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Income Tax Appellate Tribunal, “SMC” BENCH KOLKATA
Before: SHRI SONJOY SARMA & SHRI GIRISH AGRAWAL
Present for: Appellant by : Shri Miraj D. Shah, AR Respondent by :Smt. Ranu Biswas, Addl. CIT, DR Date of Hearing : 10.08.2023 Date of Pronouncement : 18.08.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These captioned appeals filed by the assessee are against the separate orders of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order No. ITBA/NFAC/S/250/2022-23/1042525507(1) dated 05.04.2022against the separate orders of ITO, Ward-36(2), Kolkata passed u/s. 143 r.w.s.147of the Income-tax Act, 1961 (hereinafter referred to as the “Act”),dated 11.12.2018 and 24.12.2019 for AYs 2011-12 and 2012-13 respectively.
Both the appeals are by the assessee involving common issue. Since common issues are involved in both the appeals, we take appeal in AY 2011-12 as the lead case to draw the facts of the case. Findings of this will apply mutatis mutandis to the other appeal in ITA No. 255/Kol/2022. The grounds raised by the assessee in are reproduced as under:
For that in the facts and circumstance the Learned Commissioner of Income Tax Appeals erred in upholding the addition of Rs. 9,72,000 on account of bogus claim of exempt Income in the form of Long Term Capital Gains on sale of listed equity shares. The addition is not called for and hence the same be deleted.
2. For that in the facts and circumstance the Learned Commissioner of Income Tax Appeals erred in not allowing the exemption u/s 10(38) of the IT Act 1961. The exemption be allowed as per law. 3. For that in the facts and circumstance the Learned Commissioner of Income Tax Appeals erred in adding Rs.24,300 as unexplained expenditure u/s. 69C of the Income Tax Act, 1961 on account of commission expenditure to arrange the above said transaction. The addition is not called for and hence the same be deleted. 4. For that the facts and circumstances of the case the notice u/s 148 of the IT Act 1961 was without jurisdiction and bad in law and hence the entire assessment order is bad in law and the same should be quashed. 5. For that the reopening of assessment u/s 148 of the IT Act 1961 was bad in law and hence the reopening be declared to be bad in law and the reassessment order be quashed. 6. For that the reasons recorded before reopening of assessment u/s 148 of the IT Act 1961 did not meet the test of law laid down by various courts and hence the reopening be declared to be bad in law and the reassessment order be quashed. 7. For that the reopening of assessment u/s. 148 of the IT Act 1961 was on borrowed satisfaction and not on any independent application of mind by the assessing officer and hence the reopening be declared to be bad in law and the reassessment order be quashed. 8. For that the reopening of assessment u/ s 148 of the IT Act 1961 was without relevant material having link to escapement of income and hence the reopening be declared to be bad in law and the reassessment order be quashed. 9. For that the sanction u/s 151 of the IT Act 1961 before the reopening of assessment u/s 148 of the IT Act 1961 was mechanical and without application of proper mind and the sanction was bad in law and hence the reopening be held to be bad in law. 10. For that the learned CIT (Appeals) relied on judgments and definition without giving any proper opportunity to the Appellant to distinguish the same and therefore the Appellate order was bad in law. 11. For that in the facts and circumstances of the case the Learned Commissioner of Income Tax Appeals erred in upholding that the material based on which the Ld Assessment Officer passed the assessment order are collected behind the back of the assessee and which were not provided during the course of assessment proceeding, thus material should be excluded/ignored for the purpose of this case.
For that in the facts and circumstances of the case the Learned Commissioner of Income Tax Appeals erred in upholding that the statement of third parties on which the Ld Assessment officer relied during the course of assessment proceeding were not subjected to cross examination for the assessee, thus the third party statement relied upon should be excluded/ignored for the purpose of this case.
For that the assessment order passed u/s 147/143(3) of the Income Tax Act, 1961 was without jurisdiction and hence the Ld CITA(A) erred in confirming the assessment order. The assessment order was bad in law and should be quashed.
For that the facts and circumstances of the case the notice u/s 143(2) of the IT Act 1961 was without jurisdiction and bad in law and hence the entire assessment order is bad in law and the same should be quashed.
For that in the facts and circumstances of the case the assessee was not provided with proper opportunity of hearing before the Ld CIT Appeals and hence the order passed by the Ld CIT Appeals is bad in law and hence the same be reversed.
For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.
For that the interest computed u/s 234 A/B/C of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case hence the interest be deleted and or correctly computed.
The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963.
The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”
Brief facts of the case are that assessee’s case was reopened u/s. 147 of the Act by recording reason to believe that income has escaped from assessment to the extent of Rs.9,72,000/- which has arisen from share transaction in the scrip alleged as penny stock, identified in the report of the Directorate of Income-tax (Inv.), Kolkata. Assessee had made a claim of long termcapital gain exemption of Rs.9,37,866/- on sale of 3000 shares of Twenty First Century (India) Ltd.(TFCIL) sold @ Rs.324/- per share having trade value of Rs.9,72,000/-. Assessee had purchased 250 shares of Highland Dealcom Pvt. Ltd. (HDPL) from Agave Vintrade Pvt. Ltd. @ Rs.400/- on 20.08.2009 for an amount of Rs. 1 lac. This company was later merged with (TFCIL) and upon its merger, assessee received 38 share of TFCIL resulting into total holding of 9500 shares of TFCIL. In the year under consideration, assessee sold 3000 shares out of 9500 shares and claimed LTCG exemption u/s. 10(38) of the Act. In this respect, ld. AO observed that there are certain important circumstantial as well as direct evidence to show that gain reported by the assessee is not natural but is arranged one. Ld. AO issued notice u/s. 142(1) of the Act seeking explanation along with supporting documentary evidence to substantiate the claim of the assessee. Ld. AO also issued notice u/s. 133(6) of the Act to the Calcutta Stock Exchange (CSE) for collecting data in relation to share transaction made by the assessee for which reply was received and was kept on record. Assessee had also submitted various books of accounts/documents in support of its claim which are placed on record.
4.1. Ld. AO also asked CSE about the details of counter parties to purchase the shares of Twenty-first Century (India) Ltd. Further, for the purpose of examining the share transaction, Ld. AO issued summon u/s. 131 of the Act on Signate Vinimay Pvt. Ltd. (SVPL) who had purchased 500 shares @ Rs.324/- per share from the assessee. However, the summon was returned unserved. Ld. AO also noted that Inspector from his office also reported that this company could not be found at its address. In the course of assessment, Ld. AO also took note of the statement of one entry operator cum controller i.e. Shri Anil Khemka which was recorded u/s. 131 of the Act by the Directorate of Investigation, Kolkata on 30.03.2015 and 14.02.2017. Negating the submissions made by the assessee, ld. AO completed the assessment by making an addition of Rs.9,72,000/- in respect of entire sale proceeds of the share transaction as unexplained cash credit u/s. 68 of the Act. Aggrieved, assessee went in appeal before the Ld. CIT(A). Before the Ld. CIT(A), inter alia, assessee took a specific ground vide ground 2(c) in respect of non-compliance of sec. 142(3) of the Act. The said ground is reproduced as under:
“That substantial part of material collected by Ld. AO behind the back of the assessee has been relied on by him in violation of section 142(3) and principle of natural justice.” 4.2. Before the Ld. CIT(A), assessee contended that despite specific request, Ld. AO had not shared the material on which reliance has been placed by him. Opportunity to cross examine the so called entry operator was not provided. Assessee had also challenged the reopening of case u/s. 147 of the Act by contending that reasons recorded are based on borrowed satisfaction.According to the assessee, crucial link between the material and the formation of belief is missing and, therefore, reopening is not in accordance with the provisions of section 147 of the Act. In this respect, it was also contended that approval for issuing notice u/s. 148 of the Act is mechanical in nature and, therefore, the proceedings so initiated are without proper application of mind and hence, liable to be quashed. Ld. CIT(A) after deliberating on the issue and various judicial precedents, dismissed the appeal of the assessee.
Before us, Ld. Counsel for the assessee made his submissions in respect of the reassessment proceedingsinitiated u/s. 147 of the Act. He submitted that the approval granted prior to issue of notice u/s. 148 of the Act is mechanical in nature without application of mind. In this respect, he submitted the certified true copy of reasons for reopening recorded by the ld. AO for the purpose of obtaining the approval along with the copy of approval which states “satisfied with the reasons”. Further, Ld. Counsel submitted that Ld. AO himself has not recorded his satisfaction to arrive at reasons to believe as he has merely placed reliance on the information received from the Pr. DIT (Inv.), Kolkata in respect of the investigation carried out by the Directorate. Hence, Ld. Counsel contended that this is a case of borrowed satisfaction on the part of Ld. AO which is contrary to the provisions of sec. 147 and 148 of the Act.
5.1. Without going into the merits of the case, Ld. Counsel for the assessee made an alternate plea to remit the matter back to the file of ld. AO by referring to ground no. 11 and 12 taken by the assessee in the present appeal. In this respect, Ld. Counsel stated that material relied upon, on the basis of which Ld. AO had passed the impugned assessment order are collected behind back of the assessee and were not provided during the course of assessment proceedings which is not in compliance with the provisions of section 142(3) of the Act.
5.2. On the above stated alternate plea raised in the course of hearing, Ld. Counsel had placed reliance on the decision of Coordinate Bench of ITAT Chennai in the case of Smt. Vandana Jain &Ors., in & 1904 to 1907/Chny/2019 dated 31.03.2022 which has dealt with a similar issue and had set aside the assessment order by restoring it back to the file of Ld. AO with the direction to comply with the mandatory statutory requirement of Sec. 142(3) of the Act, failureof which may initiate the assessment itself (the said decision was authored by the undersigned Accountant Member).
Per contra, Ld. Sr. DR submitted that the reasons to believe recorded by Ld. AO are elaborate, containing all the details in respect of share transaction done in the year by the assessee and the information and details in respect thereof adequately demonstrate the link between the material on record and the belief arrived at by the Ld. AO in initiating the proceedings u/s. 147 of the Act. He also referred to the approval granted by the Ld. Pr. CIT-12, Kolkata on his very specific note about his satisfaction. And the approval granted does not in any way reflect mechanical approach. On the alternate plea taken by the Ld. Counsel in respect of non-compliance of sec. 142(3) of the Act, Ld. Sr. DR did not raise any objection.
We have heard the rival contentions and have perused the material available on record. On the legal issue raised by the assessee challenging the legality of the reassessment carried out u/s. 147 read with sec. 148 of the Act, from the approval granted on his note that “satisfied with the reasons” we find that it is sufficient to indicate that approving authority has examined the reasons recorded and does not indicate a mechanical approach while giving the approval since the reasons to believe recorded contained details in respect of the share applicant for the reassessment proceeding sought to be initiated. Accordingly, we do not ascribe to the contentions raised by the Ld. Counsel on the legality of the impugned reassessment order.
7.1. On the alternate plea taken, to remit the matter back to the Ld. AO in absence of the material, which also ought to have been provided by complying with the specific provision of section 142(3) of the Act,we note that Ld. AO has conducted certain enquiries by issuing notice u/s. 133(6) of the Act to Calcutta Stock Exchange as well as summon u/s. 131 to one of the parties who bought the shares from the assessee i.e. the SVPL. From the impugned assessment order while rebutting the allegations of the assessee, Ld. AO has noted that he himself has made various enquiries in respect of the share transaction undertaken by the assessee. The observations made by the Ld. AO recording the enquiry conducted by him from CSE are reproduced which reads as under: “The allegation at the assessee that the reopening and addition was made on the basis of information received from the Directorate of Investigation is not true as the A.O, itself made various enquiry from the CSE to issuing summon and findings of the A,O, was against the assessee that prove the LTCG claimed by the assessee is nothing but colourful device. Further, return of summon issued to exit providers also proves that the role of the exit providers was only to channelize the unaccounted cash of the assessee ill the form of bogus LTCG.”
7.2. Before considering the alternate plea as stated above, we refer to the relevant provisions of sec. 142 which are reproduced as under: Sec. 142 (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under sub- section (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified,- 142(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. 142(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub- section (2) or any audit under sub- section (2A) and proposed to be utilised for the purpose of the assessment. [emphasis supplied by us by bold and underline] 7.3. From the above and in the present context, we note that section 142(2) empowers the AO to make such enquiry as he considers necessary. The discretion is on the AO under the said section. However, having conducted such enquiry as provided in Sec. 142(2), then it is incumbent upon the AO u/s. 142(3) to give an opportunity of being heard in respect of any material gathered on the basis of any enquiry done u/s. 142(2) and proposed to be utilised for the purpose of the assessment. It is important to note that Sec. 142(3) uses the word “shall” which makes it mandatory requirement on the part of the AO to comply with it. We also take note of the provisions of Sec. 143(3) wherein the assessment is to be completed by the AO which also provides in sub-section (3) that AO shall make an assessment by an order in writing, inter alia, “after taking into account all relevant material which he has gathered.”Thus, by keeping the provisions of Sec. 142(3) read with section 142(2) and Sec. 143(3) in juxtaposition, we understand that it is a mandatory statutory requirement on the part of the AO to comply with the provisions of Sec. 142(3) in completing the assessment proceeding, failure of which may initiate the entire assessment itself.
In the present case before us, we note that assessee has raised specific ground before the Ld. CIT(A) for the non- compliance of sec. 142(3) of the Act, which has been dismissed against the assessee. We note that compliance of provisions of sec. 142(3) is a mandatory statutory procedural requirement in completing the assessment proceeding, failure of which may vitiate the entire assessment itself since this sub-section uses the word “shall”. The only exception to this requirement is where an assessment is made u/s 144 which is not so in the present appeal before us.
8.1. We observe that in terms of the above mandatory statutory procedural requirement in completing the assessment proceeding, material gathered by the Ld. AO by conducting enquiry u/s. 142(2) has not been supplied to the assessee for which specific request has been made by the assessee before the authorities below. It is a fact on record that ld. AO has conducted certain enquiries by issuing notice u/s 133(6) and summons u/s 131 of the Act on the CSE and one of the buying parties who bought the shares from the assessee and collected the details and material utilised for the purpose of the assessment. In the present case before us, thus, the requirement mandated by section 142(3) has not been complied with in completing the impugned assessment.
8.2. We refer to the decision of Hon’ble jurisdictional High Court of Calcutta in the case of PCIT Vs. Swati Bajaj (2020) 139 taxmann.com 352 (Cal) wherein the plea of the assessee on the supply of material has been considered by the Hon’ble High Court which is essentially based on the principle of natural justice contained in rule. audialterem partem Specific reference is made to para 57 of the said order wherein while addressing the prejudice caused to the assessee in breach of the audialterem partem rule, it is stated that “prejudice must be caused to the litigant except in the case of a mandatory provision of law which is conceived not only in individual interest but also in public interest.” (emphasis supplied by us by underline).Hon’ble Court took note of the exception to audialterem partem rule by taking into account the mandatory provision of law. In the same para, Hon’ble Court referred to the decision in State of Uttar Pradesh Vs. Sudhir Kr. Singh (2020) SCC Online SC 847, wherein it was held that the “prejudice exception” must be more than a mere apprehension or even a reasonable suspicion of a litigant, which should exist as a “matter of fact”, or to be cast upon a definite inference and likelihood of prejudice flowing from the non-observance of natural justice. Thus, in the context of the present case, our view as stated herein is confined to the non-supply of material gathered by the ld. AO from the enquiries conducted by him in the course of assessment and utilised for the purpose of assessment without complying with the mandatory statutory procedural requirement stated in section 142(3).
8.3. In the present case before us, from the perusal of the impugned assessment order,as a matter of fact, it is noted that Ld. AO has conducted enquiry from CSE by issuing notice u/s. 133(6) and has also issued summon u/s. 131 on one of the buying parties to whom assessee has sold 500 shares. Considering the above discussion in respect of provisions contained in sec. 142(3) read with sec. 142(2), we are inclined to consider the alternate plea taken by the ld. Counsel to remit the matter back to the file of Ld. AO by giving direction to the Ld. AO to make available the material gathered by him in the course of enquiry conducted in terms of sec. 142(2) and provide a reasonable opportunity of being heard to the assessee as enunciated u/s. 142(3) of the Act.Thereafter, Ld. AO may complete the assessment in accordance with the provisions of law. Accordingly, ground no. 11 and 12 taken by the assessee are allowed for statistical purposes.
Since the matter has been remitted back to the file of Ld. AO in terms of above observations and finding, all other grounds taken by the assessee are rendered academic in nature and are, therefore, not adjudicated upon.
Accordingly, appeal of the assessee is allowed for statistical purposes. The above observations and finding apply mutatis mutandis to the appeal in ITA No. 255/Kol/2022.
In the result, both the appeals of the assessee are allowed for statistical purposes.