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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI NARENDRA KUMAR BILLAIYA, HONBLE
ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nI.T.A. No. 2048 & 2049/Mum/2024 are two separate appeals\npreferred against two separate orders of the NFAC, Delhi, dated\n12/03/2024 pertaining to AYs 2013-14 & 2014-15.\n2.\nSince common issues are raised in these appeals, they were heard\ntogether and are disposed off by this common order for the sake of\nconvenience and brevity.\n3.\nVide Ground No. 1, the assessee has challenged the assumption\nof jurisdiction by the AO in reopening the assessment u/s 147 of the\nAct. It is the claim of the assessee that the assumption of jurisdiction is\nbad in law as the conditions laid down for initiating reassessment\nproceedings u/s 147 of the Act have not been fulfilled. With other\ngrounds, the assessee has challenged the addition on merits of the case.\n2\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 2048 & 2049/Mum/2024\nSince the challenge to the assumption of jurisdiction goes to the root of\nthe matter, we adjudicate it first.\n4.\nRepresentatives of both the sides were heard at length, case\nrecords carefully perused and the relevant documentary evidence\nbrought on record, duly considered in the light of Rule 18(6) of the ITAT\nRules, 1963.\n5.\nBriefly stated, the facts of the case are that vide notice dated\n31/03/2021 issued u/s 148 of the Act, the AO assumed jurisdiction for\ninitiating reassessment proceedings within the meaning of Section 147\nof the Act. The reasons recorded for reopening of assessment is identical\nin both the years and for AY 2013-14, it reads as under:-\nTo,\nGOVERNMENT OF INDIA\nMINISTRY OF FINANCE\nINCOME TAX DEPARTMENT\nOFFICE OF THE INCOME TAX OFFICER\nWARD 12(2)(1), MUMBAI/\nGRACEUNITED DEVELOPERS PRIVATE\nLIMITED FLAT NO. 704 BUILDING NO. 13A\nSIDDHARTH NAGAR, KHATAU MILL\nCOMPOUND WE HIGHWAY, BORIVALI\nPAN:\nDIN & Notice No:\n Assessment Year:\nITBA/AST/F/143(2)_4/2021-\nAACCG6261E\n2013-14\n22/1033738764(1)\nDated: 28/06/2021\nNotice under section 143(2) read with section 147 of the Income-tax Act, 1961 ('Act')\nThank you for filing your return of income for Assessment Year 2013-14 in response to\nnotice under section 148 of the Act, vide Ack. no. 345386641270421 on 27/04/2021.\n2.\nWhile acknowledging the care and diligence you have taken in preparing the return, there\nare certain issues as mentioned below which need further clarification:-\nIssues as per reasons recorded for reopening\n/s. GRACEUNITED DEVELOPERS PRIVATE LIMITED\nPAN: AACCG6261E FOR A.Y 2013-14;\nREASONS FOR REOPENING\n1. Brief details of the assessee\nThe assessee M/s. Graceunited Developers Private Limited PAN: AACCG6261E is a company having\naddress at Flat No. 704, Building No. 13A, Siddharth Nagar, Khatau Mill, Compound, We Highway,\nBorivali, Mumbai-66. The assessee has filed its return of income for A.Y. 2013-14 on 27.09.2013\ndeclaring total income of Rs.27,267/-.\n1. Brief Details of Information Collected/received by the AO:\nIn this case information has been received through insight from Deputy Director of Income\nUnit-7(1) & 7(3), Mumbai that a search and survey action was conducted on a syndicate of persons\nled by Shri Naresh Jain & associates. During the course of search and seizure action, several\nincriminating documents, communications and digital data has been found, which led to unearth\nthe operations of the syndicate, establishing clearly the modus operand! of providing Bogus Long\nTerm Capital Gain (LTCG)/Loss and rigging the price of various scrips on stock exchange for\nproviding Bogus Long Term Capital Gain (LTCG)/Loss.\nShri Naresh Jain was discovered to be operating with his several associates to rig the stock market\nand to provide accommodation entries (in the form of bogus LTCG, bogus short term loss/gain) to\nvarious beneficiaries who intended to bring their unaccounted income into their books of account\nwithout paying taxes. Cash was deposited in various Dummy bank accounts and then layered\nthrough several pass - through bank accounts and then would reach the bank accounts linked to\ndummy trading accounts.\nShri Naresh Jain operating as the lynchpin of the syndicate had been instrumental in manipulating\nthe prices of several penny stocks scrips on the stock exchange including the following, which were\nspecifically analyzed in the run-up to the search action. The details of the penny stocks are as\nunder:-\n1. VMS Industries Ltd.\n2.\nAditya consumer Marketing Limited (ACML)\n3.\nSteel Exchange Limited\n4.\nScan Steels Limited\n5.\nNyssa Corporation Ltd.\n6.\nDiving Multimedia India Ltd ./Kaleidoscopic Films Ltd.\n7.\nShantanu Sheoray Aquakult ltd/52 Weeks\n8.\nAagam Capital Ltd. (Old Name: Shubhkam Capital Ltd.\n9.\nOasis Tradelink Ltd.\n10.\nMonotype India Ltd.\n11.\nDiamant Infrastructure Ltd.\n12.\nRiddhi Steel & Tube Limited.\nOne of the beneficiaries who take accommodation entry/ies (in the form bogus LTCG, bogus short\nterm loss/gain) from is as under:\nSr. No.\nName of the Beneficiary\n1\nGraceunited Developers Private Limited\nA.Y.\n2013-14\nAmount (In Rs.)\n3,11,11,713/-\nOn verification of information it is seen that M/s. Graceunited Developers Private Limited\nPAN: AACCG6261E brings unaccounted Income into its books of account without paying taxes\nthrough accommodation entry in form of bogus long term capital gain or bogus short term capital gain\nform penny stock scrips.\n4.\nFinding of the AO:-\nFrom the information provided to this office, it is seen that M/s. Graceunited Developers Private\nLimited has received accommodation entry (in form of bogus Long Term Capital Gain/Loss or bogus\nshort term loss/gain) of Rs.3,11,11,713/- from penny stock scrips. I have gone through the assessment\nrecords, profit & Loss accounts and Balance sheet it was found that this transactions has not been\naccounted for and not disclosed in return of income. Based on the information provided to this office\nand as per the analysis of information as stated above, it is seen that there is escapement of income\nresulting in underassessment.\n1.\nBasis of forming reason to believe and details of escarpment of Income:\nOn the basis of the aforesaid details and analysis of information (para 2&3) and the consequent\nfinding (para 4) stated above and after duly applying my mind I have reasons to believe that the assessee\nhas not disclose fully and truly all material facts in the return of income. Therefore, I have reason to\nbelieve that income chargeable to tax exceeding above 1 lakh has escaped assessment within the meaning\nof section 147 of the IT Act 1961.\nIn view of the “Taxation and other laws" (Relaxation of certain provisions) ordinance 2020\nand notification no. 35/2020 dated 24.06.2020, the applicability of provisions of sub-section (1) of\nsection 151 of I. T. Act, 1961 stands extended from 31.03.2020 to 31.03.2021.\n1.\nApplicability of the Provisions of section 147/151 of the facts of the case:\nIn this case since ROI was filed for relevant A.Y.- 2013-14 and No regular assessment u/s\n143(3) was made, the provision of clause (b) of Explanation 2 to "Section 147 are applicable and the\n assessment year under consideration is deemed to be a case where income chargeable tax has escaped\nassessment is more than four years have elapsed from the end of assessment year under consideration.\nHence, necessary sanction to issue notice u/s 148 is sought as per the provision of section 151(1) of the\nIncome Tax Act, 1961.\n3.\nIn view of the above, you may submit your response with supporting documents (if any) on\nthe above mentioned issues to undersigned electronically in 'E-proceedings' facility through your\naccount in e-Filling website(www.incometaxindiaefiling.gov.in) at your convenience on or before\n13/07/2021\n4.\nIn course of assessment proceedings, if required specific questionnaire(s) or requisition(s) for\ninformation/document may be issued subsequently\n5.\nA brief note on E- Proceeding is enclosed for your kind reference. In case you require any\nassistance in filing your response, you may contact toll free Call Centre number 1800 103 4215\nEnclosure: As above.\"\n6.\nWe have carefully perused the aforementioned reasons recorded\nfor reopening the assessment. We find that the very basis of reopening\nthe assessment is based on erroneous facts. Firstly, the assessee has\nnowhere claimed any long term capital gains/loss in the alleged penny\nstocks and secondly, the list of the penny stocks mentioned in the\nreasons, the assessee has not done any transactions in those stocks and\nmost importantly, the claim of the AO that no regular assessment u/s\n143(3) of the Act was made is factually incorrect. The original\nassessment for AY 2013-14 was framed u/s 143(3) of the Act vide order\ndated 28/01/2016 and for AY 2014-15 vide order dated 26/12/2016.\n5\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 2048 & 2049/Mum/2024\nBoth the assessment orders are on record.\n7.\nNotice u/s 148 of the Act has been issued after four years and,\ntherefore, first proviso to Section 147 of the Act squarely applies, which\nreads as under:-\n“Income escaping assessment.\n147. If the Assessing Officer has reason to believe that any income chargeable\nto tax has escaped assessment for any assessment year, he may, subject to the\nprovisions of sections 148 to 153, assess or reassess such income and also any\nother income chargeable to tax which has escaped assessment and which\ncomes to his notice subsequently in the course of the proceedings under this\nsection, or recompute the loss or the depreciation allowance or any other\nallowance, as the case may be, for the assessment year concerned (hereafter in\nthis section and in sections 148 to 153 referred to as the relevant assessment\nyear) :\nProvided that where an assessment under sub-section (3) of section\n143 or this section has been made for the relevant assessment year, no\naction shall be taken under this section after the expiry of four years\nfrom the end of the relevant assessment year, unless any income\nchargeable to tax has escaped assessment for such assessment year by\nreason of the failure on the part of the assessee to make a return under\nsection 139 or in response to a notice issued under sub-section (1) of\nsection 142 or section 148 or to disclose fully and truly all material\nfacts necessary for his assessment, for that assessment year:\nExplanation 1.—Production before the Assessing Officer of account\nbooks or other evidence from which material evidence could with due\ndiligence have been discovered by the Assessing Officer will not\nnecessarily amount to disclosure within the meaning of the foregoing\nproviso.\"\n[emphasis supplied]\n8.\nDuring the course of original assessment proceedings, specific\nqueries were raised vide annexure to notice u/s 142(1) of the Act to\nwhich specific reply was filed vide letter dated 26/11/2015 in which the\nassessee has categorically mentioned that no exempt income was\nclaimed during the year and furnished scrip-wise details of sale and\npurchase along with quantitative details.\n8.
A perusal of the profit and loss account show that the assessee has\nshown revenue from operations which includes sale of shares. Nowhere\nthe assessee has shown or claimed long term capital gain or has claimed\nset off of any loss from alleged long term capital gain/loss and rigging\nof the price of various scrips of stock exchange by the syndicate of\npersons engaged in providing bogus long term capital gain/loss to the\nbeneficiaries. The assessee has raised specific objections challenging the\nreopening of assessment and in its objections, the assessee has brought\nto the notice of the AO that it is incorrect to say that no scrutiny\nassessment was made for the assessment years under consideration as\nthis assertion is blatantly incorrect and far from the true facts as\nmentioned hereinabove, scrutiny assessment was made u/s 143(3) of\nthe Act. Therefore, application of clause (b) to Explanation (2) of Section\n147 of the Act is not applicable on the facts mentioned hereinabove.\n8.
As mentioned above, first proviso to Section 147 of the Act,\nsquarely applies and there is not even a whisper of failure on the part\nof the assessee to disclose fully and truly, all material facts for\nassessment as the audited statement of accounts show the nature of\nbusiness of the assessee which is trading in shares and the financial\ndetails furnished show the opening stock of these scrips purchased\nduring the year as well as closing stock of the scrip at the end of the\nyear. In the return of income, nowhere the assessee has claimed any\nincome exempt from tax suggesting the claim of bogus long term capital\ngain.\n7\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nΙ.Τ.Α. No. 2048 & 2049/Mum/2024\n9.\nOn similar situation, the Hon'ble High Court of Bombay in the\ncase of TAO Publishing (P.) Ltd. vs. DCIT [2015] 370 ITR 135 (Bombay) has\ninteralia held as under:-\n“10. As stated above, the reasons supplied to the Petitioner do not disclose that there\nwas any failure on the part of the Petitioner to provide all the material facts. That\nbeing the position, this ground could not have been taken up against the Petitioner\nat the time of disposing of the objections. Once this was not the basis for issuance of\nnotice for Reassessment, it cannot be held against the Petitioner that the Petitioner\nhad failed to make a true and full disclosure. It will have to be held that the Petitioner\ndid not fail to make full and true disclosure of all material facts. The jurisdictional\nrequirement for carrying out the reassessment, after the expiry of period of four years,\nis not fulfilled in the present case.\n11. The learned counsel for the Petitioner also submitted that, in fact, there was no\nfailure to disclose all material facts as the Respondent No.1 had specifically sought\ndetails as regard the relevant expenditure and which were furnished. He relied upon\nthe decision of the Apex Court in the case of Gemini Leather Stores v. ITO [1975]\n100 ITR 1, to contend that the duty of the assessee was to place on record all the\nprimary facts and drawing of inference from the primary facts is upto the Assessing\nOfficer. However, this issue need not be gone into in depth any further, as the\nPetitioner is entitled to succeed on the first ground mentioned above.\n12. In the circumstances, the Petitioner is entitled to the reliefs prayed for in the\nPetition. It will have to be held that the Respondent No.1 had no jurisdiction to\nproceed with the impugned reassessment proceedings.\"\n10. Similarly, in the case of Sound Casting (P) Ltd. vs. DCIT [2012] 250\nCTR 119 (Bombay), the Hon'ble High Court of Bombay held as under:-\n“Held that the reopening of the assessment had admittedly taken place beyond a\nperiod of four years from the end of the relevant assessment year. There was no\nallegation in the reasons which had been disclosed to the assessee that there was any\nfailure on his part to fully and truly disclosed material facts necessary for assessment\nfor relevant assessment year. Hence, the jurisdictional condition for reopening the\nassessment beyond a period of four years had not been fulfilled. Even during the\ncourse of hearing, it had not been the submission of the revenue that there was any\nsuppression of material facts on the part of the assessee. Therefore, the impugned\nnotice was to be set aside.\"\n11. In another case of First Source Solutions Ltd. vs. ACIT in [2021] 438\nITR 139 (Bombay), the Hon'ble Jurisdictional High Court, held as under:-\n“11. Therefore, when the assessment is sought to be reopened after the expiry of\nperiod of four years from the end of the relevant year, the proviso to section 147\nstipulates a requirement that there must be a failure on the part of the assessee to\ndisclose fully and truly all material facts necessary for his assessment for that year.\nThis stipulation does not govern a notice for reopening within a period of four years.\nIn the case at hand, as noted earlier, there is not even a whisper about what fact was\nnot disclosed. In our view, therefore, the notice to reopen under section 148 of the\nSaid Act itself was issued without jurisdiction. Consequently, the order passed also\ncannot be sustained.\"\n12.\nConsidering the facts of the case in totality in the light of the\njudicial decision discussed hereinabove, we have no hesitation in\nsetting aside the impugned notice u/s 148 of the Act and the resultant\nassessment order framed u/s 147 of the Act is hereby quashed. Since we\nhave quashed the assessment order, we do not find it necessary to delve\ninto the merits of the case.\n13. In the result, both the appeals by the assessee are allowed.\nOrder pronounced in the Court on 12th March, 2025 at Mumbai.\nSd/-\n(SAKTIJIT DEY)\nVICE-PRESIDENT\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 12/03/2025\n*SC SPS\nआदेश की प्रतिलिपि अग्रेषित/