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Facts
The assessee, engaged in brokerage, had his case reopened under Section 147 for A.Y. 2016-17 due to an alleged unexplained investment of Rs. 11,27,450/-. The Assessing Officer added this amount under Section 69B, asserting the assessee failed to prove that the share purchases were on behalf of clients. The Ld. CIT(A) upheld the addition, citing lack of documentary evidence and non-compliance by the assessee during proceedings.
Held
The Tribunal held that the revenue authorities failed to bring cogent evidence to demonstrate that the impugned funds actually belonged to the assessee. The findings of the lower authorities were based merely on assumptions and without corroborative material on record. Consequently, the addition made by the Assessing Officer under Section 69B of the Act was deleted.
Key Issues
Whether the addition for unexplained investment under Section 69B was justified when the assessee claimed shares were purchased on behalf of clients; and whether the revenue authorities provided sufficient evidence to link funds to the assessee.
Sections Cited
143(3), 148, 147, 144B, 142(1), 131(1A), 69B
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-Ms SUCHITRA KAMBLE
O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, vide order dated 20.05.2023 relevant to the Assessment Year 2016-17. 2. The assessee has raised the following grounds of appeal:
The Learned Assessing Officer ("Ld. AO") and the Learned Commissioner of Income Tax (Appeals) ["Ld. CIT(A)"] grossly erred in overlooking fundamental aspects and precedents established in the Appellant's own case. It is submitted that, for Assessment Year (AY) 2015-16, under identical facts and circumstances involving similar allegations of suspicious share sale transactions and alleged Asst. Year : 2016-17 - 2– penny stock activities, the Appellant's case was subjected to complete scrutiny under Section 143(3) of the Income Tax Act, 1961 ("the Act"), wherein a NII, assessment order was passed.
The authorities below failed to appreciate that for AY 2015-16, upon reopening the assessment under Section 148 based on information received from the CRIU/VRU database, the revenue authorities subsequently accepted the Appellant's explanation and consequently affirmed the NIL assessment order under Sections 147 read with 144B of the Act. Thus, having conclusively accepted the explanation and substantiation provided by the Appellant for substantial investments amounting to Rs. 6.42 crores, the reopening and subsequent addition in respect of the significantly smaller sum of Rs. 11,27,450/- for the immediately subsequent AY (AY 2016-17) is manifestly arbitrary, inconsistent, and unjustified. 3. The Ld. AO erred in passing a vague, cryptic, and unreasoned order while reopening the assessment under Section 148 of the Act. Such an order, lacking proper justification, reasoning, or identification of the materials relied upon for reopening, is violative of established judicial precedents and principles of natural justice. Consequently, the impugned order deserves to be set aside. 4. It is submitted that despite specific requests made by the Appellant for disclosure of the material or evidence allegedly discovered against him and relied upon for reopening the assessment, the L.d. AO has neither supplied such material nor enumerated the same in the impugned order. This constitutes a serious breach of principles of natural justice and denial of a fair and reasonable opportunity to the Appellant to adequately respond to the allegations made against him. 5. The Appellant further submits that the Ld. AO has inconsistently and arbitrarily accepted a similar explanation provided by the Appellant's son for identical allegations and for the same assessment year. This selective approach of the Ld. AO without coherent reasoning demonstrates a prejudiced approach, thereby vitiating the entire proceeding and rendering the addition unsustainable in law. 6. The Ld. CIT(A) erred in mechanically confirming the arbitrary action of the Ld. AO without independently examining the merits, reasons, or the substantial submissions presented by the Appellant. Such mechanical affirmation without independent reasoning violates judicial norms established through various precedents. 7. The impugned addition made by the Ld. AO is solely based on surmises, conjectures, and suspicion, and is devoid of any tangible, credible, or cogent evidence supporting the allegation of unexplained investment. Consequently, the same is liable to be deleted. 8. It is further submitted that no incriminating material or specific information implicating the Appellant in any wrongful or suspicious transaction was found or established by the Ld. AO, thus rendering the reopening as well as the resultant addition unlawful, unjustified, and without jurisdiction. Asst. Year : 2016-17 - 3– The Appellant respectfully craves leave of this Hon'ble Tribunal to rely upon such other additional grounds, judicial precedents, and legal arguments as may be necessary during the course of hearing, and to further add, alter, or amend the Grounds of Appeal
in the interest of substantial justice.
3. The brief facts case is that assessee and his whole family is having main business of earning brokerage income. The assesee on behalf of their clients do purchase shares in their name for the sole intention of earning brokerage and they transfer or sale the same shares as when they were informed by their clients. Hence the fact is that the assessee was holding shares of his clients for the sole purpose of earning brokerage. The asessee is advising his clients regarding which share to buy and what to sell and by that he was earning tips income. The assessee filed return of income declaring income of Rs. 3,93,640/- for A.Y. 2016-17 оn 15.09.2016. Subsequently the case was reopened u/s 147 of the Act for the reason that appellant had made an unexplained investment of Rs. 11,27,450/-. Since the assessee remained non-compliant during the assessment proceedings, the Assessing Officer completed the assessment after making addition of Rs. 11,27,450/- u/s. 69B of the Act, totalling to Rs. 15,21,090/- as income of the assessee.
4. Aggrieved against the Assessment Order, the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal of the assessee by observing as follows:
“…The appellant has contended that the large share purchases were made "on behalf of his clients" and that he was merely acting as a 'broker. However, in support of such a claim (ie., that the funds do not belong to him but to third parties) the appellant must produce credible documentary evidence, including:
1. 1. Names and confirmations of the alleged clients for whom purchases were made. Asst. Year : 2016-17 - 4– 2. Proof of each client's financial capacity and bank statements tracing their funds into the trades, 3. Contracts or brokerage agreements showing an agency relationship with those clients.
4. Evidence of income earned by way of brokerage f brokerage commissions, reflected in the profit-and-loss account or returns, 5. Appropriate statutory registrations (if any) that authorize dealing in securities on behalf of third parties. Despite repeated opportunities including notices under section 142(1) and summonses under section 131(1A) there is no verifiable documentation on record showing that these were genuine trades on behalf of other individuals or that the share-purchase monies truly belonged to third parties, SEBI's alert that certain scrips may have been used to layer unexplained income or coordinate trades is an important factor. Such flagged transactions often referred to as "penny stock or circular trading-create a higher onus on the assessee to prove genuine ownership and source of funds. The impugned assessment order and the Investigations Wing's report both reveal repeated non-compliance by the appellant in responding to notices. Even during reopened assessment proceedings, no meaningful details such as names/addresses of alleged clients, details of on-sale or instructions from clients, or confirmations from those clients have been furnished. Merely stating that 'I am a broker and this year's facts are the same as earlier would not discharge the statutory burden of proof. Further, the record does not contain verifiable share ledgers, contract notes, or commission receipts that would clarify how the transactions were truly undertaken for third parties and not for personal investment. Without such evidence, the default presumption is that the appellant is the actual owner and that he has funded these share investments. Another argument raised by the appellant is that 'similar' facts in other assessment years (including those of the appellant's son) has led to either no additions or reopened assessments resulting in a 'nil' demand. However, it is a well-settled principle under Income tax law that each assessment year is an independent proceeding and that the principle of res judicata does not apply. An acceptance of transactions in one year does not bind the Assessing Officer or the Department in a subsequent (or prior) year. The appellant cannot rely solely on how other, or prior-year assessments were concluded to escape scrutiny during the impugned assessment year. The appeal is dismissed…”
5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
We have carefully considered the rival submissions and perused the material available on record. It is evident from the facts that the Asst. Year : 2016-17 - 5– Revenue authorities have not brought any cogent evidence to demonstrate that the impugned funds actually belonged to the assessee. The findings of the lower authorities are based merely on assumptions and without any corroborative material on record. Considering the overall facts and circumstances of the case, and in the absence of any contrary evidence produced by the Department, we are of the considered view that the addition made by the Assessing Officer under Section 69B of the Act deserves to be deleted.
In the result, the appeal of the assessee is allowed.