BITHAL NATH GUPTA (HUF),NEW DELHI vs. ITO WARD - 31(4), NEW DELHI

आदेश /O R D E R

PER C. N. PRASAD, J. M. :

1. All these appeals are filed by different assesses of the same family against different orders of the ld. Commissioner of Income Tax (Appeals)-11, New Delhi [hereinafter referred to CIT (Appeals)] for assessment year 2011-12. Since the issue in all these appeals is identical, all these appeals were heard together and disposed of by this common order for the sake of convenience. The appeal of the assessee in the case of R. C. Gupta (HUF) is taken up first for hearing as lead case.

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2. The assessee in his appeal raised the following grounds of appeal:-

1. That under the facts and circumstances, proceedings U/s 147/148 are without jurisdiction, without application of mind, unwarranted, mechanical, on borrowed satisfaction and on the basis of wrongly taken facts, hence unsustainable in law as well as on merits.

2. That under the facts and circumstances, the approval U/s 151 is fatally defective, mechanical and without application of mind which makes the whole proceedings without jurisdiction, illegal and unwarranted.

3. That the Ld. A.O., did not adjudicate the objections against initiation of re-asstt proceedings fully, as per law and as per the directions of Honble SC in the case of of G.K.N. Drive Shafts, hence consequential proceedings and impugned asstt. is illegal and without jurisdiction.

4. That under the facts and circumstances, there is no justification in law as well as on merits for addition of Rs.2,20,274/- U/s 68 for the sale consideration amount reed on sale of share during the year which were acquired in F.Y 2005-06 and further erred in not allowing the exemption U/s 10(38) for LTCG amount of Rs.1,60,275/-.

4.1 That under the facts and circumstances, provisions of section 68 are not applicable on the impugned addition of Rs.2,20,274/-.

4.2 That in the absence of providing and confronting alleged adverse material and in the absence of cross examination being allowed, no cognizance of such material can be taken, thus the A.O erred in law and on merits in making addition of Rs.2,20,274/- on the basis of such material.

5. That there is no legality and justification for addition of Rs.11,014/- as unexplained expenditure U/s 69C for alleged commission expenses @ 5 % of Rs.2,20,274/- although there is no material and evidence for the same.

6. That the Ld AO be please directed to give credit for Regular Asst tax payment of Rs.5,670/- although it appears in Form 26AS also. “

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3. The ld. Counsel for the assessee submits that the assessee challenged the order of the ld. CIT (Appeals). The proceedings initiated under Section 147/148 of the Income Tax Act, 1961 (the Act) is without jurisdiction, without application of mind, unwarranted mechanical, on borrowed satisfaction and on the basis of wrong facts and hence unsustainable in law. The ld. Counsel for the assessee submits that assessee also raised various other grounds on technical issues as well as on merits. The ld. Counsel submits that identical issue in the case of Rajesh Gupta (HUF) Vs. ITO came up for hearing in before the Tribunal and the Tribunal by order dated 19th April, 2021 quashed the reassessment proceedings initiated by the Assessing Officer under Section 147 of the Act. Consequently, the assessment made pursuant to issue of notice under Section 147 of the Act in the case of Rajesh Gupta (HUF) held to be bad in law. The ld. Counsel for the assessee submits that the reasons recorded for reopening of assessment in the case of the assessee R. C. Gupta (HUF) and also the family members is identical to the reasons recorded for reopening the assessment in the case of Rajesh Gupta (HUF). The ld. Counsel for the assessee further submits that the reassessment order passed in the case of Rajesh Gupta (HUF) is the very same Assessing Officer passed order in the case of the assessee R. C. Gupta (HUF) and the other family members and it was passed on the same day i.e. on 20.12.2018. The ld. Counsel for the assessee submits that the ld. CIT (Appeals) has passed the order in all these appeals including the appeal in the case of Rajesh Gupta (HUF) and the date of order in all these appeals is 18.06.2019. The ld. Counsel for the assessee, therefore, submits that in all these cases the reasons are identical. The ld. Assessing Officer as well as the ld. CIT (Appeals) are common and in these set of identical facts 4

I.T.A. No. 5711/Del/2019 & Others the Hon’ble Tribunal in the case of Rajesh Gupta (HUF) in by order dated 19.04.2021 upheld the order of the ld. CIT (Appeals) in quashing the reassessment order as bad in law applies to the facts of the assessee. Therefore, the ld. Counsel for the assessee submits that since the Tribunal already decided the issue in one of the assessees group cases, the same may be followed as there are no change in facts.

4. On the other hand, the ld. DR strongly supported the orders of the authorities below.

5. Heard rival submissions, perused the orders of the authorities below and the order of the Tribunal in the case of Rajesh Gupta (HUF). The Tribunal while deciding the appeal in the case of Rajesh Gupta (HUF) in dated 19.04.2021 observed as under:-

“2. Fact of the case, in brief, are that the assessee filed its return of income on 20.09.2011, declaring total income of Rs.10,92,630/-. The return was processed u/s 143(1) of the Act. Subsequently, the Assessing Officer reopened the assessment by recording the following reasons:-

“Reasons for re-opening of the assessment in case of Sh. Rajesh Gupta (HUF) for A.Y.2011-12 u/s 147 of the Income Tax Act, 1961.

I.T.A. No. 5711/Del/2019 & Others listed on BSE with Script Code (517973) and trading in this script is highly suspicious and this company has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or Short Term Capital Loss in their books of accounts. The financials of the company for the relevant period do not show any substantial change so as to support such as huge share price movement. The sharp rise in the market price of this entity is not supported by financial fundamentals of the company. Both purchase and sale of the shares are concentrated within few persons/entities. The exit providers do not have creditworthiness. They are either non-filers or have filed nominal return of income. Further, during it was also examined that that this script was also indulged in self-trading.

2.1. After examining of trade data of M/s DMC Education Ltd by the Investigation Wing, Mumbai, it was analyzed that the following beneficiary has also traded in the script of M/s DMC Education Ltd during the F.Y,2010-11:

S.No. Name of Beneficiary PAN of the beneficiary Total Trade value for F.Y.2010-11 1. Rajesh Gupta (HUF) AAGGR9262M Rs. 1,90,800/-

3. Information received is analyzed at our end and after analyzing it is observed that the assessee Sh.Rajesh Gupta (HUF), was involved in buying the bogus inflated/deflated shares through the prearranged transactions on the Stock Exchange in the shares of M/s DMC Education Ltd and made total trade value of Rs.1,90,800/-. The trading pattern of shares of M/s DMC Education Ltd shows that the prices rose and fell sharply in a pre-arranged trading pattern. Further, the fluctuation in the share prices is not in synchronizing with the general sensex level. Also the sharp rise and fall in the price of shares of M/s DMC Education Ltd is not correlated with the fundamentals of company. The financials of the company also do not justify the sharp rise & fall in the price of the shares for the purpose of giving bogus entry/bogus LTCG to the different beneficiaries on commission.

4. On perusal of information received from the office of the ADIT(Inv.) Unit-1(3), Mumbai and after Verification of return of income filed by the assessee, it is observed that the assessee has not declared the transaction of Rs. 1,90,800/- in his return of income and the same remains unaccounted for being not declared by the assessee to the department and hence income of I.T.A. No. 5711/Del/2019 & Others Rs.l lakh or more has escaped assessment in A.Y.2011-12, Thus to bring the above amount to tax, re-opening the case u/s 147 is proposed.

5. It is pertinent to mention that in the case of CIT vs Nova Promoters & Finlease (P) Ltd. (ITA No.342 of 2011) dated 15/02/2012, the Hon'ble Delhi High Court, which is the jurisdictional High Court, Held that as long as there is a 'live link' between the material which was placed before the Assessing Officer at the time when reasons for reopening were recorded, proceedings u/s 147 would be valid. The Court also held:- "We are aware of the legal position that at the stage of issuing the notice u/s 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment. “ 6. 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 u/s 2(40) of the Income Tax Act was made and the return of income was processed u/s 143(1) of the income Tax Act. In view of the above, provisions of clause (b) of Explanation 2 to Sec.147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case when income chargeable to tax has escaped assessment. 7. In this case, more than four years have elapsed from the end of assessment year under consideration. Hence, necessary approval u/s 151(1) of the Income Tax Act may kindly be accorded for issuing Notice u/s 148 of the Act for A.Y. 2011-12.”

3. The Assessing Officer thereafter issued notice u/s 148 of the Act on 30.03.2018 which was duly served on the assessee. The assessee in response to the same filed the return of income on 10.04.2018 declaring total income of Rs.7,50,590/- and asked for reasons which were duly provided to the assessee. The assessee filed objections against such reopening which were disposed of by the Assessing Officer by passing a speaking order, wherein, he rejected the various objections of the assessee.

3.1. Subsequently, during the course of assessment proceedings, the Assessing Officer asked the assessee to explain 7

I.T.A. No. 5711/Del/2019 & Others as to why addition should not be made on account of accommodation entry for Long Term Capital Gain amounting to Rs.1,90,800/- u/s 68 of the Income Tax Act and the commission on account of providing such accommodation entry. Rejecting the various explanation given by the assessee and invoking the provisions of section 68 of the Act and genuineness of the claim of Long Term Capital Gain u/s 10(38) of the Act, the Assessing Officer made addition of Rs.1,90,800/- to the total income of the assessee. He further made addition of Rs.9,540/- being commission paid for arranging such accommodation entry.

4. In appeal, the learned CIT(A), sustained the addition made by the Assessing Officer. He also upheld the validity of reassessment proceedings challenged before him.

5. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal by raising following grounds of appeal:

That under the facts and circumstances, proceedings U/s 1. 147/148 are without jurisdiction, without application of mind, unwarranted, mechanical, on borrowed satisfaction and on the basis of wrongly taken facts, hence unsustainable in law as well as on merits.

That under the facts and circumstances, the approval U/s 2. 151 is fatally defective, mechanical and without application of mind which makes the whole proceedings without jurisdiction, illegal and unwarranted. That the Ld. A.O., did not adjudicate the objections against 3. initiation of re-asstt proceedings fully, as per law and as per the directions of Hon’ble SC in the case of of G.K.N. Drive Shafts, hence consequential proceedings and impugned asstt. is illegal and without jurisdiction. That under the facts and circumstances, there is no 4. justification in law as well as on merits for addition of Rs. 1,90,800/- U/s 68 for the sale consideration amount reed on sale of share during the year which were acquired in F.Y 2005-06 and further erred in not allowing the exemption U/s 10(38) for LTCG amount of Rs. 1,30,800/- That under the facts and circumstances, provisions of section 4.1 68 are not applicable on the impugned addition of Rs. 1,90,800/-. 8

I.T.A. No. 5711/Del/2019 & Others That in the absence of providing and confronting alleged 4.2 adverse material and in the absence of cross examination being allowed, no cognizance of such material can be taken, thus the A.O erred in law and on merits in making addition of Rs.1,90,800/- on the basis of such material.

That there is no legality and justification for addition of 5. Rs.9,540/- as unexplained expenditure U/s 69C for alleged commission expense @5% of Rs.1,90,800/- although there is no material and evidence for the same.”

6. The learned counsel for the assessee, referring to page 3 and 4 of the paper book drew the attention of the Bench to the reasons recorded by the Assessing Officer, according to which, the assessee has not declared the transaction of Rs.1,90,800/- in his return of income and the income remained unaccounted for being not declared by the assessee before the Department. Referring to page 48 to 50 of the paper book, the learned counsel for the assessee drew the attention of the Bench to the copy of the return of income filed by the assessee, wherein, the assessee has declared Long Term Capital Gain of Rs.1,29,903/- as per Schedule E-1 of the Income Tax Return. He accordingly submitted that the Assessing Officer without verifying the return of income filed by the assessee and in a mechanical manner and under borrowed satisfaction has reopened the assessment which is not valid in law. He submitted that when the reopening is based on wrong appreciation of facts, such reopening is held to be invalid in view of the decision of the Hon’ble Delhi High Court in the case of CIT vs Kamdhenu Steel & Alloys reported in 248 CTR 33(Del.), in the case of CIT vs Sh. Atul Jain and Vinit Jain reported in 292 ITR 383(Del.) and in the case of Pr. CIT vs Rmg Polyvinyl (I) Ltd. reported in 396 ITR 5 (Del.).

I.T.A. No. 5711/Del/2019 & Others However, no such copy of approval was ever provided by the Assessing Officer to the assessee. Referring to various decisions, he submitted that when the approval has been given in a mechanical manner, such approval is not accordance with law and therefore, the reassessment proceedings has to be held as invalid. He submitted that the Assessing Officer in the instant case has initiated reassessment proceedings in a mechanical manner without application of mind. Referring to the following decisions, he submitted that where, the Assessing Officer has reopened the assessment on the basis of information from the Investigation Wing and without independent application of mind, such reassessment proceedings are held to be invalid being not accordance with law. For the above proposition, he relied on the following decisions: i. Pr. CIT vs G And G Pharma India Ltd. 384 ITR (2016)(Del.) 147 ii. Sarthak Securities Co. (P) Ltd. 329 ITR 110(Del.) iii. CIT vs Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR (Del.) 33 iv. PCIT vs Meenakshi Overseas (I) Ltd. 395 ITR 677 (Del.)

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M/s DMC International. Sale Consideration Rs.1,90,227/- Less: Purchase cost Rs. 60,000/- Less: Trf Exp Rs. 324/- LTCG Rs.1,29,903/-

I.T.A. No. 5711/Del/2019 & Others further addition of Rs.7,540/- u/s 69C of the Act being the expenditure incurred for arranging such accommodation entries. I find in appeal, the learned CIT(A) upheld the reassessment proceedings as well as the addition on merit. It is the submission of the learned counsel for the assessee that the reopening has been made by the Assessing Officer in a mechanical manner and on borrowed satisfaction without independent application of mind. It is his submission that the assessee has already declared income from Long Term Capital Gain amounting to Rs.1,29,903/- after claiming purchase cost of Rs.60,000/- and transfer expenses of Rs.324/- from the sale consideration of Rs.1,19,227/- in respect of sale of 1500 shares of M/s DMC Education Ltd. Therefore, the reopening of the assessment without verifying the return and on the basis of report of the Investigation Wing and without independent application of mind by the Assessing Officer make such reassessment proceedings a nullity.

I.T.A. No. 5711/Del/2019 & Others and not independent application of mind. Thus, I find merit in the argument of the learned counsel for the assessee that such reopening is based on wrong appreciation of facts and on borrowed satisfaction.

12.1 It has been held in various decisions that when the reopening of the assessment is based on incorrect or wrong appreciation of facts, such reopening is not in accordance with law. It has also been held in various decisions that when the reopening is made on the basis of report of the Investigation Wing and without independent application of mind by the Assessing Officer to the return field by the assessee, such reopening of assessment is also not in accordance with law and has to be quashed. The Hon’ble Delhi High Court in the case of Pr. CIT vs G And G Pharma India Ltd.(supra) has held that where the Assessing Officer has not applied his mind independently to the information received from the Director of the Investigation Wing and no prima facie opinion formed, such reassessment proceedings is invalid. The Hon’ble Delhi High Court in the case of Sarthak Securities Co. (P) Ltd. (supra) has held that where there is no independent application of mind by the Assessing Officer but acting under information from Investigation Wing, such notice u/s 147 has to be quashed. The Hon’ble Delhi High Court in the case of CIT vs Kamdhenu Steel & Alloys Ltd. reported in (2012) 248 CTR (Del) 33 held that where the Assessing Officer acted mechanically on the information supplied by the Directorate of Income Tax (Investigation) about the alleged bogus/accommodation entries provided by certain individuals/companies, without application of his own mind, he was not justified in invoking jurisdiction u/s 147 of the Act. It is pertinent to mention here that SLP filed by the Revenue against the above decision of the Hon’ble Delhi High Court was dismissed by Hon’ble Supreme Court vide order dated 17.09.2012. The Hon’ble Delhi High Court in the case of PCIT vs Meenakshi Overseas (P) Ltd. reported in 395 ITR 677(Del.) has held that where reassessment was resorted on the basis of information from DIT (Investigation) that assessee had received

I.T.A. No. 5711/Del/2019 & Others accommodation entry but there was no independent application of mind by the Assessing Officer to tangible material and reasons failed to demonstrate live link between tangible material and formation of reason to believe that income had escaped assessment such reopening is not justified. The various other decisions relied on by the learned counsel for the assessee in paper book to the proposition that when the Assessing Officer has reopened the assessment on wrong appreciation of facts and without independent application of mind but acted mechanically on the basis of report from the Investigation Wing, such reassessment proceedings are not in accordance with law support his case. Since, in the instant case, the Assessing Officer has acted mechanically on the basis of report from the Investigation Wing and without independent application of mind and the reopening of assessment is on wrong appreciation of facts, therefore, such reopening of the assessment, in my opinion, is not in accordance with law. I, therefore, quash the reassessment proceedings initiated by the Assessing Officer u/s 147 of the Act and upheld by the learned CIT(A). The legal grounds raised by the assessee challenging the validity of reassessment proceedings are accordingly allowed. “

6. I have also perused the reasons recorded for reopening the assessment in the case of the assessee R. C. Gupta (HUF) and the reasons which are placed at page Nos. 15 to 17 of the paper book, read as under:-

“1. As per the ITD information, Sh. R.C. Gupta (HUF) is having PAN: AAGHR9088D address at 14, Sainik Farm, Lane C-3, Khanpur, New Delhi. Further, as per ITD database, the aforesaid assessee filed his return of income for A.Y. 2011-12 on 20.09.2011 declaring an income of Rs.8,47,540/-. The return of income was processed u/s 143(1).

2. In this case, information was received from the office ADIT (lnv.) Unit-1(3), Mumbai vide office letter No. ADIT (lnv.)/Unit-l(3)/DMC EDU/2017-18/1082 dated 21/03/2018 in 14

I.T.A. No. 5711/Del/2019 & Others this office on 27/03/2018. As per the information, it is gathered that M/s DMC Education Ltd. (Script name DMC Education) is a penny stock listed on BSE with Script Code (517973) and trading in this script is highly suspicious and this company has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or Short Term Capital Loss in their books of accounts. The financials of the company for the relevant period do not show any substantial change so as to support such as huge share price movement. The sharp rise in the market price of this entity is not supported by financial fundamentals of the company. Both purchase and sale of the shares are concentrated within few persons/entities. The exit providers do not have creditworthiness. They are either non- filers or have filed nominal return of income. Further, during it was also examined that that this script was also indulged in self-trading.

2.1. After examining of trade data of M/s DMC Education Ltd by the Investigation Wing, Mumbai, it was analyzed that the following beneficiary has also traded in the script of M/s DMC Education Ltd during the F.Y, 2010-11:

S.No. Name of Beneficiary PAN of the beneficiary Total Trade value for F.Y. 2010-11 1. R.C. Gupta AAGHR9088D Rs.2,20,274/-

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" We are aware of the legal position that at the stage of issuing the notice u/s 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment.“