GANESH CHHGANLAL JAIN,MUMBAI vs. CIT (A), NFAC, DELHI

PER OM PRAKASH KANT, AM

Ganesh C. Jain 2 ITA No. 2101/M/2022

1. Addition of Rs.2,10,483 by disallowing the Short Addition of Rs.2,10,483 by disallowing the Short Addition of Rs.2,10,483 by disallowing the Short-term capital gain on sale of scrip gain on sale of scrip - Learned First Appellate Authority (FAA) Learned First Appellate Authority (FAA) [erred in upholding [erred in upholding the addition of accounted income (i.e. short the addition of accounted income (i.e. short- term capital gain of Rs.2,10,483) by the assessing officer based term capital gain of Rs.2,10,483) by the assessing officer based term capital gain of Rs.2,10,483) by the assessing officer based on the information received from the Investigation office rather on the information received from the Investigation office rather on the information received from the Investigation office rather relying into the merits of the case. The Appellant craves leave to relying into the merits of the case. The Appellant craves leave to relying into the merits of the case. The Appellant craves leave to add, alter or add, alter or amend all or any of the above Grounds of Appeal

. amend all or any of the above Grounds of Appeal.

2. Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed return of income on 31.07.2012 return of income on 31.07.2012 declaring total income of declaring total income of ₹48,80,170/-. The total income declared by the assessee included . The total income declared by the assessee included . The total income declared by the assessee included salary of ₹43,29,600/ 43,29,600/- speculation loss and (-)₹1,43,497/ 1,43,497/-) income from business or profession from business or profession (Nil); short term capital gain ( short term capital gain (-) ₹6,97,248/- and income from other sources and income from other sources ₹6,65,570/ 6,65,570/-. In this manner, the assessee has set off the short term capital loss against manner, the assessee has set off the short term capital loss against manner, the assessee has set off the short term capital loss against the income under other heads and arrived at total income of ncome under other heads and arrived at total income of ncome under other heads and arrived at total income of ₹48,80,170/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was processed u/s 143(1) of the Income processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’). Subsequently, on receipt of information from the Directorate Act’). Subsequently, on receipt of information from the Directorate Act’). Subsequently, on receipt of information from the Directorate of Investigation, Mumbai that assessee is a beneficiary of bogus tigation, Mumbai that assessee is a beneficiary of bogus tigation, Mumbai that assessee is a beneficiary of bogus Ganesh C. Jain 3 ITA No. 2101/M/2022 entries of long term capital gain/ tries of long term capital gain/short term capital loss short term capital loss particularly of entries in the penny stock of entries in the penny stock; M/s VMS Industries Ltd. and therefore, ; M/s VMS Industries Ltd. and therefore, the Assessing Officer reopened the assessment by way of is the Assessing Officer reopened the assessment by way of is the Assessing Officer reopened the assessment by way of issue of notice u/s 148 of the Act dated 30.03.2019. The Assessing Officer notice u/s 148 of the Act dated 30.03.2019. The Assessing Officer notice u/s 148 of the Act dated 30.03.2019. The Assessing Officer held that assessee has set off its taxable income against the bogus held that assessee has set off its taxable income against the bogus held that assessee has set off its taxable income against the bogus short term capital loss generated on sale of scrip namely M/s VMS short term capital loss generated on sale of scrip namely M/s VMS short term capital loss generated on sale of scrip namely M/s VMS Industries Ltd. which is Ltd. which is a device of tax evasion. . The Assessing Officer pointed out that during the search action at t Officer pointed out that during the search action at t Officer pointed out that during the search action at the premises of Shri Naresh Jain, he e admitted that he was engaged in providing that he was engaged in providing bogus long term capital gain to bogus long term capital gain to one set of taxpayers and corresponding short term/long term capital lo corresponding short term/long term capital loss was ss was provided to other set of taxpayer taxpayer, which included the assessee. After detailed which included the assessee. After detailed finding, the Ld. Assessing Officer held that the short term capital loss finding, the Ld. Assessing Officer held that the short term capital loss finding, the Ld. Assessing Officer held that the short term capital loss as unaccounted income of the assessee observing as under : as unaccounted income of the assessee observing as under : as unaccounted income of the assessee observing as under :

“4.5 The essence of the scheme was to include The essence of the scheme was to include a transaction designed a transaction designed to produce a gain to be claimed us 10(38) or loss under the head 'STCL' to produce a gain to be claimed us 10(38) or loss under the head 'STCL' to produce a gain to be claimed us 10(38) or loss under the head 'STCL' or Business Loss. At the same time another transaction was designed to or Business Loss. At the same time another transaction was designed to or Business Loss. At the same time another transaction was designed to Ganesh C. Jain 4 ITA No. 2101/M/2022 produce almost matching gains which was not chargeable to tax. These produce almost matching gains which was not chargeable to tax. These produce almost matching gains which was not chargeable to tax. These two separate transac two separate transactions were self-concealing. Thus, the following concealing. Thus, the following conclusions emerge. conclusions emerge. i. The scheme is a pure tax avoidance scheme without any The scheme is a pure tax avoidance scheme without any commercial justification in so far as the making of a commercial justification in so far as the making of a profit is concerned. ii. The transactions are self-concealing and are designed to concealing and are designed to make neither a gain nor a loss. The tax payers would have The tax payers would have entered into the scheme only with a view to have gain and entered into the scheme only with a view to have gain and that too to claim the same as exempt uls 10(38) of the that too to claim the same as exempt uls 10(38) of the Act. iii. These transactions have no commercial purpose apart These transactions have no commercial purpose apart from the avoidance of tax liab from the avoidance of tax liability. 4.6 In view of the above discussion, the aforesaid Short Term Capital In view of the above discussion, the aforesaid Short Term Capital In view of the above discussion, the aforesaid Short Term Capital Loss of Rs. 2, 10,483/ Loss of Rs. 2, 10,483/- is held to be nothing but unaccounted income is held to be nothing but unaccounted income kept away from the incidence of tax. The same is hereby treated as kept away from the incidence of tax. The same is hereby treated as kept away from the incidence of tax. The same is hereby treated as unaccounted income chargeable to tax in the unaccounted income chargeable to tax in the hands of assessee hands of assessee- company for the year under consideration and accordingly to brought company for the year under consideration and accordingly to brought company for the year under consideration and accordingly to brought to tax.”

Ganesh C. Jain 5 “6.1 The appellant's case was processed u/s 143(1). Subsequently, the The appellant's case was processed u/s 143(1). Subsequently, the The appellant's case was processed u/s 143(1). Subsequently, the AO re-opened the assessment based on inputs given by the Investigation opened the assessment based on inputs given by the Investigation opened the assessment based on inputs given by the Investigation Wing. Mumbai. Relevant extracts of AO's order for re Mumbai. Relevant extracts of AO's order for re Mumbai. Relevant extracts of AO's order for re-opening are reproduced below: reproduced below:-

"In this case. the assessee has filed return of income for A. Y. this case. the assessee has filed return of income for A. Y. this case. the assessee has filed return of income for A. Y. 2012-13 on 31.07.2012 13 on 31.07.2012 declaring total income at Rs. 48,80,170/. declaring total income at Rs. 48,80,170/. Subsequently, intimation has been received in th Subsequently, intimation has been received in this case from the is case from the Directorate of Investigation, Mumbai, whereby it is intimated Directorate of Investigation, Mumbai, whereby it is intimated Directorate of Investigation, Mumbai, whereby it is intimated that a search and seizure operation was carried out on many that a search and seizure operation was carried out on many that a search and seizure operation was carried out on many entry and hawala operators at various locations across the entry and hawala operators at various locations across the entry and hawala operators at various locations across the country. During the course of search operation, it was found that country. During the course of search operation, it was fou country. During the course of search operation, it was fou these entry providers were involved in providing entries of bogus these entry providers were involved in providing entries of bogus these entry providers were involved in providing entries of bogus long term capital gains, bogus short term capital loss and bogus long term capital gains, bogus short term capital loss and bogus long term capital gains, bogus short term capital loss and bogus business loss through manipulation of stock prices of various business loss through manipulation of stock prices of various business loss through manipulation of stock prices of various scrips on the stock exchanges. The beneficiaries who have availed scrips on the stock exchanges. The beneficiaries who ha scrips on the stock exchanges. The beneficiaries who ha bogus entries of LTCG/STCL entries in the penny stock : M/s. VMS bogus entries of LTCG/STCL entries in the penny stock : M/s. VMS bogus entries of LTCG/STCL entries in the penny stock : M/s. VMS Industries Ltd., have been identified and the relevant information Industries Ltd., have been identified and the relevant information Industries Ltd., have been identified and the relevant information was disseminated. The assessee, Shri GANESH CHHAGANLAL was disseminated. The assessee, Shri GANESH CHHAGANLAL was disseminated. The assessee, Shri GANESH CHHAGANLAL JAIN, is also found to have made fraudulent transactions to the JAIN, is also found to have made fraudulent transactions t JAIN, is also found to have made fraudulent transactions t tune of Rs.2,62,054/ tune of Rs.2,62,054/- during F.Y. 2011-12 in the aforesaid penny 12 in the aforesaid penny scrip: VMS Industries Ltd. Since there was a reason to believe scrip: VMS Industries Ltd. Since there was a reason to believe scrip: VMS Industries Ltd. Since there was a reason to believe that substantial income has assessment, the case was re-opened that substantial income has assessment, the case was re that substantial income has assessment, the case was re after obtaining due administrative approval and a notice us. 148 after obtaining due administrative approval and a notice us after obtaining due administrative approval and a notice us of the IT. Act dated 30.03.2019 was issued to the assessee. of the IT. Act dated 30.03.2019 was issued to the assessee. of the IT. Act dated 30.03.2019 was issued to the assessee.

6.2 The appellant is essentially questioning the re The appellant is essentially questioning the re-opening based on opening based on the information received from the Directorate of Investigation, Mumbai. the information received from the Directorate of Investigation, Mumbai. the information received from the Directorate of Investigation, Mumbai. Various judicial forums have held that re Various judicial forums have held that re-opening opening based on Investigation Wing information without independent application of Investigation Wing information without independent application of Investigation Wing information without independent application of Ganesh C. Jain 6 mind by AO is invalid. In the following decisions it was held that in case mind by AO is invalid. In the following decisions it was held that in case mind by AO is invalid. In the following decisions it was held that in case incorrect, wrong and non incorrect, wrong and non-existing reasons are recorded by the AO for existing reasons are recorded by the AO for re-opening of assessment and that AO opening of assessment and that AO failed to verify the information failed to verify the information received from Investigation Wing, the re received from Investigation Wing, the re-opening would be unjustified opening would be unjustified and therefore liable to be quashed. and therefore liable to be quashed. a) Siemens Information System Ltd. Vs ACIT 293 ITR 548 a) Siemens Information System Ltd. Vs ACIT 293 ITR 548 a) Siemens Information System Ltd. Vs ACIT 293 ITR 548 (Bombay H.C.) (Bombay H.C.) b) Shamshad Khan Vs ACIT 395 ITR 265 (Delhi HC) b) Shamshad Khan Vs ACIT 395 ITR 265 (Delhi HC) b) Shamshad Khan Vs ACIT 395 ITR 265 (Delhi HC) c) Pr. CCIT Vs SNG Developers Ltd 404 ITR 312 (Delhi HC) CCIT Vs SNG Developers Ltd 404 ITR 312 (Delhi HC) CCIT Vs SNG Developers Ltd 404 ITR 312 (Delhi HC)

6.3 In this case of Pr CIT Vs Manzil Dinesh Kumar Shah, Hon'ble In this case of Pr CIT Vs Manzil Dinesh Kumar Shah, Hon'ble In this case of Pr CIT Vs Manzil Dinesh Kumar Shah, Hon'ble Gujarat High Court has held that where the original assessment was Gujarat High Court has held that where the original assessment was Gujarat High Court has held that where the original assessment was made without scrutiny, the requirement of the Assessing Officer made without scrutiny, the requirement of the Assessing Officer made without scrutiny, the requirement of the Assessing Officer forming the belief that income chargeable to tax has escaped assessment, would the belief that income chargeable to tax has escaped assessment, would the belief that income chargeable to tax has escaped assessment, would apply.

6.4 Taking into consideration the ratio decidandi in the cases cited Taking into consideration the ratio decidandi in the cases cited Taking into consideration the ratio decidandi in the cases cited supra, and looking into the factual background in which the A.O. acted, supra, and looking into the factual background in which the A.O. acted, supra, and looking into the factual background in which the A.O. acted, it is held that the A.O. proc it is held that the A.O. proceeded on the right lines. AO's action cannot be eeded on the right lines. AO's action cannot be faulted as he has formed a belief that income chargeable to tax had faulted as he has formed a belief that income chargeable to tax had faulted as he has formed a belief that income chargeable to tax had escaped assessment. It is also not a case where AO has recorded escaped assessment. It is also not a case where AO has recorded escaped assessment. It is also not a case where AO has recorded incorrect, wrong or non incorrect, wrong or non-existent reasons for reopening the assessment. existent reasons for reopening the assessment. Therefore, this ground questioning the basis of reopening on the basis of fore, this ground questioning the basis of reopening on the basis of fore, this ground questioning the basis of reopening on the basis of Investigation Wing information is dismissed. It follows therefore that Investigation Wing information is dismissed. It follows therefore that Investigation Wing information is dismissed. It follows therefore that the addition of Rs.2,10,483/ the addition of Rs.2,10,483/- held by the AO to be unaccounted income held by the AO to be unaccounted income was on the right lines. was on the right lines.”

Ganesh C. Jain 7 ITA No. 2101/M/2022

5.1 In view of the above f In view of the above facts, we feel it appropriate to acts, we feel it appropriate to restore the issue of adjudication on merit to the file of the Ld. CIT(A) with the adjudication on merit to the file of the Ld. CIT(A) with the adjudication on merit to the file of the Ld. CIT(A) with the direction to pass a speaking and reasoned order. It is needless to direction to pass a speaking and reasoned order. It is needless to direction to pass a speaking and reasoned order. It is needless to mention that the assessee shall be afforded adequate opportunity mention that the assessee shall be afforded adequate opportunity mention that the assessee shall be afforded adequate opportunity had been heard. The ground eard. The ground raised by the assessee raised by the assessee is accordingly allowed for statistical purposes. allowed for statistical purposes.

Ganesh C. Jain 8 ITA No. 2101/M/2022