms. Sohini Deepak Tanna in the matter of looks health services Ltd. The said adjudication order has been passed in pursuance of the investigation by SEBI in the script of looks health services Ltd during the period January 8, 2013 to March 22, 2014 and observed that Ms Sohini Deepak Tanna had violated the provisions of SEBI regulations. Show cause notice was issued and reply
It is pertinent to mention here that the assessee has been filing submissions claiming that the “assessee submits that she has not received any notice or communication from BSE/ SEBI that she had any role to play in the alleged price manipulation of shares of Looks health services Ltd.” The same is seen from the perusal of 3.1 of the letter dated 12/6/2019 filing objections to the reopening of the assessment in para 2 point 4 of submission dated 20/11/2019. The facts however being otherwise as the assessee has had filed submission before SEBI investigators and the adjudication order has thereafter been passed in November, 2017.
Thus, it is evident from the above that SEBI held assessee guilty and imposed penalty in the matter of the said script looks health services Ltd which is subject matter of the instant assessment proceedings. Accordingly the contentions raised by the assessee are hereby discarded after due consideration.
As discussed in para above and further based on the Ledger account submitted in respect of Skyes & rays equities (I) private limited regarding total sales of ₹ 129,144,690/– and the purchase cost being 44,96,000/– (shares worth ₹ 4000 reflected as closing balance) the total amount of accommodation entry of ₹ 12,46,48,690/– is added back to the total income of the assessee for assessment year 2014 – 15.”
Therefore the main consideration for making the addition is on account of the Internet search carried on by the learned assessing officer at the official website of the securities and board of India where he finds an order dated 22/11/2017 analysing the assessee are sum of ₹ 4,50,000/-. We find that such order has been placed before us at page number 57 – 64 of the paper book. The above adjudication order had following three issues for consideration:-
i. whether the notice has violated the provisions of the regulation 13 (3) read with 13 (5) of PIT regulations, 1992 and regulation 29 (2) of SAST regulations, 2011.
iii. if so, what quantum of monetary penalty should be imposed on the notice considering the fact is stated in section 15 J of SEBI act 1992?
On the basis of the adjudication order, there is an allegation on the assessee that she has violated the provisions of regulation 13 (3) read with 13 (5 of CB (Prohibition of insider trading) regulations, 1992 and regulation 29 (2) of SEBI (substantial acquisition of shares in takeover) regulations, 2011. The allegation is that when the assessee has sold over lakh 49,600 shares the cumulative percentage of the shareholding triggered the transfer of 7.49% shares of the company in total and on two occasions it exceeded 5% of the total shareholding of the company therefore, as assessee has transacted in more than 5% of the share capital of the company, she should have filed disclosure to the company as well as to the securities and board of India. On all the three occasions in paragraph number three of that order it was found that declaration was filed late by the assessee. In response to the show cause notice, assessee submitted before the adjudicating authority that she has already filed disclosure along with her husband at appropriate time but same were
On careful reading of the order of the adjudicating authority, which is the main base for making the addition in the hence of assessee, is for violation of
Further regarding the acquisition of the shares, the assessee was allotted 4,50,000 shares of the company in March 2012 in private placement when the company was unlisted. Therefore naturally, during the trading period there is no purchase of shares by the assessee and hence there was no details available with the assessing officer. But that does not show, that, the transaction of the sale of the shares is not genuine. The purchase consideration was paid by the assessee by check number 212460 of Indian bank dated 2/2/2012 which was cleared in the bank statement of the assessee on 4/2/2012. Share certificate was issued to the assessee by certificate number 58.
For the sale consideration assessee has given the contract note of Skyes & rayes equities India private limited showing the date and time stamp of the securities traded. There is no allegation or enquiry of the learned assessing officer about the same.
The original acquisition of the shares were made by the assessee when the name of the above company
Regarding the claim of the learned assessing officer in the reasons were recorded that the consideration received by the assessee was not found credited in the bank account of assessee with HDFC bank, the assessee submitted that the above sum was credited in the account of the assessee in Indian bank account number 415206490 at Fort branch. The copy of the passbook submitted clearly shows that the above amount is credited in the bank account of the assessee. This bank account was jointly maintained by the assessee with her husband..
Interestingly the price movement chart shown by the assessee of the above company from the Bombay stock exchange clearly shows that the high prices of the company quoted at that stock exchange was much higher than the price at which the assessee sold the shares.
Looking at the written submission made by the learned departmental representative wherein it is
There is no allegation from the side of the revenue that the capital gain earned by the assessee is bogus except the adjudication order of Sebi. The learned departmental representative could only show us that the learned assessing officer on the basis of the price movement of that company was directed to reopen the case of the assessee by issuing notice under section 147 of the act. We do not find any infirmity in the reopening of assessment in case of assessee, we have upheld the same. But merely reopening of the case does not authorise the learned assessing officer to make an addition in the hands of the assessee without carrying out investigation as well as finding
In view of the above facts, we do not find any infirmity in the order of the learned CIT – A in deleting the addition in the hands of the assessee.
Accordingly all the grounds of the appeal of the learned assessing officer are dismissed.
In the result appeal of the learned assessing officer and cross objections of the assessee are dismissed.
Order pronounced in the open court on 30.10.2023.
Sd/- Sd/-
(SANDEEP SINGH KARHAIL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated:30.10.2023 Dragon Copy of the Order forwarded to : BY ORDER, 1. The Appellant 2. The Respondent. 3. CIT DR, ITAT, Mumbai 4. 5. Guard file.
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai
