INCOME TAX OFFICER WARD-3(3)(2), AHMEDABAD, AHMEDABAD vs. KAPIL ARUN AGRAWAL, AHMEDABAD

The brief facts of the case are that the Assessing Officer (AO) received information from the Insight Portal that a search and survey action was conducted on a syndicate of persons led by one Shri Naresh Jain by the Investigation Wing on 19/03/2019. During the search action, it was found that Shri Naresh Jain was indulged in share price rigging of the shares of the various companies and thereby facilitating bogus Long Term Capital Gains/Losses in several scrips to various parties. The following penny stocks were found of which share prices were rigged: 1. VMS Industries Ltd 2. Aditya Consumer Marketing Limited (ACML) 3. Steel Exchange Limited 4. Scan Steels Limited 5. Nyssa Corporation Ltd 6. Divine Multimedia India Ltd / Kaleidoscopic Films Ltd ITO vs. Kapil Arun Agrawal Asst. Year : 2015-16

Being aggrieved by the said order of the AO, the assessee preferred appeal before the Ld.CIT(A).

The Ld.CIT(A), however, deleted the additions so made by the AO observing that the the reasons mentioned by the Ao on the basis of which he formed the belief that the income of the assessee has escaped assessment stating that the assessee had obtained bogus accommodation entry of Rs.70,28,400/- were factually incorrect. Further that, even the assessee had not shown any LTCG by trading in this scrip of M/s.Oasis Tradelink Ltd., rather, the assessee had incurred Short Term Capital Loss of Rs.92,040/-. Therefore, there was no justification on the part of the AO to make any addition in respect of transaction entered into by the assessee on sale of shares of M/s.Oasis Tradelink Ltd. He, further, observed that since the very issue upon which the assessment was reopened, had not culminated into an any addition, therefore, the subsequent addition in respect of transactions relating to sale of shares of Indusind Bank Ltd. was not sustainable. He, in this respect, relied upon the decision of Hon’ble Mumbai High Court in the case of “CIT vs. Jet Airways (I) Ltd.” reported in (2010) 195 Taxman 117, and further on the decision of the Hon’ble Delhi High Court in the case of “CIT vs. Adhunik Niryat Ispat Ltd.” reported in (2011) 63 DTR 0212 (Delhi HC). ITO vs. Kapil Arun Agrawal Asst. Year : 2015-16

Being aggrieved by the said order of the Ld.CIT(A), the Revenue is in appeal before us.

We have heard the rival contentions of the parties and gone through the record. We find no infirmity in the order of the Ld.CIT(A). In this case, firstly, the reopening of the assessment was bad in law. The only information mentioned in the reasons recorded for assessment, the copy of which has been placed at page No.21 of the paper-book was that the AO had information that the assessee was beneficiary of accommodation entry of Rs.70,28,400/- from the companies managed and controlled by Shri Naresh Jain. However, it has not been mentioned in the reasons recorded as to what was the nature of transaction, from which company managed and controlled by Shri Naresh Jain the assessee had obtained the accommodation entry and in what manner. The information available to the AO on Insight Portal was general and vague information. The AO did not correlate the said information with the accounts of the assessee. Even the said information on the basis of which the assessment was reopened, was found factually incorrect.

As noted above, the Assessing Officer, in this case, has reopened the assessment solely on the basis of the general and vague information available on the insight portal of the department without verifying the veracity and truthfulness of such information. Hon’ble Supreme Court in the case of “Dr. Jagmittar Sain Bhagat & Ors vs Dir. Health Services, Haryana” in Civil Appeal No.5476 of 2013 decided on July 11, 2013, while relying upon another ITO vs. Kapil Arun Agrawal Asst. Year : 2015-16 decision of the Hon’ble Supreme Court in the case of “Sushil Kumar Mehta v. Gobind Ram Bohra” (1990) 1 SCC 193 and further placing reliance on the other decisions of the Hon’ble Supreme Court in the cases of “Premier Automobiles Ltd. v. K.S. Wadke & Ors.”, (1976) 1 SCC 496; “Kiran Singh v. Chaman Paswan”, AIR 1954 SC 340; and “Chandrika Misir & Anr. v. Bhaiyalal”, AIR 1973 SC 2391 has observed that where a statute places obligation and enforces the performance in specified manner, performance cannot be forced in any other manner. Under the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that such reasons to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied ITO vs. Kapil Arun Agrawal Asst. Year : 2015-16 does not exist or is not material or relevant to the belief required by the section. Such an action of the Assessing Officer regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is open to challenge in a court of law. The entire law as to what would constitute "reason to believe" has been summed up by the Hon’ble Supreme Court in the case of “Income Tax Officer vs. Lakhmani Mewaldas” (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs. Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein, making identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s. 148 of the Act was not valid. In view of this, the reopening of the assessment in this case was bad in law.

Moreover, the assessee has not shown any capital gains earned from the scrip of shares of Oasis Tradelink Ltd. The assessee in this case had shown STCL of Rs.92,040/-,therefore, the impugned addition of Rs.74,67,960/- in respect of transaction relating to shares of M/s.Oasis Ltd. was not justified in any manner. So far as the LTCGs for trading in the share of Indusindu Bank Ltd. is concerned, the name of said scrip even has not been mentioned in the list of companies, as reproduced above which were allegedly managed by Shri Naresh Jain. Neither there was any allegation nor any evidence found that there was any price rigging relating to shares of Indusind bank Ltd. The AO made the impugned addition merely on assumption and presumption basis without any corroborating evidence that the share price of the said company was also rigged and that the assessee was indulged in obtaining any bogus LTCG as alleged. Moreover, the Ld.CIT(A) ITO vs. Kapil Arun Agrawal Asst. Year : 2015-16 has rightly applied the ratio of laid down by the Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (supra). We, therefore, do not find any infirmity in the order of the ld.CIT(A) and the same is hereby upheld.