ANIMESH KANJIBHAI PATEL,MUMBAI vs. ITO- WARD 19(1)(1), MUMBAI, MUMBAI

The Ld. Commissioner of Income Tax Appeals - NFAC erred in confirming the addition of Rs. 9,30,86,760/- u/s. 68 of the Income Tax Act, 1961, without appreciating that the said section does not apply in the present case. That the addition is illegal, bad in law and ought to be deleted. 5. The appellant craves leave to add, amend, alter, or delete any of the above grounds of appeal.”

Vide application dated 12.01.2016, the assessee raised following additional grounds of appeal: “1. The Ld. Commissioner of Income Tax Appeals NFAC erred in confirming the additions u/s. 68 of the Income Tax Act, 1961, without appreciating that no Document Identification Number (DIN) was quoted on the reassessment order as mandated by the CBDT vide its Circular no. 19/2019 dated 14.08.2019. That the reassessment order without quoting DIN is illegal, void and bad in law and ought to be quashed. 2. The appellant craves leave to add, amend, alter, or delete the above ground of appeal.” 3. The brief facts of the case are that the assessee is an individual and had not filed his return of income for the assessment year (A.Y.) 2012-13. The case of the assessee was reopened under Section 147 and notice under Section 148 dated 16.03.2019 was issued to the assessee. The case of the assessee was reopened on the basis of the information received from Director General of Income Tax (Investigation), Mumbai, that the Gemstone Investments Limited is a penny stock company and involved in price manipulation in stock exchange. The assessee has traded in the scrip of Gemstone Investment Limited and had earned a long term capital gain of Rs. 2.96 Crores. The assessing officer (AO) after recording the reasons of reopening, issued a Notice under Section 148 dated 16.03.2019. The assessee filed his return on 11.11.2019 in response to the Notice under Section 148. The AO after providing reasons recorded proceeded for assessment. During the assessment the AO recorded the Modus operandi of penny scrip companies including of Gemstone Investment Limited and the investigation carried out by the Investigation Wing about various penny scrip companies. The AO also referred and recorded certain part of statement of persons who were allegedly involved in price rigging of scrip of various penny scrips companies. Such statements were recorded by investigation team. The AO further noted that apart from Gemstone Investment Ltd, the assessee has also traded in the scrips of Scan Steels Ltd., Diamond Infrastructure Limited and Nivyah Infrastructure Ltd. On show cause notice, the assessee submitted that his Bank account and Demat account were used (misused) by Naresh Manakchand Jain. The AO recorded that the assessee has not made any police complaint and the transaction of sale proceed of the shares of aforesaid four companies were credited in the account of the assessee and is taxed in his hand. The AO accordingly bought the aggregate sale consideration of all the four companies of Rs. 9.30 Crores and added under Section 68 by disallowing the exemption under Section 10(38) of the Act in the Assessment Order dated 28.12.2019. 4. Aggrieved by the additions in the Assessment Order, the assessee filed an appeal before the Ld. CIT(A). Before the Ld.CIT(A), the assessee raised the similar plea that the assessee acted as an Agent/Conduit and his Bank A/c and Demat A/c was operated by Naresh Manakchand Jain. The assessee also stated that he was working as a sale deed person in the showroom of sarees and was getting salary of Rs. 15,000/- per month and he was not having knowledge about stock market. His bank account was misused by Mr. Bhupesh Rathod for opening the account which was later on handed over to Naresh Manakchand Jain. The entire transaction was carried out by Naresh Manakchand Jain in his name. 5. The Ld. CIT(A), after considering the submission of the assessee upheld the addition made by the AO. Against the validity of reopening, the ld. CIT(A) held that the assessee has not raised any objection against the reopening during the assessment. The AO provided all the materials available to the assessee. The AO was having sufficient and specific material for making reason to believe that income of assessee has escaped assessment. It cannot be said that assessee has not applied his mind and /or there was no satisfaction with regard to escapement of income. Reason to believe would mean cause of justification, if the AO has casue or justification to know or suppose that income had escaped assessment. Prima facie material available with AO was sufficient to form a reason to believe that income chargeable to tax as escape assessment. The AO also referred the decision of Gujarat High Court in Priya Blue Industries (P) Ltd. vs ACIT (2021) 130 taxmann.com 492 (Gujarat) wherein reliance was made on the decision of Apex Court in Raymond Woolen Mills Ltd. Vs ITO (1999) 236 ITR 34 (SC) wherein it was held that at the time of recording the reason for satisfaction of AO, there should be prima facie material on the basis of which, the department could reopen the case. Sufficiency or correctness of material is not a thing to be considered at this stage. It will be open to assessee to prove that all the assumptions of fact made in the notice was erroneous at the time of assessment proceeding. On merit, the ld. CIT(A) held that assessee has not discharged his primary onus of proving the genuineness of sale of shares to the satisfaction of assessing officer despite allowing full opportunity to the assessee. On the allegation of assessee that he is victim of misuse of his bank account and Demat account, the ld. CIT(A) held that no complaint had been filed by the assessee either before or police or competent authority for alleging misuse. The transaction of more than Rs. 9.00 crore has been executed through his account, still the assessee has not taken any action against such person. The ld. CIT(A) also held that even if it is accepted that assessee was under the influence (pressure) of Bhupesh Rathod and Naresh Jain, still the assessee has not explained as to why he has not disclosed full facts cooperating with the department or furnishing name and address during the assessment proceeding. The assessee himself admitted the signature over the cheque book and demant account slips to third party. Such deliberate facilitation of financial instrument suggests wilful negligence or conscious involvement of assessee. Further aggrieved, the assessee has filed the present appeal before the Tribunal. 6. We have heard the submissions of the learned authorised representative (Ld.AR) of the assessee and the learned senior departmental representative (Sr DR). The ld AR of the assessee submits that assessee is salaried employee and working on a sarees shop as a salesman for on a monthly salary of Rs.15,000/-. No return of income was filed for the year, as income was less than the maximum income, not chargeable to tax. The case of the appellant was re-opened under section 147 of the Act. The case of assessee were reopened on recording reasons twice as recorded by AO before issuance of re-assessment notice under section 148 dated 16-03-2019. The first reason was recorded on 06-03-2019, copy of which is filed at page no.1 of paper-book and the second reason was recorded on 12-03-2019, copy of which is at page No. 3 of paper- book. Both the reasons are identical except for the companies/scrips where investment was alleged. The first reason recorded was regarding the scrip namely Nivyah Infrastructure & Telecom Services Ltd and the second was one was regarding scrip- Gemstone Investments Limited. The first ground before this Tribunal is for challenging the re- assessment under section 147 of the Act, on the ground that the same has been made on the basis of suspicion and is completely based on the Investigation Wing Report received from DDIT(Inv.) without any independent application of mind or arriving at any nexus that the income had escaped assessment. The rationale for challenging the re- assessment under section 147 are that firstly both the reasons recorded clearly allege that the assessee had invested in the scrip to claim exemption under section 10(38) of the penny scrips companies. Factually, the assessee had never filed any return of income and never claimed exemption under section 10(38). Secondly, the reasons recorded clearly mention that the same are based on suspicion as mentioned in para 5 of both the reasons recorded. Thirdly, both the reasons recorded shows that the assessee is a beneficiary of the transaction, whereas the assessee is a conduit and had allowed the agent Mr. Bhupendra Rathod, to use his bank account and open Demat account in his name. The AO ought to have known that before the reasons recorded, if he would have not relied blindly on the investigation wing report, which was generic for all the parties in whose name the scrips were invested. Fourthly, there are several decisions wherein it has been held that re-opening cannot be based on suspicion or roving/fishing enquiries. To support his view, the ld AR relied on the decision of Bombay High Court in Shodiman Investments (P) Ltd. (93 taxmann.com 153) (Bom). 7. The ld AR of the assessee submits that second ground of appeal relates to not allowing an opportunity to cross-examine the main entry operator. Before ld CIT(A) the appellant contended that he did not know Mr. Naresh Jain personally, however, knew that he is the main operator and wanted to cross examine him and the other agents, so that he can prove that he was not the end beneficiary but had just lent his name for earning a sum of Rs.2,500/- per month. The lower authorities have not allowed cross-examination of Naresh Jain. The assessee had also requested for the investigation report which was relied upon by the AO while re-opening the matter, the statements recorded of parties which were used against him. However, no such reports or statements were provided to the appellant. The complete findings of investigation wing and the extracts of statements of Bhupendra Rathod, Rakesh Shah and Hemant Sheth were first time reproduced in the assessment order itself. The appellant contended that an opportunity to cross-examine is a natural and constitutional right of every assessee and not affording the same is against the principles of natural justice. To support her submissions, the ld AR relied on the decisions of the Apex Court in case of Andaman Timber Industries v/s. Central Excise, Kolkata (62 taxmann.com 3) and Kishinchand Chellaram v/s. CIT (4 Taxman 29) and Bombay High Court in case of H.R.Mehta vs. ACIT (72 taxmann.com 110). The AO in the assessment order at para 10 of the assessment order clearly mentioned that the addition is made based on the findings of search/survey, inquiries conducted in the case of brokers, intermediaries, entry and exit providers and on the basis of SEBI and NSE findings in such cases.

On the merits of the case, the ld AR of the assessee submits that the AO has not carried out any investigation about assessee for dealing in the four scrips namely; Scan Steels Ltd, Diamond Infrastructure Ltd, Nivyah Infrastructure Ltd and Gemstone Investment Ltd on the sale of which addition has been made by the AO. The assessee in his statement recorded before the Income tax Officer in 2017 with respect to some other penny scrip, has admitted in response to questions that all investments in his bank accounts were made by Bhupesh Rathod. The assessee used to sign blank cheques of Axis Bank account and give Bhupesh Rathod to get Rs.2500/- per month. Bhupesh Rathod was the agent to whom the assessee had lent his bank account and Demat account. The assessee does not have any documents or information of Demat account or any such trades done under his name. The only thing which he obtained from the bank is Bank Account statement. The bank statement is filed at page nos. 26 to 38 of paper- book. As can be seen from the bank statement, all the transactions are circular in nature, immediately when the account gets credited, there is a corresponding debit entry, and the sum is withdrawn. There is only one entry in name of Animesh Patel, where a cheque of Rs.4,000/- was given to him every month. He used to encashed Rs.4,000/-, retain Rs. 2500/- per month and give remaining Rs.1500/- to Bhupesh Rathod back. There were SEBI investigation conducted at the instance of assessee in some other scrip, where the assessee had accepted the same fact before the SEBI Adjudicating Officer and Security Appellate Tribunal (SAT) authorities that he is just a conduit and not the actual beneficiary of the transactions undertaken in his name. Copy of order is placed on record at page no. 57 to 103 of paper book. The relevant findings of the SEBI adjudicating authority order is filed at page nos.93 to 101 of the paper- book, and findings of the SAT are at page no.53 of the paper-book. In assessee’s own case for AY: 2015-16 with respect to some other scrips and same facts pattern, the AO has added 0.1% of the entire sales value as commission copy of which is filed at Page 104 to 118 of the paper-book. The assessee has filed an appeal against this order, which is pending before the CIT(A). The assessee was neither an agent nor a beneficiary and therefore the entire amount of sale value of the transaction done under his name cannot be added to his income as unexplained income. The assessee is a person of small means and is already penalised by SEBI authorities for letting someone use his bank account. Since SEBI has investigated and then accepted him as conduit, there is no question of treating him as a beneficiary under the Income Tax provisions. Further, it is also submitted that the AO is not denying the fact that the appellant is a dummy account holder, but he has made additions only on the reason that the appellant has not filed FIR with Police against these parties. No FIR was filed, as the assessee himself a party to this transaction by wrongfully allowing for lending his bank account and therefore was himself scared to file an official complaint.