SURENDRA GARG HUF ,MUMBAI vs. ITO- 19(3)(4), MUMBAI

The re-opening of the assessment of the appellant by the issue of notice under section 148 without satisfying the juri ictional conditions precedent to assuming juri iction under section 147 is without juri iction and bad-in-law and consequently, any assessment made on the basis of the notice which is bad-in-law may kindly be annulled.

On the facts and in law, the Learned Commissioner (Appeals) had erred in confirming the addition of Rs.59,24,273/- being the sale proceeds of shares by treating the same as unexplained cash credit under section 68 of the I.T.Act. Under the facts and circumstances of the matter, he ought not to have confirmed the said addition of Rs.59,24,273/-."

The notice u/s.148 of the Act is bad in law as the reopening is pursuant to the search of third party, and therefore the provisions of section 153C of the Act ought to have been invoked."

On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: "xx XX"

As per Section 153C(1) of the Act, the assumption of juri iction by the Assessing Officer to assess/reassess total income of the ‘Other Person' is predicated on (a) First the Assessing Officer of the searched person being satisfied that material unearthed during the search proceedings belongs/pertains to `Other Person (and not to the searched person); (b) Second - recording of such satisfaction to the aforesaid effect by the Assessing Officer of the searched person; (c) Third - transmitting of such material along with the satisfaction recorded as aforesaid by the Assessing Officer of the searched person to the Assessing Officer of such Other Person; (d) Fourth the Assessing Officer of Other Person being satisfied that the material received has a bearing on the determination of the total income of such Other Person; and, (e) Fifth the Assessing Officer of such Other Person issuing a notice to commence assessment/reassessment. It is settled position that in case any one or more of the aforesaid events/conditions are not fulfilled, the assumption of juri iction by the Assessing Officer of the Other Person under Section 153C of the Act shall stand vitiated. Bare perusal of Section 153C of the Act make it is clear that the Assessing Officer of the Other Person comes into action only after satisfaction note and the material unearthed during the course of searched in received from the Assessing Officer of the searched person.

In the present case it is the contention of the Assessee is that the reassessment proceedings were initiated solely on the basis of incriminating material found during the course of the search conducted in the case of KGN Group of Companies and therefore, the Assessing Officer should have exercise juri iction under Section 153C of the Act in the case of the Assessee. It was submitted by the Learned Authorised Representative for the Assessee that during the search proceedings in the case of KGN Group of Companies incriminating material was found in respect of the Assessee and therefore, the Assessing Officer was mandated to initiated proceedings under Section 153C of the Act and precluded from initiating proceedings under Section 147 of the Act. The aforesaid contention has been raised by the Assessee for the first time before this Tribunal by way of an additional ground. It was submitted by the Learned Authorised Representative for the Assessee that the additional ground raised by the Assessee was a pure question of law and therefore, the same can be admitted and adjudicated by this Tribunal even though it has been raised for the first time as additional ground before this Tribunal. On a without prejudice basis, it was also contended that even if the aforesaid additional ground is not considered to be a pure question of law, the facts relevant for adjudication of the issue raised therein formed part of the assessment records and should be called for and taken into consideration by this Tribunal. Therefore, the issue that assessed for consideration is whether in the facts and circumstances of the present case the additional ground raised by the Assessee can be regarded as a pure question of law. In this regard, it would be pertinent to note that appeal before us pertains to an HUF Assessee. According to the Revenue reassessment proceedings were initiated on the basis of information received from Deputy Commissioner of Income Tax (Investigation Wing), Ahmadabad to the effect that KGN Group of Companies was engaged in providing bogus Long Term Capital Gain accommodation entries and that during relevant previous year the Assessee was one of the beneficiary of such accommodation entries. It is admitted position that the Assessee had claimed Long Term Capital Gain Exemption in the return of income for the Assessment Year 2012-2013 and 2013-2014 in respect of sale of shares of KGN Enterprises. Therefore, the material on record shows that the Assessing Officer had assumed Juri iction under Section 147 of the Act and had framed assessment vide Assessment Order, dated 29/12/2017, passed under Section 143(3) read with Section 147 of the Act. The reasons recorded for reopening assessment provide that reassessment proceedings were on the basis of information received from Deputy Commissioner of Income Tax (Investigation Wing), Ahmadabad. It is not the case where the assessing officer of the searched person (i.e. KGN Enterprises) had handed over the incriminating material unearthed during the course of search to the Assessing Officer of the Assessee. There is nothing on record to suggest that any satisfaction note was drawn by the Assessing Officer of the searched person to the effect that any incriminating material found during the course of search pertained/related to the Assessee. On the contrary, it has been contended by the Revenue that no such satisfaction note was drawn. As noted hereinabove, the juri iction of the Assessing Officer to assess/reassess income under Section 153C of the Act is predicated upon the Assessing Officer of the search person being satisfied that incriminating material found during the course of search belonged/pertained to Other Person (i.e. Assessee in the present case). For assumption of juri iction under Section 153C of the Act by the Assessing Officer of the Assessee it was required that the Assessing Officer of the searched person (i.e. KGN Group of Companies) should have transmitted the satisfaction so recorded alongwith incriminating material found that during the course of search to the Assessing Officer of the Assessee. It is only after the receipt of the same, that the Assessing Officer of the Assessee could have proceeded to take any steps in terms of Section 153C of the Act to draw satisfaction that the material received had a bearing on determination of total income of the Assessee in the present case. It would be pertinent to note that the Hon'ble Supreme Court has, in the case of Commissioner of Income-tax Vs. Jasjit Singh [2023] 155 taxmann.com 155 (SC), held that the Assessing Officer of Other Person would have juri iction to frame assessment under Section 153C read with Section 153A of the Act in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the incriminating material is received by the Assessing Officer of Other Person from the assessing officer of the searched person. In the case before us, neither a satisfaction note has been drawn by the assessing officer of the searched person nor has any material been handed over to the Assessing Officer of the Assessee. Therefore, the scheme contained in Section 153C of the Act would become unworkable in case present case and accepting submission made on behalf of the assessee would lead to absurdity. While it has been contended by the Learned Authorized Representative for the Assessee that in the present case provision of Section 153C of the Act would be attracted, there is nothing on record to support the aforesaid contention raised by the Learned Authorized Representative for the Assessee. The aforesaid submissions are premised upon the fact that in the reasons recorded for reopening the assessment reference has been made in the search carried out in the case of KGN Group of Companies. It has been contended that the reasons recorded are founded on the material found during the course of search. In this regard, we deem it appropriate to revert to the judgment of Hon'ble Supreme Court of India in the case of Abhisar Buildwell Private Ltd. (Supra) where clearly a distinction was drawn in case of incriminating material found during the course of search and `other material' that came to the knowledge in the position of Assessing Officer. The contention of the Assessee is that the basis of initiating reassessment proceedings is the incriminating material found during search. This has been disputed by the Revenue. To answer this disputed question of fact, the Tribunal would be required to inquire into whether all the material on the basis of which reasons were recorded for reopening assessment constituted incriminating material found during the course of search conducted in the case of KGN Group of Companies or whether the same fell into the category of `other material' or information gathered by the Revenue in post-search proceedings. In our view the aforesaid issue can, at best, be regarded as mixed question of fact & law requiring examination of facts. Thus, clearly, in the present case the additional ground raised by the Assessee does not simply raise a pure question of law as was contended by the Learned Authorized Representative for Assessee. Further, the incriminating material found during the course search in the case of KGN Group of Companies as also the other material would form part of assessment records of the searched person and not the Assessee. Material on record clearly shows that reassessment proceedings were initiated on the basis of report of investigation wing whether such report was accompanied only incriminating material pertaining to the Assessee unearthed during the search carried out on KGN Group of Companies would require examination of assessment records of searched persons as well as that of the Assessee. Therefore, we reject the contention of the Assessee that facts relating for adjudication of the additional ground raised by the Assessee form part of the material on record. We are of the view, in order to answer the disputed question of fact & law raised by the Assessee by way of additional ground, this Tribunal would be required to inquire into new facts and material not forming part of record of the present Assessee. Therefore, we hold that the additional ground raised by the Assessee cannot be regarded as a pure question of law in the facts and circumstances of the present case and the same would require examination of facts which do not form part of the record. Accordingly, the additional ground raised by the Assessee for the first time before this Tribunal cannot be admitted as hereby rejected.

During the course of hearing extensive reliance was placed by the Learned Authorized Representative for the Assessee on the judgment of the Hon'ble High Court of Rajasthan in the case of Shyam Sunder Khandelwal & Ors. (Supra). On perusal of the said judgment, we find that the same is not applicable to the facts of the present case. In that case the Revenue had not even set up a case that reassessment proceedings were based upon material other than incriminating material found during the course search and this has been so recorded by the Hon'ble High Court in Paragraph 29 of the said judgement which reads as under:

KGN Enterprises Ltd. 44200 1,87,66,525

In a case where pursuant to search conducted under Section 132 of the Act or requisition made under Section 132A of the Act in respect of another person (searched person), assets, documents or books of account, which either belong to the assessee or contain information pertaining to the said assessee, are found. And, the same are handed over to the AO of the assessee; he would subject to satisfaction of the other juri ictional conditions stipulated under Section 153C of the Act, having the juri iction to make a reassessment/assessment of the income of the assessee under Section 153C of the Act. However, the same does not mean that he is bound to exercise the said juri iction. In the " (Emphasis Supplied)

The non obstante clause as used in Section 153C of the Act cannot be read to completely exclude the provisions of Sections 143 or 147 of the Act in cases where the assessee's income is sought to be assessed inter alia on the basis of the information found during search proceedings. However, it will not be open for the AO to take recourse to Section 147 of the Act, where the AO has taken steps under Section 153C of the Act. Thus, if the conditions for exercise of juri iction under Section 153C of the Act are satisfied and the AO issues a notice as required under Section 153C of the Act, any reassessment under Section 147 of the Act would obviously, be impermissible. This is because the Act does not contemplate parallel assessment proceedings. Where the AO is satisfied that the assets, material and documents forwarded by the AO of the searched person under Section 153C of the Act has a bearing on determination of the income of the assessee for any of the years, the AO shall proceed to issue a notice under Section 153C of the Act. By virtue of non obstante clause, the AO is not required to follow the procedural rigours of Section 148 of the Act. Subject to obtaining the approval under Section 153D of the Act, if necessary, the AO is not required to seek any approval from the specified authority, as required under Section 148/151 of the Act for issuing a notice under Section 153C of the Act and can proceed to assess / reassess income for the concerned assessment years.

However, if the AO does not take recourse to Section 153C of the Act but proceeds under Section 147 of the Act he would necessarily have to follow the due procedure as specified for initiating such proceedings.

The assumption that provisions of Section 153C of the Act precludes any proceeding under Section 147 of the Act by virtue of the non obstante clause, is unpersuasive. The scheme of Sections 153C of the Act indicates that the said provision was enacted to simplify the procedure, while maintaining the necessary safeguards, for assessment / reassessment in cases where assets belonging to the assessee or books of account or documents, which contain information pertaining to the assessee are found pursuant to a search conducted under Section 132 of the Act or requisition made under Section 132A of the Act, in respect of a person other than the assessee. This is subject to the same having a bearing on the determination of income of the assessee. The AO is neither require to record reasons for his belief that the income of the assessee for the concerned assessment year has escaped assessment nor does he require to seek further approvals as required under Section 148 of the Act. However, he must be satisfied that the assets seized or requisitioned or the documents, books of account or other material transmitted by the AO of the searched person belongs to or contains information, which has a bearing on the determination of the income of the assessee. The reassessment must be predicated on material held to be incriminating and the income assessed / reassessed must be relatable to the material found as held by this Court in Kabul Chawla and affirmed by the Supreme Court in Abhisar Buildwell (P) Ltd. (supra).

In the facts of the present case, the Revenue disputes that a satisfaction note by the AO of the searched person (Jain Brothers) was forwarded to the AO of the Assessee along with the requisite documents. Thus, in the facts of the present case, the juri ictional conditions to initiate further steps under Section 153C of the Act were not satisfied. However, the AO had received certain information from the AO. A report was also received from the Investigation Wing, Mumbai regarding the Assessee purchasing units of a penny stock during the financial year 2010-11. Based on the aforesaid information, including the information received from the Investigation Wing, Mumbai, the AO issued a notice dated 23.08.2018 under Section 148 of the Act. Admittedly, there is nothing on record to indicate that the AO of the searched person had recorded a satisfaction note and transmitted the relevant material containing information regarding the Assessee to the AO. There is also no material that the AO had on receipt of the said information issued a notice under Section 153C of the Act. Thus, in fact the AO did not assume juri iction under Section 153C of the Act. Absent assumption of any juri iction, the question of Sections 147, 148 and 149 of the Act being overridden by virtue of the non obstante clause of Section 153C of the Act, does not arise. The said clause would be operative only if the AO had in fact assumed juri iction under Section 153C of the Act. In that eventuality, recourse to the provisions as named in the opening sentence of Sections 139, 147, 149, 151 and 153 of the Act would be ousted." (Emphasis Supplied)

In our view, given the parity in facts, the above judgment is applicable to the present case. We note that in the present case the relevant conditions precedent for invoking provisions contained in Section 153C of the Act were not satisfied. It is not the case of the Assessee that the Assessing Officer had taken recourse to Section 153C of the Act and despite having done the same, proceeded to initiate reassessment proceedings under Section 147 of the Act in the case of the Assessee. It is admitted position that no satisfaction note was prepared and/or forwarded by the Assessing Officer of the searched person to the Assessing Officer of the Assessee. Therefore, the Assessing Officer could not have taken recourse to the provisions contained in Section 153C of the Act.

In view of the above and taking into consideration the material on record, we reject the contention of contention of the Assessee that the Assessing Officer was precluded from initiating reassessment proceedings under Section 147 of the Act in the facts and circumstances of the present case.

Thus, in view of paragraph 4.1 to 4.15 above, the Additional Ground raised by the Assessee is dismissed.

Before parting, we note that there is neither any material on record to suggest nor has there been any allegation that assessing officer of the searched person or Other Person had acted in any malafide or arbitrary manner. The Assessee contended that the proceedings should have been under Section 153C instead of Section 147 of the Act. In our view accepting the aforesaid contention advanced in behalf of the Assessee would amount to substitution of opinion of appellate authority in place of opinion of the Assessing Officer of the Assessee but also the opinion of Assessing Officer of the searched persons (to not prepare the aforesaid satisfaction note) and that too without examining the relevant material which does not form part of the record. Therefore, for this reason also the contention raised by the Assessee cannot be accepted.

We are also of the view that the Assessing Officer had sufficient fresh tangible material to form a belief that income liable to tax had escaped assessment. The report of the Investigation Wing, coupled with the material gathered by way of verification/inquiry carried out by the Assessing Officer constituted sufficient tangible material to initiate reassessment proceedings in the case of the Assessee. In the present case the return of income was filed by the Assessee for the Assessment Year 2012-2013 was processed under Section 143(1) of the Act and no scrutiny assessment was framed on the Assessee under Section 143(3) of the Act. Therefore, it was irrelevant whether the income has escaped assessment on account of failure on the part of the Assessee to disclose the true and complete facts. During the course of hearing it was contended on behalf of the Assessee that the Assessing Officer had incorrectly stated in the reasons recorded that that Assessee had sold 44200 shares for INR.1,87,66,525/- whereas the Assessee had actually sold 10,050 shares for consideration of INR.59,24,273/- during the Financial Year 2011-2012 (relevant to Assessment Year 2012- 2013), while the balance 35,150 shares were sold during the Financial Year 2012-2013 (relevant to Assessment Year 2013- 2014). It was contended on behalf of the Assessee that this reason alone reassessment proceedings were bad in law. We are not inclined to accept the aforesaid submission advanced on behalf of the Assessee. Given the facts and circumstances of the present case, we are of the view that the aforesaid mismatch pointed out by the Learned Authorized Representative for the Assessee, cannot be the sole basis to hold that the Assessing Officer had proceeded to initiated reassessment proceedings on incorrect understanding of facts. We note that the Assessing Officer had identified the Assessee as a beneficiary of accommodation entries taken by the Assessee in respect of sale of 44200 shares of KGN Enterprises. Admittedly, in aggregate 44,200 share of KGN Enterprises were sold by the Assessee during the previous year(s) relevant to Assessment Years 2012-2013 and 2013-2014. In the present case the case of the Assessee for the relevant assessment year(s) was not taken up for regular scrutiny and the return was processed under Section 143(1) of the Act. The reasons recorded clearly stated that the Assessing Officer had reasons to belief that income chargeable to tax had escaped assessment as the Assessee had failed to make true and complete disclosure of the material facts. It is settled that at the stage of issuing a notice under Section 148 of the Act, the Assessing Officer need not establish the escapement with certainty; the Assessing Officer is required to form a prima facie belief that income chargeable to tax had escaped assessment. In Income Tax Officer Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. [291 ITR 500], the Supreme Court explained that the reasons to believe is different from conclusive proof. In Raymond Woollen Mills Ltd. Vs. ITO [236 ITR 34 (SC)], the Court observed that the adequecy or correctness of the material is not to be investigate at the notice stage; what is required is some material that makes the Assessing Officer's belief not a mere guesswork. Here, in the present case the Assessing Officer had formed the belief that income chargeable to tax had escaped assessment on the basis of fresh tangible material. It is admitted position that the Assessee had claimed long term capital gains exemption under Section 10(38) of the Act in respect of sale of shares of KGN Enterprises, a script in relation to which adverse findings were recorded in the report of the Investigations Wing as well as the orders passed by SEBI which prima facie showed that the trades undertaken in the said script were pre-arranged transactions undertaken to take advantage of provision of Section 10(38) of the Act. In view of the aforesaid, we do not find any merit in the contention advanced on behalf of the Assessee in relation to Ground No.1 and therefore, the same is dismissed.

We would now take up Ground No.2 raised by the Assessee challenging the addition of INR.59,24,273/- made under Section 68 of the Act.

The facts relevant for adjudication of this ground are that the Assessee, a Hindu undivided family, filed return of income for the Assessment Year 2012-13 on 17/07/2012 declaring total income of INR.8,04,805/- after claiming long term capital gains exemption of INR.59,21,761/- under Section 10(38) of the Act in respect of sale of shares of KGN Enterprises. The return of income was processed under Section 143(1) without scrutiny. Subsequent, information was received from the Directorate of Income Tax (Investigation), Ahmadabad that during a search on the KGN Group on 23/01/2015, it was uncovered that certain companies (including KGN Enterprises) were being used to provide bogus long term capital gains entries to beneficiaries in order to evade taxes. It was discovered that the Assessee was one of the beneficiaries of such transaction having claimed long term capital gains exemption as aforesaid. Acting on the said information, the Assessing Officer recorded reasons to believe that income chargeable to tax had escaped assessment for the Assessment Year 2012-2013. After obtaining approval from the competent authority, the Assessing Officer issued a notice under Section 148 on 31/03/2018, initiating re-assessment proceedings. In response, vide Letter dated 03/04/2017, the Assessee submitted that the return of income filed on 01/04/2017 be treated as return of income filed in response to the notice under Section 148 of the Act. Thereafter, the Assessee filed response/submission giving details of the transactions. On perusal of the same, the Assessing Officer noted that the Assessee had sold shares of KGN Enterprises and earned long term capital gain of INR.59,21,761/- which was claimed exempt under Section 10(38) of the Act. Whereas as per the information received from the Deputy Director of Income Tax (Investigation), Ahmedabad data obtained from various sources was verified and analysed by the Assessing Officer to arrive at a conclusion that exempt long term capital gain of INR.59,21,761/- was disclosed by the Assessee in the return of income for the Assessment Year 2012-2013, by undertaking the purchase and sale of shares of KGN Enterprises in a pre-arranged manner. The Assessing Officer noted that the Assessee had mainly traded in single script (i.e. KGN Enterprises). The Investigation carried out by Deputy Director of Income Tax (Investigation), Ahmedabad in the case of KGN Enterprises (enclosed as Annexure 'A' to the Assessment Order), showed that the price of the aforesaid script was manipulated during the concerned period and the shares were traded at a price much higher than the actual price of shares. The said company was dysfunctional and its registered office was closed. Considering the overall facts, summons under Section 131 of the Act were issued on 08/12/2017 to record the statement of the Assessee. The Assessee complied with and his statement was recorded. Thereafter, a show-cause notice, dated 18/12/2017, was issued to the Assessee, requiring the Assessee to show cause as to why exemption claimed under Section 10(38) of the Act should not be rejected and why the sale proceeds should not be treated as unexplained cash credit under Section 68 of the Act. In response to the aforesaid notice, the Assessee filed Reply on 22/12/2017, submitting that the Assessee has purchased 10,050 shares of KGN Enterprises Ltd. at INR.2,512/- and the same for INR.59,24,273/- during the relevant previous year. The long term capital gain of INR.59,21,761/- earned by the Assessee was claimed to be exempt under Section 10(38) of the Act. The sale of 44,200 shares for consideration of INR.1,87,66,525/- stated in the reasons recorded for re-opening the assessment was factually incorrect. The shares were purchased in off market transaction by making payment by account payee cheque, subsequently the said shares were dematerialized, and sold through recognized stock exchange, and sale consideration was received through banking channel. Therefore, the transaction cannot be regarded as non-genuine. However, the Assessing Officer was not convinced and therefore, proceeded to disallow the capital gains exemption of INR.59,21,761/- claimed by the Assessee.

Being aggrieved, the Assessee carried the issue in appeal before the Tribunal challenging the addition on merits. However, the CIT(A) agreed with the Assessing Officer and declined to grant any relief in relation to addition of INR.59,21,761/- made by the Assessing Officer holding the same to be as unexplained cash credit under Section 68 of the Act and disallowing of long term capital gains exemption claimed by the Assessee under Section 10(38) of the Act.

Being aggrieved, the Assessee has carried out in appeal before the Tribunal by way of Ground No. 2 raised in the present appeal.

We have given thoughtful consideration to the rival submissions.

The Assessee has set up a case that the transactions of purchase and sale entered into by the Assessee in respect of shares of KGN Enterprises were genuine and in support the Assessee has relied upon following documents/details:

We do not find merit in the above submission advanced on behalf of the Assessee in view of the reasons set out hereinafter.

It is admitted positions that the Assessee has undertaken purchase and sale of shares of KGN Enterprises Ltd. According to the Assessee the shares of KGN Enterprises were purchased in off market transactions on 11/04/2009 through stock broker Manoj Securities. On perusal of material on record, we find that the Assessee has placed on record only a Confirmation, Letter dated 11/04/2009, which reads as under:

During the course of hearing it was contended on behalf of the Assessee that the Assessing Officer had not doubted the purchase and had made the additions by merely doubting the sale transactions. We do not find merit in the aforesaid contentions advanced on behalf of the Assessee since the Assessing Officer had recorded that the transactions of purchase and sale of shares by the Assessee was a pre-determined transaction undertaken to take benefit of the long term capital gain exemption available under Section 10(38) of the Act.

It is admitted position that 96000 shares of KGN Enterprises Ltd. were dematerialized and credited to the D-mat Account of the Assessee on 31/03/2011. During the Assessment Year 2012-2013 Assessee had sold 10,500 equity shares for a consideration of INR.59,24,273/-. Thus, the Assessee had sold share of KGN Enterprises Ltd. at the selling price of INR.564.20 per share as against the purchase price of INR.0.25 per share and had claimed Long Term Capital Gains exemption of INR.59,21,761/- under Section 10(38) of the Act in respect of sale of 10500 equity shares of KGN Enterprises Ltd. for the Assessment Year 2012-2013. The contention of the Assessee is that the transactions of sale of shares of KGN Enterprises are genuine transactions and in support of the same the Assessee has placed reliance upon copy of Demat Account, bank statement and contract notes issued by the share broker. On perusal of the contract notes placed at Page No.7 to 10 of the Paper Book, We find that around 25 trades were executed on behalf of the Assessee between 12/01/2012 and 19/12/2012. On perusal of the aforesaid trades we find that the maximum difference between 'Order Time' and 'Trade Time' for 25 trades was less than 60 seconds with most of trades having been executed between 0 to 15 seconds. Thus, there was virtually no time difference between the 'Order Time' and `Trade Time'. This clearly supports the contention of the Revenue that the trades were executed in a pre- arranged manner.

We note that the Assessing Officer had enclosed with the Assessment Order, a copy of Report received from the Investigation Wing. On perusal of the same we find that the Investigation Wing had carried out thorough investigation into the affairs of the KGN Enterprises and had discovered that KGN Enterprise was operationally dysfunctional, its registered office was closed, the details of shareholder was not credible and the shares were being traded at BSE an artificially inflated price. In this regard, the Investigation Wing has placed reliance upon the findings in search and survey actions carried out in the case of various groups involved in concerted action. The Investigation Wing had also taken cognizance of the orders passed by the Securities & Exchange Board of India indicting parties named therein of concerted market action and manipulating market price of shares of KGN Enterprises. The aforesaid clearly showed that during the relevant period the trades undertaken in the shares of KGN Enterprises were at a price manipulated by the parties identified by Investigation Wing and Securities and Exchange Board of India (SEBI). Therefore, the contention of the Assessee that the Assessing Officer made the additions under Section 68 of the Act by merely relying upon the high share price at which the shares of KGN Enterprises were sold by the Assessee is factually incorrect.

During the course of hearing, it was contended on behalf of the Assessee that the Assessee was not confronted with the material gathered by the Assessing Officer during the assessment proceedings and that the Assessee was not granted opportunity to cross-examine the third parties whose statements were recorded by the Investigation Wing. In this regard, we note that the Assessing Officer had relied upon the report of the Investigation Wing and order passed by SEBI, both of which are available on the in public domain. We find that the Assessing Officer had also annexed with the Assessment Order, a copy of the Investigation Wing Report, and therefore, the Assessee had the opportunity to deal with the same to during the appellate proceeding before the CIT(A). As regards opportunity of cross-examination of the persons whose statements were recorded by the Investigation Wing is concerned, we find that the denial of the same has not resulted in any prejudice to the Assessee as the findings returned by the Assessing Officer and the CIT(A) are not solely based upon such statements. In our view, even if the statements are not taken into consideration, the Assessee would be in the same position since the Assessee had failed to discharge the onus cast upon by Section 68 of the Act to provide explanation regarding the nature and source of credit. Further, the Assessing Officer had carried out independent enquiry and verification. In this regard we find that the Assessing Officer had relied upon the data gathered from the BSE regarding the trades under consideration and the exit providers¹. On perusal of Assessment Order, we find that the Assessee was not confronted with the aforesaid data or information on which reliance was placed by the Assessing Officer. Therefore, only to this extent we find merit in the contention advanced on behalf the Assessee that the Assessee was not confronted with the aforesaid material/data relied upon by the Assessing Officer. We also mind merit in the contention advanced by the Learned Authorised Representative for the Assessee that that while confirming the additions made by the Assessing Officer, the CIT(A) had incorrectly placed reliance upon the findings/discussion in the report of the Investigation Wing in relation to KGN Industries Limited, the other entity of KGN Group engaged in manufacturing and supply of castor oil derivatives 2 which are not relevant to the facts of the present case.

We have hereinabove (in Paragraph 6.7 to 6.12) identified various infirmities in the documentary evidence furnished by the Assessee to arrive at the conclusion that the even by filing the documents/details forming part of the record, the Assessee has failed to discharge the onus case upon the Assessee under Section 68 of the Act. At the same time was have also noted in paragraph 6.13 above that some of the material/data relied upon by the Assessing Officer was not put to the Assessee. Therefore, keeping in view the overall facts and circumstances of the present case, we deem the opportunity to the Assessee to place on record the complete bank statement to establish that the consideration for acquiring shares of KGN Enterprises was made through the banking channel as well as to bring on record relevant material to discharge the onus cast under Section 68 of the Act and to meet the infirmities pointed out by this Tribunal hereinabove in Paragraph 6.7 to 6.12 above failing which the Assessee would be at liberty to drawn adverse inference against the Assessee. At the same time the Assessing Officer is also directed to confront the Assessee with the relevant data gathered from BSE and relied upon during the assessment proceedings, including the names of the exit providers and copy of orders passed by SEBI. It is clarified that the Assessing Officer would be at liberty to carry out such enquiry/investigation as Assessing Officer may deem for adjudication of the issue as per as per the aforesaid directions. In terms of the aforesaid addition of INR.59,24,273/- made by the Assessing Officer is set aside and issue raised in Ground No.2 is restored back to the file of Assessing Officer. Accordingly, Ground No.2 raised by the Assessee is treated as allowed for statistical purpose.

Now we would take up appeal preferred by the Assessee for the Assessment Year 2013-2014 directed against the Order, dated 31/01/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as the `CIT(A)'], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 28/12/2018, passed under Section 143(3) read with Section 147 of the Act.

The Assessee has raised following grounds of appeal in ITA No.583/Mum/2024 [Assessment Year 2013-2014] :

The re-opening of the assessment of the appellant by the issue of notice under section 148 without satisfying the juri ictional conditions precedent to assuming juri iction under section 147 is without juri iction and bad-in-law and consequently, any assessment made on the basis of the notice which is bad-in-law may kindly be annulled.

On the facts and in law, the Learned Commissioner (Appeals) had erred in confirming the addition of Rs.1,28,00,567/- being the sale proceeds of shares by treating the same as unexplained cash credit under section 68 of the I.T.Act. Under the facts and circumstances of the matter, he ought not to have confirmed the said addition of Rs.1,28,00,567/-."

The notice u/s.148 of the Act is bad in law as the reopening is pursuant to the search of third party, and therefore the provisions of section 153C of the Act ought to have been invoked."