HIREN KIRIT GANDHI,MIRA ROAD (EAST), THANE vs. ITO, WARD-2(3), THANE, THANE

Brief facts relevant for adjudication of the case under consideration are that, the Assessee’s case was reopened u/s. 147 of the Act by issuing notice dated 30.03.2019 u/s. 148 of the Act by the ITO Ward (2) (2), Thane, mainly on the basis of information received from DDIT (Inv.) Unit, 8(3), Mumbai to the effect that a search and seizure action had been conducted by the Directorate of Investigation Wing, Mumbai, in connection with the long term capital gain scam. The beneficiaries under the perpetrators that were covered during the search operation had taken accommodation entries of bogus long term capital gain by treating various penny stocks. The Assessee has also taken accommodation entries in penny stock of M/s. Nivyah Infrastructure and Telecom Services Ltd. to the tune of Rs.20,29,292/- during the year under consideration and has not shown this investment in the ITR filed nor has claimed any loss or gain on this transaction. Accordingly, statutory notices were issued to the Assessee who in response to the notice u/s. 142 (1) of the Act issued on dated 05.08.2019, filed its reply vide letter dated 13.08.2019, inter alia contending as under :- “3. In response to the notice u/s 142(1) issued on 05.08.2019, the assessee vide letter dated 1'3.08.2019 has stated as under: "With reference to the above mentioned notice I Hiren Kirit Gandhi having PAN No. AIOPG4980F have filed Return u/s 148 of the Income Tax Act, 1961 and have attached acknowledgment of the same alongwith this submission before 14.08.2019 as desired by your good self. I would also like to bring it to your notice that I have earned salary income from HDFC Bank (Employer) and I have also attached computation of income and being a salaried person I am not liable to maintain any Profit & Loss Account nor do I have to maintain any Balance Sheet as I am not covered by section 44AA of Income Tax Act, 1961 and also I am not covered by any Audit provision u/s 44AB of the Act. Your goodself have asked for information regarding script M/s Nivyah Infrastructure & Telecom Ltd but I would like to bring it to your notice that same was being handled by my father but due to his demise I am not able to give you any information regarding this. And also I am not aware of any such transaction. I do not even know whether my father dealt with any such shares. Your goodself has also asked information regarding bank statement highlighting the payment for purchase of shares I have no such statement as my father use to maintain account for purchase and sale of securities so I do not even know whether my father has even purchased and sold such shares. Your goodself has asked for statement of all bank accounts for the period 01.04.2011 to 31.03.2012 so I am also attaching the same which was in my notice and maintained by me." 3. Though, the Assessing Officer (in short, the ‘AO’), considered the reply of the Assessee however, found the same not acceptable and thereafter, issued a final show cause notice for completion of assessment u/s. 144 of the Act vide letter dated 20.11.2019. However, the Assessee in response to such notice made no compliance.

Thus, the AO by considering the information received from DDIT, and the fact that the Assessee has not submitted any details regarding source of purchase of such penny stock or whether the long term capital gain/loss has been claimed or not, added the amount of Rs.20,29,292/- being undisclosed income in the income of the Assessee. Further, the AO by observing that the Assessee has traded in shares of various scripts totaling to Rs.9,24,81,294/- estimated the profit at Rs.4,62,406/- being 0.5% of such amount, as undisclosed income and added to the income of the Assessee.

The Assessee being aggrieved, challenged the said additions by filing first appeal before the ld. Commissioner.

Before the ld. Commissioner, the Assessee more or less, denied to have made any investment in the penny stock i.e. M/s. Nivyah Infrastructure and Telecom Services Ltd. as alleged. Further, with regard to the dealing with other shares wherein the addition of Rs.4,62,406/- has been made by the AO, has claimed that the Assessee has not dealt with in any shares earlier to the year 2015 and post 2015, the shares transactions were done on the basis of recommendation of the RM which is the approximate portfolio of Rs. 40,000/-.

We have given thoughtful consideration to the peculiar facts and circumstances and observe from equity holdings of the Assessee with Shri Ram Insight Share Brokers Ltd., wherefrom it appears that the Assessee appears to have purchased 16,301 shares @ 144.85% and on a total consideration of Rs.20,35,179.85/- on speculative basis having credited on dated 13.05.2011, whereas he has already sold the same on 12.05.2011 @ 124.28% and on a total consideration of Rs.20,25,888.28/- which resulted into making loss to Rs.9,291.57/-. However, the AO still made the addition of Rs.20,29,292/- just on the basis of information received from the investigation wing and without any substantive material, the AO should have considered the loss of Rs.9,291.57/- for computing the income if any, earned or incurred by the Assessee. Thus, in the absence of substantive material and/or corroborating evidence, the addition made by the AO and sustained by the ld. Commissioner is liable to be deleted and the same is deleted.

We observe from the assessment order that the case of the Assessee was reopened u/s. 147 of the Act mainly on the allegations that the Assessee has traded in the share of M/s. Nivyah Infrastructure and Telecom Services Ltd. to the tune of Rs.20,29,292/- and there is not a single whisper about this particular addition, which was subsequently made by the AO, simply by mentioning that as per ITS information, it is seen that during the AY 2012-13 that the Assessee has traded in various scripts totaling to Rs.9,24,81,294/- and therefore, in the absence of any details submitted by the Assessee, the profit @ 0.5% of Rs.9,24,81,294/- which comes to Rs.4,62,406/-, is estimated and the profit on shares and treated, as undisclosed income.

We observe that the AO made the addition of Rs.4,62,406/- simply on the assumption and presumption without any substantive material and sideling the specific denial by Assessee having been made any transactions. Thus, in the absence of any substantive material/evidence, this particular addition just on the basis on presumption and assumption and speculation is unsustainable. Thus, the addition is deleted.

As we have deleted the addition on merit and therefore, inclined not to delve into the jurisdictional ground raised by the Assessee challenging the notice u/s. 148 of the Act issued by the Assessing Officer on the ground that he had no jurisdiction to issue such notice u/s. 148 of the Act and subsequently, the AO who passed the assessment order ultimately, has also not issued any fresh notice u/s. 148 of the Act and thus, the assessment order passed in pursuance to such notice u/s. 148 of the Act, would be void ab initio.

In the result, Assessee’s appeal is allowed.