DEEPAK SRICHAND BATHIJA,MUMBAI vs. NATIONAL FACELESS APPEAL CENTRE , DELHI

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi dated 05.07.2022 for the assessment year 2011-12.

The assessee has raised the legal issue challenging the action of AO against the reopening of the assessment. Since it is a legal issue, which if found correct, goes to the root of the matter, we are inclined to decide the same first. For deciding the legal issue, we may look at the reasons recorded by the AO for reopening the assessment u/s 147 of the Income Tax Act 1961 (herein after the Act), which reads as under: - “Reasons for reopening of assessment u/s 147 of the Act The return of income has been filed by the assessee on 27.09.2011, declaring total income at Rs.43,77,830/-. 2. Information was received by this office on 13.06.2017 from the office of the DDIT (Inv.), Unit 7(4), Mumbai vide letter No. A.Y. 2011-12 Deepak Srichand Bathija DDIT(Inv.)/Unit-7(4)/Information/2017-18 dated 04.05.2017 that a search and seizure action u/s,132 of the Income-tax Act, 1961 was carried out in the case of Shri Vipul Vidur Bhatt and his other related entities, including one Sampada Chemicals Limited on 05.02.2016. In his statement recorded u/s.132(4) of the on 09.02.2016 on oath, Shri Vipul Vidur Bhatt had admitted that he is an entry operator and all those mentioned entities ‘companies are bogus entities/companies, which are used by him for providing various bogus accommodation entries to various beneficiaries for commission and that he was a director in those entities / companies and all other directors are also dummy directors appointed by him and that he only controls the entire activities / affairs of as many as 347 entities / companies, which were incorporated for providing bogus accommodation entries only. During the search action, the books of accounts of all those 347 bogus entities / companies were found at an undisclosed premise at 1407, 14th floor, New Jalphalwadi, Police Colony, Tardeo, Mumbai 400034, which is neither a registered office of those bogus entities nor this premises was related to those bogus entities in any way. In his statement on oath, he further admitted that since he was engaged into the business of providing accommodation entries and that he was managing and controlling the affairs of those entities, which is admitted to be illegal work, hence he only is maintaining the books of accounts of those entities at the said premises. 2.1 In his Statement on oath, Shri Vipul Vidur Bhatt, admitted that he was involved in providing bogus accommodation entries in the form of bogus LTCG/ STC Loss, one-time entry of share capital / share premium, unsecured loan entries, turnover entries and bogus expenditure entries etc... He further admitted that the shares of a scrip, Sampada Chemicals Limited were also utilized for providing bogus long term accommodation entries to the various beneficiaries, including the present assessee, Shri DeepakSrichand Bhatija (AAAPB6001A), who had availed of exemption of bogus LTCG of A.Y. 2011-12 Deepak Srichand Bathija Rs.25,35,908/- on sale of the bogus scrip, Sampada Chemicals Limited in the return of income for AY. 2011-12. In light of the above facts, I have reason to believe that the income of Rs.25.35,908/- has escaped assessment within the meaning of the provisions of Section 147 of the Act and as such it is a fit case for issue of notice u/s.148 of the Act. Since the period beyond 4. years has elapsed, this is put up for kind sanction of the Pr.CIT - 17, Mumbai as per the provisions of Section 151(2) of the Income-tax Act, 1961.” This notice, being generated on the system does not require to bear the signature of the designated officer and it may please be treated as notice in accordance with the provision of section 129 of the Income Tax Act, 1961 Kavita Gokul Patil Circle-17(1), Mumbai

Drawing our attention to the reasons recorded, (given to assessee by letter dated 19.06.2018) the Ld. AR submitted that the issue on which AO has re-opened the assessment is mainly alleging escapement of income on capital gain on sale of shares of M/s. Sampada Chemicals Limited, which fact has been duly disclosed in the original return filed on 27.09.2011 [filed before seven (7) years], which fact AO had acknowledged at page no. 6 of the assessment order; and also Ld. AR invited our attention to page no. 1, 2 & 3 PB [computation of income & capital gain statement], from perusal of it is noted that the assessee has disclosed the capital gains on sale of scrip of M/s. Sampada Chemicals Limited along with other share transactions while filing the original return. Thus, according to Ld AR, despite the details of share transaction including that of M/s Sampada chemicals shown A.Y. 2011-12 Deepak Srichand Bathija in the documents submitted before the AO [along with original return of income], erroneously the AO has alleged escapement of income of Rs.25,35,908/- whereas it was brought to our notice from perusal of page no. 2 PB [computation of income & capital gain statement], that the capital gain on sale of M/s. Sampada Chemicals Limited is more than Rs. 25,35,908/-[ viz Rs. 26,87,750/-]. Thus according to the Ld. AR, it can be seen that even though the aforesaid information was clearly in the records submitted by the assessee along with return of income, (filed as early as in year 2011) still the AO while re-opening the assessment in the year 2018, has made mistake apparent on record (in the reasons recorded) which clearly shows that the AO has not applied his mind while recording the reasons for reopening. Therefore, according to the Ld. AR, the reopening of assessment is bad in law and so consequent re-assessments made are null in the eyes of law. Accordingly, the other additions made in the re-assessment order [on other scrip of M/s Comfort Intech] are vitiated after wrongly re- opening the assessment [on the issue of capital gains on sale of scrip M/s. Sampada Chemicals Limited], since the other addition was not an issue in the reasons recorded to re-open; and once the action of re- opening assessment itself is bad in law, all consequential proceedings are null because re-opening is ab-initio-void, and for such a preposition, referred to the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom). A.Y. 2011-12 Deepak Srichand Bathija 4. Since assessee has challenged the jurisdiction of AO to have reopened the assessment, let us look at the settled position of law in respect of reopening of an assessment u/s 147 of the Act. The concept of assessment is governed by the time barring rule, and assessee acquires a right as to the finality of proceedings. Quietus to the completed assessment can be disturbed only if there is information or evidence regarding un-disclosed income or AO has information in his possession showing escapement of income and satisfies the conditions for re-opening the assessment u/s 147 of the Act. So when there is a challenge to the jurisdiction of AO to reopen an assessment, we have to examine the reasons recorded by AO on a stand-alone basis to see whether AO had satisfied the conditions precedent essential for re- opening an assessment as prescribed u/s Section 147 of the Act viz before AO re-open an assessment, firstly he has to record the reasons for reopening the assessment because that is the first requirement of law. And once it is found that AO has recorded the reasons for re- opening the assessment, then it (reasons for re-opening) has to be examined and see whether in the contents of the reasons recorded, he has spelled out the “Reasons to believe, escapement of income” which is the essential condition precedent for enabling an AO to re-open the assessment. And when the validity of re-opening of an assessment is tested, the reasons recorded by AO has to be tested on a standalone basis. Nothing can be added nor nothing can be deleted from the reasons so recorded. No inference can be allowed to be drawn on the basis of reasons not recorded by him. AO has to speak through the reasons so recorded by him. The reasons recorded should be self- A.Y. 2011-12 Deepak Srichand Bathija explanatory and should not keep the assessee guessing for reasons. Reasons provide the link between conclusion and evidence. So the reasons recorded by the AO before re-opening as it is, it should be examined to see whether AO had met in the “reasons recorded”, the essential condition precedent to do so i.e. “Reason to believe, escapement of income”. It is well settled that “Reasons to believe” postulate foundation based on information and belief based on reason. After a foundation based on information is made, there still must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. And in this regard, one should bear in mind the fine distinction between “Reason to Suspect” and “Reason to believe”. Information adverse may trigger “Reason to Suspect” which is not sufficient to reopen an assessment because as per section 147 of the Act, AO should have “Reasons to believe”, escapement of income” and not “Reasons to suspect”, escapement of income. Accordingly, when an AO receives adverse information, he should make preliminary inquiry and collect relevant material which would make him believe, that there is in fact an escapement of income. After doing this preliminary exercise only, AO is expected to record the “reason to believe escapement of income” and thereafter issue notice u/s 148 of the Act. If the AO does not satisfy the aforesaid requirement of law, then invocation of jurisdiction of reopening assessment cannot be held to be valid in the eyes of law. When tested on the afore-said settled position of law, in this case as we noted (supra) the assessee had filed return of income on 27.09.2011 along with computation of total income for AY. 2011-12 found placed at A.Y. 2011-12 Deepak Srichand Bathija page no. 1, 2, 3 to 6 PB, and a perusal of the same, especially page no. 3 PB gives the details of exempt long term capital gain [LTCG] on listed securities u/s 10(38) of the Act which inter-alia reflects the transaction of shares of M/s. Sampada Chemicals viz the details includes purchase price/date as well as sale price/date. The assessee has also shown separately the statement of short-term capital gain [STCG] on listed securities (STT Paid) wherein we note that among other shares, shares of M/s. Comfort Intech Ltd details of purchase price/date and the sale price/date has been given. Thus a perusal of the details shown at page 3 PB discloses assessee’s investment in shares not only that of M/s Sampada Chemicals or M/s. Comfort Intech ltd [capital gain on both scrips added by AO in re-assessment order], which were filed on 27.09.2011 by assessee along with original return, meaning, the details assessee’s claim of capital gain on both scrips were available before AO well before he recorded the reasons for re- opening the assessment in the year 2018. It is noted that assessee has shown in the details of LTCG on sale of scrips M/s. Sampada Chemicals Limited was at Rs. 26,87,075/- whereas the AO while recording the reasons recorded [even though this information was available before him from year 2011 at the time of re-opening in year 2018] has stated that the assessee gained LTCG from transaction of M/s. Sampada Chemicals Limited to the tune of Rs. 25,35,908/- which itself expose the fact that the AO has not applied his mind while recording reason. Rather, AO has simply issued notice u/s 148 of the Act after receiving information from DDIT(Inv.) which only trigger “Reason to Suspect” and based on such information, if he had looked A.Y. 2011-12 Deepak Srichand Bathija into the documents filed by assessee along with return of income as discussed supra, he would have been able to correctly record the facts, which unfortunately, he didn’t. Therefore, the reopening is bad, since the action of the AO to usurp jurisdiction to re-open the assessment suffers from the vice of non-application of mind, and against the settled position of law, and since AO’s action is found to be whimsical, arbitrary and against Rule of Law, the assessee succeeds in the legal issue. 5. Further, it was brought to our notice by the Ld. AR that the scrips on which the AO has drawn adverse inference against assessee are M/s.Sampada Chemicals & M/s. Comfort Intech Ltd which scrips according to Ld. AR has already undergone adjudication by this Tribunal and held in favour of assessee which will be discussed (infra). 6. Brief facts about the merit of the addition of two scrips i.e. M/s. Comfort Intech Ltd. & M/s. Sampada Chemicals, and especially that of M/s. Sampada are given as under: - “1. The shares of Sampada Chemicals Limited were purchased by assessee on 15th October 2009 evidenced by payment on 20th October 2009 by cheque through bank account through broker M/s. Edelweiss Securities Limited. 2. Assessee had purchased 6250 shares at a total cost price of Rs.2,09,687.50. 3. Assessee sold the shares in the open market through broker M/s. Edelweiss Securities Limited in three batches namely 2500 shares were sold on 19.11.2010 at a sale price of Rs.11,75,675/-, 2500 shares were sold on 23.11.2010 at Rs.12,25,400/- and the balance 1250 shares were sold on 23.02.2011 for Rs.4,97,687/- A.Y. 2011-12 Deepak Srichand Bathija and after deducting the STT paid the total long term capital gain returned by assessee was Rs.26,87,750/- (and not Rs.25,35,908/- as alleged by the Assessing Officer).

The bills of purchase and sale along with my bank statement, delivery proof, demat accounts etc were filed.

Neither any allegation has been made by AO that the purchase and sale transaction done by assessee through registered broker Edelweiss Securities Ltd was sham or bogus nor has the Assessing Officer made any effort to verify the veracity of so called admission of Shri Vipul Vidhur Bhatt (reasons recorded by AO at para 1 refer) and assessee’s request to AO for cross-examination of Shri Vipul could not materialize because even though AO summoned him, he didn’t come for cross-examination which fact has been acknowledged by AO at page 6 para 2.4 of assessment order. Therefore, according to Ld. AR, his statement cannot be the basis for drawing adverse inference against assessee (refer Hon’ble Supreme Court decision in Andaman Timber Vs. CCE & Odeion Builders).”

The details regarding purchase & sale of shares of M/s. Sampada in tabular form are as under: - Cost of Purchase Date of Sale Sale Amount STT Paid LTCG No. of shares 2,09,687.50 19.11.2010 11,75,675.00 1,472.00 2500 23.11.2010 12,25,400.00 1,534.00 2500 24.02.2011 4,97,687.50 623.00 1250 28,98,762.50 3,629.00 26,89,075.00

Details of Short Term Capital Gain of shares of M/s. Comfort Intech Ltd. is as under: - Cost of Purchase Date of Sale Sale Amount STT Paid STCG No. of shares 4,00,000.00 13.08.2010 3,48,750.00 436.00 25000 14.09.2010 3,87,500.00 486.00 25000 17.09.2010 4,00,000.00 502.00 25000 A.Y. 2011-12 Deepak Srichand Bathija 28.09.2010 4,00,000.00 502.00 25000 15,36,250.00 1,926.00 11,36,250.00 M/s. Comfort Intech Ltd. (a) 50,000 shares of M/s. Comfort Intech Ltd rights applied on 10th July 2010 for Rs.2,00,000/- (b) 50,000 shares of M/s. Comfort Intech Ltd rights applied on 10th July 2010 for Rs.2,00,000/- (c) These 1,00,000/- shares were allotted by way of rights on 23rd July 2010 (d) Payment made from regular bank account with the Bank of Baroda. (e) These shares were sold in the open market through regular broker Edelweiss Securities Ltd. (f) 25000 shares on 13th August 2010 for Rs.3,48,750/- Pg 11 of paper book (g) 25000 shares sold on 14th September 2010 for Rs.3,87,500/- Pg 10 of paper book (h) 25000 shares on 17th September 2010 for Rs.4,00,000/- Pg. 9 of paper book (i) 25000 shares on 28th September 2010 for Rs.4,00,000/- Pg. 8 of paper book (j) Demat account shows the corresponding credits and debits (k) appellant has declared a short term gain on the sale of shares of M/s. Comfort Intech Ltd.

It is noted that assessee in respect to LTCG claim of M/s. Sampada Chemicals had filed primary documents to prove the purchase & sale of shares, which has not been found to be deficient in any manner. The sale transaction has taken place through electronic platform, through SEBI recognized stock broker M/s. Edelweiss Securities Ltd. and there is no evidence to suggest that buyers of shares are known to the assessee. The AO has not found that assessee had prior-understanding/fixed the price with purchaser of scrips; and that consideration paid by assessee was returned back by purchaser of A.Y. 2011-12 Deepak Srichand Bathija shares. Moreover, it is noted that the AO in the reasons recorded at para 2 & 2.1 has relied on the statement of oath of Shri Vipul Vdhur Bhat to even reopen the assessment. However, when assessee requested to summon him for examination, AO did so, which fact he acknowledges [refer page 6 para 2.4 of re-assessment order] that despite summoning him [Shri Vipul Vidhur Bhat], he didn’t turn up for cross-examination. So according to us, without testing the statement on the touch-stone of cross-examination, Shri Vipuls’s statement could not have been relied upon as held by the Hon’ble Supreme Court in Andaman Timber [281 CTR 241] & Odeon Builders [418 ITR 315]. So according to us, once assessee has discharged the burden of proof by filing the basic/primary documents to prove the fact of purchase and sale of shares, and transaction has been duly credited in Demat account, and the consideration were through banking channel and STT has been paid, then no adverse view was warranted regarding claim of LTCG on sale of shares of M/s. Sampada Chemicals in the light of facts discussed (supra).

Regarding the assessee’s claim of STCG in respect of sale of shares of M/s. Comfort Intech, it is noted that assessee has discharged his burden of proof regarding purchase and sale of this share. In such a scenario, our attention was brought to this Tribunal order in the case of Mrs. Sonali Manoj Mathuria Vs. ITO (ITA. No. 46/Mum/2023 dated 31.03.2023) wherein Tribunal allowed the appeal of assessee for AY. 2011-12, regarding LTCG claim on sale of shares of M/s. Comfort Intech Ltd by holding as under: - A.Y. 2011-12 Deepak Srichand Bathija “5. I have heard both the parties and perused the records. It is noted that the assessee has purchased scrip of M/s. Comfort Intech Ltd. through rights issue of Rs. four (4) per share at total cost of Rs.1,78,287/-; and scrip was shown in her Demat account. And thereafter, in the same year, she had sold the scrip when price was Rs.14 per share through the Bombay Stock Exchange and paid STT on it. The assessee sold the scrip at total of Rs.6,22,807/-. And thus claimed STCG of Rs.4,44,520/-. However, the claim of STCG was not only denied but the entire amount /sale consideration of Rs.6,22,807/- was added u/s 68 of the Act which action was based on investigation wing report that this scrip which was transacted by the assessee (M/s. Comfort Intech Ltd.) was a penny-stock. However, it was brought to my notice that the as on date of hearing (i.e, 01.03.2023), the very same scrip M/s. Comfort Intech Ltd. is being traded in the Bombay Stock Exchange @ 32.50/- per share. Therefore, according to the Ld. AR, based upon purported statement of entry operators or some unscrupulous person who have indulged in rigging the price of the shares, innocent persons like assessee who have made a meagre profit of Rs.4,44,520/- should not have been first of all disallowed and at any rate the entire sale consideration should not have been brought to tax u/s 68 of the Act. The Ld. AR also brought to my notice the crucial fact that share in question (M/s Comfort Intech Ltd.) is not part of the investigation report and that no action has been taken by SEBI and drew my attention to the SEBI Report, [Chapter-8 of the report placed at page no. 17 to 73 of PB]. And I note that investigation report was against scrip of M/s. Comfort Fincap Ltd. (Scrip no. 535267 and not M/s. Comfort Intech Ltd scrip no. 531216). And from perusal of the investigation report I find A.Y. 2011-12 Deepak Srichand Bathija the name of M/s. Comfort Fincap Ltd. reflected at serial no. 11 in the 84 BSE listed companies identified as penny stock. (Page no. 72 to 73 of PB). However, the scrip named M/s. Comfort Intech Ltd which has been traded by assessee is not found in the penny stock list. And as noted, the assessee purchased rights issue of this share M/s. Comfort Intech Ltd. through cheque and shares were credited to assessee Demat account no. 1202200000017496 and the same was brought through registered share broker M/s. SPS share brokers Pvt Ltd. It is noted from perusal of the assessee’s Demat account, the assessee has done transactions in other shares also other than shares of M/s. Comfort Intech Ltd. (scrip code no. 531216) The assessee has filed following documents to prove the purchase/allotment of shares and sale of shares: - Copy of ‘Rights shares’ application forms. Copy of ‘Rights Renunciation Forms. Copy of Acknolwedgment slip of the said right application. Copy of Demat Account. Copy of Brokers ledger account. Bank statement. Copy of contract note cum bill for sale of the said shares through BSE. 6. And it is noted that the assessee has sold the scrips through share broker M/s. SPS Share Broker Pvt. Ltd. which has been debited from her Demat account. The assessee has sold the shares through Bombay Stock Exchange and has paid STT on it. The assessee has offered STCG on sale of said shares and has paid tax on the gain. Thus, I am of the opinion that merely based on irrelevant statements, addition could have made on the assessee. And as noted SEBI report has not classified this scrip M/s Comfort Intech Ltd. as a penny stock as discussed (supra). A.Y. 2011-12 Deepak Srichand Bathija Therefore, on the facts discussed (supra), the AO ought not to have added the entire sale consideration on sale of this scrip. So, the action of the AO to add the entire sale consideration of Rs.6,22,807/- was erroneous. Therefore, it is directed to be deleted and the AO is directed to allow the STCG claim of assessee on this scrip.”

In the light of the Tribunal decision (supra) wherein Tribunal allowed the appeal of assessee for AY. 2011-12, regarding LTCG claim on sale of shares of M/s. Comfort Intech Ltd, respectfully following the same, we allow the assessee’s claim of STCG in respect of sale of shares of M/s. Comfort Intech.