SHRI BHAVESH PARASMAL JAIN,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-3(1)(3),, VADODARA

आदेश/O R D E R & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 2 – PER PRADIP KUMAR KEDIA - AM:

2. The grievances raised being common, both the cases were heard together and disposed of by the common order.

3. We shall first take up assessee’s appeal in AY 2010-11.

4. Briefly stated, the return of income for AY 2010-11 was filed by the assessee declaring total income at Rs.11,55,810/-. The return was processed under s.143(1) of the Act without any further scrutiny. Thereafter, notice under s.148 of the Act was issued on 25.03.2014 to the assessee seeking to reopen the time barred assessment. The re- assessment order was consequently finalized after making addition of Rs.1,65,68,896/- towards income from undisclosed sources on account of ingenuine claim of exemption under s.10(38) of the Act of long term capital gains on sale of certain shares. The re-assessment order was thus framed at Rs.1,77,24,706/-.

5. The assessee challenged the re-assessment order before the CIT(A) on both counts; namely, validity of jurisdiction assumed under & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 3 – s.148 of the Act as well as merits of disallowances. The CIT(A) however did not find merit in the jurisdictional defect alleged by the assessee. The plea on merit was also rejected by the CIT(A). The CIT(A) consequently dismissed the appeal of the assessee on all counts.

“1. That the learned Commissioner of Income Tax (Appeals) has erred in law by confirming the action of issue of notice u/s 148 of the Income Tax Act, 1961 which is beyond the powers vested with the AO and therefore the order passed by the ld.AO should be quashed.

2. That the learned Commissioner of Income Tax (Appeals) has erred in law and facts by confirming the addition of long term capital gain as undisclosed income of Rs.1,65,68,896/- and therefore the learned AO should be directed to delete the said addition while computing the total income.”

“REASONS FOR RE-OPENING THE ASSESSMENT U/S.147 OF THE I.T.ACT. 1961 Reg: Shri Bhavesh Parasmal Jain Vijay Society No.

2. In this case, information has been received from the CCIT(Central)-I, Mumbai, vide letter No.CCIT(Central)- I/Mahasagar/2012-13 dated 6.2.2013 that Shri Bhavesh Parasmal Jain, Vijay Society No.1, New Khanderao Road, Baroda, has entered into transaction with Goldstar Finvest Private Limited, for purchase and sale of shares of Zen Shaving Ltd.. worth Rs. 1,31,00,383/- during the Financial Year 2009-10 relevant to Asstt. Year 2010-11. In the statement of total income, the assessee has shown the entire profit on sale of such shares amounting to Rs.L25,93,425/- as exempt u/s.l0(38) of the I.T.Act. 1961. The aforesaid transactions were undertaken by the assessee through Shri Mukesh Chokshi of M/s. Mahasagar Group. A search action was conducted in the case of Mahasagar Group on 25.1 1.2009. Shri Mukesh Chokshi in his statement stated that he was only involved in giving accommodation entries. In the statement recorded, Shri Mukesh K. Chokshi, has clearly admitted that M/s.Goldstar Finvest Pvt. Ltd. was engaged in the business of providing accommodation entries in the nature of bogus capital gains. The evidence with respect to bogus nature of transaction and identification of assessee's name as one of the beneficiaries by Shri Mukesh Chokshi reveals that assessee has not disclosed correct financial transaction for the year under consideration. Therefore, it is established that the assessee has claimed the long term capital gain of Rs. 1,25,93,425/- as exempt though the same is required to be taxed as income from other sources. The assessee has also shown long term capital gain on sale of shares of Prime Capital Ltd. of Rs. 31,24,762/- which also requires further verification.

3. In view of the above facts, I have reason to believe that the income to the extent of Rs. 1,57,18,187/- has escaped assessment within & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 5 – the meaning of the provisions of section 147 of the I.T.Act. 1961, for which the assessment needs to be re-opened. Issued notice u/s.148 of the I. T. Act.

Place: Baroda (P. KRISHNA DHAS) Date: 25.03.2014 Income-tax Officer Ward-5(3), Baroda 9.2 The learned AR submitted that whole basis of reopening is some nondescript information received by the AO from the CCIT(Central)-I, Mumbai about certain transactions entered into by the assessee with Broker Goldstar Finvest Pvt. Ltd. (GFPL) for purchase and sale of shares of Zen Shaving Ltd. (ZSL), the profits wherefrom has been claimed as exempt under s.10(38) of the Act. As per reasons recorded, the aforesaid transactions were stated to be undertaken by the assessee through Shri Mukesh Chokshi of M/s. Mahasagar Group. It was further alleged in reasons recorded that Shri Mukesh Chokshi had clearly stated that the aforesaid broker firm GFPL was engaged in the business of providing accommodation entries in the nature of bogus capital gains. The learned AR thus submitted that the bare reading of the reasons recorded would show that it is the statement of Shri Mukesh Chokshi given in a search proceeding on him which is primarily the edifice of initiating the action against the assessee. The learned AR strongly harped that the AO has merely relied upon some nonspecific information received from superior authority (CCIT, Mumbai) without forming ‘believe’ thereon towards escapement of chargeable income. To address the point, the learned AR submitted that the AO himself does not appear to be privy to any underlying material and statement of Shri Mukesh Chokshi and other persons except some generic and cosmetic information purportedly obtained from superior authority of CCIT and consequently such act cannot be regarded as satisfaction towards escapement in the eyes of law. The belief of the AO without supportable documents either before the & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 6 – recording of reasons or till the time of re-assessment thus cannot regarded as demonstrable and is merely a pretense. The learned AR thus submitted that the whole process of recording the reasons against the assessee in exercise of drastic power vested under s.147/148 of the Act is totally without jurisdiction. It was contended that the satisfaction formed by the AO is merely satisfaction borrowed from the superior authority on the basis of certain intimation. The learned AR also submitted that the whole process in any case is extremely skewed in the absence of underlying information/material/documents and in the absence of alleged tangible material in the form of statement of Shri Mukesh Chokshi and other persons, if any. It was next submitted that the statement of Shri Mukesh Chokshi relied upon to put Section 147 of the Act into motion was neither provided to the assessee nor cross examination thereof was granted. It is not known whether the statement so given was generic or specific implicating the assessee. The basis of giving such statement to the detriment of assessee is also not known. It is also not known whether such statement was even resiled at later stage or otherwise. It was thus contented that the assessee is not in a position to defend the imputations made against the assessee while challenging jurisdiction in the absence of availability of material/documents ect.

9.3 The learned AR thereafter referred to the profits arising from another scrip namely ‘Prime Capital Ltd.’ of Rs.31,24,762/- where the allegation of escapement is clearly without any tangible basis and has been included only for further ‘inquiry and verification’. Such act is clearly without jurisdiction in the absence of any definite basis for holding the belief towards escapement of income. The learned AR thereafter submitted that the scrip Zen Shaving Ltd. were purchased in the earlier years through M/s. Alliance Intermediaries & Network Pvt. Ltd. and sold through GFPL in the current year and thus the assertions & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 7 – made by the AO that both purchase and sales were made through GFPL in the reasons recorded is factually incorrect and reveals non application of mind. The whole process of holding the belief was thus claimed to be only a pretense and devoid of sound basis.

9.4 The learned AR thereafter submitted that apart from borrowed satisfaction drawn by the AO, the action of the AO to reopen the time barred assessment is also not sustainable on the ground that the additions made in the assessment order is entirely on a different basis qua the reasons recorded. No reference has been made to such material in the course of assessment as mentioned in the reasons recorded. It is also not shown by the AO that the deponent Shri Mukesh Chokshi has actually identified the assessee for alleged wrongful transactions. The information made available by the deponent to the department was generic information explaining the alleged modus operandi as per assessment order. It was contended that the onus is always on the Revenue to support the threshold action of reopening a time barred / complete assessment which onus was not discharged at all.

9.5 The learned AR thereafter referred to the decision of the co- ordinate bench of Tribunal in identically placed situation in group cases namely Shantaben Parasmal Jain vs. DCIT order dated 15.10.2018 wherein also the time barred assessment completed under s.143(1) of the Act was reopened within four years from the end of the assessment order alleging escapement of income citing quite similar reasons. The co-ordinate bench however set aside and quashed the re-assessment proceedings initiated under s.147 of the Act holding the same to be unsustainable in law having regard to the judicial precedents.

ITA Nos. 1352 & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 8 – 9.6 The learned AR thereafter referred the decision of the co- ordinate bench in Bharti Somchand Sah & Ors. In & 926/Ahd/2015 and ors. Dated 21.10.2016 wherein the additions made on the basis of unverified and unexamined statement of Shri Mukesh Chokshi was deleted by the co-ordinate bench. The AR submitted that the Revenue could not succeed against the aforesaid order of the co- ordinate bench before the Hon’ble Gujarat High Court either, as can be seen from the decision rendered by the Hon’ble Gujarat High Court in Pr.CIT vs. Bharti Somchand Shah Tax Appeal No.1023 of 2017 judgment dated 22.01.2018. The learned AR thereafter referred to the decision of the co-ordinate bench in ACIT vs. Vineet Sureshchandra Agarwal ITA No. 1442/Ahd/2013 dated 06.01.2017 to contend that even on merits the additions made by the AO are not sustainable at all.

9.7 The learned AR also contended on merits that the purchases of the alleged scrips namely Zen Shaving & Prime Capital Ltd. were made in the earlier financial years which purchases were also accepted.

9.8 Keeping in mind the nature of allegation raised by the assessee towards lack of requisite information in possession of the AO towards formation of belief for assuming jurisdiction, the Revenue was called upon to produce the assessment records and nature of underlying material as available in possession of the AO at the time of reopening the time barred assessment. As a sequel thereto, the assessment records were produced for the perusal of the Bench. It was specifically inquired from the learned representative of the Revenue to point out the exact nature of material available on record to support initiation of action under s.147 of the Act. The representative of the Revenue however could not point out from the record as to what was exactly available to support the action of the Revenue. On perusal of & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 9 – the case records, we notice that some note was prepared for ITS Module regarding Mahasagar Group of cases led by Shri Mukesh Chokshi allegedly involved in giving accommodation entries and consequently suggesting the AO to pursue remedy and reopen the assessments of the beneficiaries. The statement of Shri Mukesh Chokshi which is the basis of taking cognizance of the alleged evasion was however not found in the case records placed before us.

9.9 In the backdrop of the aforesaid observation, the learned DR was further inquired on the issue. The learned DR pointed out that the relevant re-assessment records as made available by the AO is being produced for perusal without any further comments. The learned DR submitted that it is quite plausible that the AO may be in possession of the statement of Shri Mukesh Chokshi implicating the assessee in yet another separate folder for which he cannot make any comment assertively. The learned DR however relied upon the orders of the AO and CIT(A) and contended that the plea raised on behalf of the assessee has no substance in view of the information supplied by CCIT-Mumbai and the orders of the Revenue authorities requires to be upheld.

ITA Nos. 1352 & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 10 – 10.1 Section 147 of the Act confers jurisdiction to AO to reopen the completed/time barred assessment is a substantive provision. The power of re-assessment, however, wide it may be, is not plenary or unbridled but is controlled by expression ‘reasons to believe’. The expression ‘reason to believe’ is the axis of the action which creates, defines and regulates the right of the Revenue to reopen such assessment. The requirement of ‘reason to believe’ is thus inflexible. The reasons are recorded in writing under s.148(2) of the Act to unfold the process towards application of mind by the AO. The reasons so recorded are justiciable and thus have probative value. The ‘reason to believe’ is a significant inbuilt safeguard to prohibit the AO from exercising the power arbitrarily and in a sweeping manner. The tangible material is a sin qua non to form a conclusion of escapement and a reference to such material is necessary in the recorded reasons. The material referred should be authentic and capable of giving rise to inference. The AO is expected to himself perceive and apply its mind independently on such tangible material to assume the jurisdiction. The information per se is not realization or belief but the information can, at times, give birth to the belief towards escapement in certain circumstances viz; where such information is based on relevant material and not on assumptions. The AO is required to hold belief induced by existence of reasons and not mere belief in existence of reasons. While ‘reason’ is the cause of justification which should have some proximity to tangible material, the ‘belief’ is assent of the mind on such material. The formation of belief is a statutory function entrusted to AO alone which cannot be relegated by the AO. The satisfaction derived by the other authorities per se is not sufficient for the formation of belief contemplated under s.147 of the Act. Thus, a schematic interpretation is required to be given to expression ‘reason to believe’ failing which Section 147 of the Act would be rendered arbitrarily. While the sufficiency of belief is not justiciable, the & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 11 – existence of belief on objective reasons is a paramount. Thus, the existence of circumstances is not left to subjective process while formation of opinion thereon is left to the mind of AO so long as it does not suffer from non-application of mind or perversity. These are broadly the salutary principles that emerge from judicial precedents delivered over time.

10.2 In this brief background, we now proceed to look at the reasons recorded by the AO and the underlying material relied upon while exercising powers of re-assessment. The AO has made reference to a letter dated 06.02.2013 received from CCIT(Central)-I, Mumbai [Reference No. CCIT(Central)-I/ Mahasagar/2012-2013] providing information that the assessee herein has entered into transactions with share broker; GFPL for purchase and sale of shares of ‘Zen Shaving Ltd.’ which are essentially accommodation entries in the nature of bogus capital gains. As per reasons recorded, this letter has galvanized the AO to initiate action against the assessee by invoking Section 147/148 of the Act. The AO has also referred to a statement recorded of Shri Mukesh Chokshi for admission of the wrong doings. In another reference, the AO has also asserted that gains arising in respect of other shares namely Prime Capital Ltd. also requires ‘verification’.

10.3 The AO has thus made reference to the letter received from CCIT, Mumbai eliciting information as well as the statement of Shri Mukesh Chokshi. The copy of the letter from CCIT and statement of Shri Mukesh Chokshi forming basis for reopening the assessment was never provided to the assessee at the time of re-assessment proceedings. Accordingly, the re-assessment records were called in the appellate proceedings before us. The case records contained the aforesaid letter from CCIT(Central) referred to by AO. It would be & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 12 – pertinent to take a look at the aforesaid letter placed in the file of the AO.

“OFFICE OF THE CHIEF COMMISSIONER OF INCOME-TAX CENTRAL-I, 4th Floor, R.Nos.423/424, Aayakar Bhavaii, M. K. Road.Mumbai - 400 020. TEL No.:22011578, 22007622 - FAX No.:22075474

No. CCIT(Central)I/Mahasagar/2012-13 Date: 06.02.2013

The Member (Investigation), Central Board of Direct Taxes, North Block, New Delhi.

Sir, Sub: M/s Mahasagar Securities Ltd. - Deciphering data - reg. ---------------------

Please refer to the discussion made with your goodself a month back.

2. A.D.I.T. Systems from NADT, Nagpur, was called to Mumbai for providing help to decipher the data. This didn't yield result. Through another professional agency which was engaged during B.P.Gaur's time, the data was deciphered.

4. With respect to the rest of the information, third CD, there is no PAN and hence taking further remedial action would be difficult.

& 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 13 – End: 1. Three CDs. containing data for A.Yrs.2006-07 to 2010-11 (two sets) & Note 2. Chart giving the summary of data in C.D.”

10.4 The aforesaid letter is also accompanied by a ‘note’ for ITS module which is also extracted as under:

“NOTE FOR I.T.S. MODULE Note in the case of M/s Mahasagar group of cases - Key person - Shri Mukesh Choksi - Concerns involved in giving accommodation entries - Reopening of assessments in the case of beneficiaries - A.Yrs.2006-07 onwards - Action to be taken before 31.03.2013 - reg.

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1. A search action was conducted in the above mentioned group on 25.11.2009. Earlier Also search / survey actions were conducted in this group on 18.06.1998, 2002 and 2.06.2006.

3. Statements have also been recorded from two of his employees and an agent i.e. Miss Anupama Patel, (Employee) on 25.11.2009, Shri Kapil Chaturvedi, (Employee) on 13.01.2010 and Shri Kamal Kishore Rati (Agent) on 25.11.2009.

4.1 This group deliberately conducted transactions in such a manner that a part of the transaction is evidenced through Bank or through Stock Exchange such that a misleading picture is given and a colour of genuineness is given to the entire transaction. For example, shares are purchased from a broker/agent and transferred to demat account and within a few days the shares are shown as sold through Stock Exchange. This gives a picture that the sale is genuine. However, the purchase and the holding period is not a year or more.

& 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 14 – 5. The modus operand! is explained in his sworn statement recently recorded. It is also given in the Appraisal Report. These details can be obtained by contacting the Assessing Officer whose details are as follows:

Assessing Officer : DCIT, Central Circle-46. Mumbai Ph. Number : 022 22075462 : Room No.659, 6th Floor, Aayakar Bhavan, Address M.K.Road, Mumbai-400020. E mail ID : dcitcc46@rediffmail.com 6. Mr.Choksi stated that he was only involved in giving accommodation entries. He also perused all the data before giving such statement. In the latest sworn statement dated 16.01.2013, Shri Mukesh Choksi identified 829 names of the beneficiaries and certified that they are accommodation entries. This list is available with the Assessing Officer. It is also most important that proper reasons be recorded incorporating words, such as reasons to believe, suppression of primary facts, evidence gathered on the bogus nature of transaction, identification of beneficiaries having been made by Mr.Choksi etc. such that no technical objections are raised against reopening. The case law referred to in Sampath Iyengers, Vol.6 pages 9987, 10053 & 10054 may kindly be taken note of by the A.Os. and suitable precautions taken while recording reasons.”

10.5 To reiterate, the statement of Shri Mukesh Chokshi however could not be traced from the case records nor could Revenue advert to such statement when enquired in the appellate proceedings.

10.6 From a reading of the letter/information reproduced hereinabove, we are unable to decipher the details of transactions pertaining to the assessee. The information/note appears to be generic in nature at present and in turn, seeks to rely heavily on statement of Shri Mukesh Chokshi and his employees. Such statements of Shri Mukesh Chokshi and others would thus be relevant which is also the basis for coming to the belief towards escapement of income. We, thus, are not in a position to adjudicate the issue one way or the other at this stage. It will be a undue haste to conclude the issue either way based on what was placed before us in the appellate proceedings in the absence of respondent AO. In the totality of things, it will be only fair and & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 15 – befitting that a fresh opportunity is given to the assessee by the AO and confront all documents as was available at the time of recording of reasons and then dispose of the objection of the assessee afresh based on such transmission of information.

10.7 We notice that the assessee has also cited several decisions as noted in the preceding paragraphs and has claimed their applicability squarely in the facts of the case. The AO may take suitable cognizance of the decisions cited.

10.8 We also take note of the firm objection of the assessee on merits that cross examination of Shri Mukesh Chokshi is needed as repeatedly demanded earlier to prevent miscarriage of justice. It is the case of the assessee that as referred to in ‘Vineet S. Agrawal’ case, the statement was later retracted by the deponent and thus has paled its significance. The assessee has also contended that the off-market transactions are not necessarily unlawful as noted by co-ordinate bench in aforesaid decision. Judicial propriety demands that evidence collected and sought to be used against the assessee is confronted to assessee to uphold principles of natural justice. We however do not intend to delineate into these aspects at this stage while remitting the whole of matter back to AO. The assessee shall be at liberty to raise all aspects of matter afresh including the jurisdictional aspects. We thus consider it appropriate to set aside the matter back to the file of the AO to dispose of the objection of the assessee on the jurisdictional defect afresh in the light of the material referred to and relied upon by the AO in the reasons recorded to be provided to the assessee as well as in the light of various decisions of the co-ordinate bench dealing with similar issues.

10.9 The order of the CIT(A) is accordingly set aside and the AO is directed to adjudicate the whole gamut of issues after giving proper & 1353/Ahd/17 [Bhavesh P. Jain & Anr.] A.Y. 2010-11 - 16 – opportunity to the assessee both on jurisdictional aspect as well as on merits. The AO shall pass speaking order in accordance with law after taking note of the relevant facts and judicial pronouncements applicable in the facts of the case.

This Order pronounced in Open Court on 28/06/2019

Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 28/06/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।