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Income Tax Appellate Tribunal, ‘C’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R This is an appeal filed by the assessee, directed against an order dated 20.03.2018 of ld. Commissioner of Income Tax (Appeals)- 5, Chennai.
Grounds taken by both the assessee assails the reopening done for the impugned assessment year as well as merits of the additions done under the head ‘’income from other sources’’.
Facts apropos are that assessee having income from hiring had filed return for the impugned assessment year declaring income of Rs.2,39,520/-. Such return was processed u/s.143(1) of the Income Tax Act, 1961 (in short ‘’the Act’’). Ld. Assessing Officer received information from DDIT (Investigation), Unit-1, CRU, Chennai that assessee was beneficiary of certain transactions done through one Mr. Prakash Kumar Jojodia, promoter of M/s. Quest Financial Services Limited and M/s. Kwality Credit and Leasing Limited, Kolkata, which resulted in bogus long term capital gains to various persons, including the assessee. Assessee had claimed long term capital gains of Rs.22,38,981/- arising on sale of equity shares, as exempt u/s.10(38) of the Act. Information regarding these transactions, of which Shri. Prakash Kumar Jojodia was one of the principal players, came to the knowledge of Revenue when he was subjected to a search operation by the Revenue. Shri. Prakash Kumar Jojodia was the Managing Director of M/s. Quest Financial Services Ltd. Revenue it seems was having with them a statement recorded from Shri. Prakash Kumar Jojodia, which admitted of transactions undertaken for providing bogus long term capital gains, on commission basis, through private limited shell companies owned or controlled by him. Or in other words, what are known as transactions of penny stock companies.
Notice u/s.148 of the Act was issued to the assessee on 09.01.2017. Assessee sought reasons for the reopening and such reasons were furnished to the assessee. Reasons interalia mentioned about the statement given by Shri. Prakash Kumar Jojodia. During the course of re-assessment proceedings, ld. Assessing Officer put the assessee on notice on why the claim of long term capital gains should not be disallowed and why such amounts should not be assessed as income from other sources. As per the ld. Assessing Officer modus operandi was to buy unlisted shares of private limited company at a very low book value in cash, which company at a later stage got amalgamated with a listed penny stock company with a High Court approval for such scheme for amalgamation. Further, as per the ld. Assessing Officer prices of the shares of the penny stock companies were manipulated to 20 to 25 times so that investors made bogus long term capital gains on sale of its shares. Ld. Assessing Officer noted that Shri. Prakash Kumar Jojodia had admitted floating a number of companies through which transactions in cash, cheques and RTGS credits were carried out and he had also offered a sum of Rs.1,00,00,000/- as income earned for giving accommodation entries to various parties like assessees.
When queried on the above, reply of the assessee was that she had purchased three hundred equity shares of one M/s. Reward Agencies Private Limited through off market deal, by paying Rs.500/-
per share to one M/s. Sanklap Vincome (P) Ltd. As per the assessee such equity shares were duly transferred to her name by M/s. Reward Agencies Private Limited. Contention of the assessee was that M/s.
Reward Agencies Private Limited was later converted as a public limited company and thereafter amalgamated with one M/s. Quest Financial Services Limited which had the approval of Hon’ble Calcutta High Court through its order dated 25th August, 2011. As per the assessee through this amalgamation scheme sanctioned by Hon’ble Calcutta High Court, for one equity share in M/s. Reward Agencies Private Limited, hundred equity shares of M/s. Quest Financial Services Limited were allotted. Contention of the assessee was that Thirty Thousand equity shares were allotted to her in M/s. Quest Financial Services Limited and these were dematted and sold in Kolkata Stock Exchange through one M/s. K. Prasad & Co. for Rs.23,92,500/- As
per the assessee, M/s. Quest Financial Services Limited being a listed company long term capital gains arising to them, on sale of shares of the said company, through Kolkata Stock Exchange was exempt u/s.10(38) of the Act. Assessee also pointed out that the sale transaction were carried out through banking channels.
However, ld. Assessing Officer did not accept the reply given by the assessee. According to him, Joint Commissioner of Income tax in a proceeding u/s.144A of the Act had rejected similar contentions of the assessee. Further, according to him, the statement recorded from Shri. Prakash Kumar Jojodia, who was a promoter and Director of M/s Quest Financial Services Limited, clearly proved that he had provided accommodation entries to many persons including the assessee. Ld. Assessing Officer also noted that assessee could not furnish any evidence as to how they came to know about M/s. Reward Agencies P. Ltd for purchasing their shares. As per the ld. Assessing Officer these were isolated transactions done by the assessee with the M/s. Sanklap Vibcom (P) Ltd, Kolkata, who were seller of the shares and assessee had no means of knowing such company or buying their shares. Ld. Assessing Officer refused to take into consideration averment of the assessee that Shri Prakash Kumar Jojodia had retracted from his earlier statement given to the Revenue and affirmed that purchase and sale of shares were genuine. He thus disbelieved the claim of long term capital gains and made an addition of the equivalent amount under the head income from other sources.
Aggrieved, the assessee moved in appeal before the ld. 7.
Commissioner of Income Tax (Appeals). Apart from assailing the validity of the reopening done for the impugned assessment year, assessees also challenged the merits of the addition. Ld. Commissioner of Income Tax (Appeals) held the reopening to be valid.
According to him information received from Investigation Wing of the Department, Kolkata was good enough reason for reopening the assessment. In so far as, merits were concerned, ld. Commissioner of Income Tax (Appeals) held that purchase of the shares were initially done through off-market deals in cash and the selling rates were artificially hiked. According to him, financials of M/s. Quest Financial Services Ltd did not justify the prices at which its shares were sold.
Further, according to the ld. Commissioner of Income Tax (Appeals) additions made by the ld. Assessing Officer were not solely based on the statements recorded from Shri. Prakash Kumar Jojodia but for other reasons as well. Ld. Commissioner of Income Tax (Appeals) held that ld. Assessing Officer was justified in considering the long term capital gains as bogus and in making the additions u/s.68 of the Act.
Now before me, ld. Authorised Representative strongly 8. assailing the reopening done for the impugned assessment year submitted that reasons given by ld. Assessing Officer, for such reopening stated that key person Shri. Prakash Kumar Jojodia, who was the promoter of M/s. Quest Financial Services Limited and M/s.
Kwality Credit and Leasing Limited, Kolkata, admitted his involvement in providing bogus long term capital gains to various persons on commission basis. As per the ld. Authorised Representative, this could not be stated as a reason. According to him, though sufficiency of the reason could not be questioned, its relevancy could be looked into. As per the ld. Authorised Representative, one of the essential conditions required for reopening of an assessment, as set-out in Section 147 of the Act, was not satisfied.
Arguing on the merits of the case, ld. Authorised 9.
Representative submitted that purchase of shares of M/s. Reward Agencies P. Ltd were proved through share certificates which reflected transfer of these shares from M/s. Sanklap Vincom (P) Ltd to the assessees. According to him, amalgamation of M/s. Reward Agencies P. Ltd with M/s. Quest Financial Service Ltd could not be questioned since it had the approval of the Hon’ble Calcutta High Court. As for the sale of the shares in M/s. Quest Financial Service Ltd, capital gains arising from which was claimed as exempt, contention of the ld. Authorised Representative was that such sale was done through Kolkatta Stock Exchange by a recognized stock broker and payments received through banking channels. According to him, undue reliance was placed by the Revenue on a statement recorded from Shri.
Prakash Kumar Jojodia who was never known to the assessee.
According to him, assessee had never purchased shares from Shri.
Prakash Kumar Jojodia. As per the ld. Authorised Representative the so called statement recorded from Shri Prakash Kumar Jojodia was never put to the assessee. Further, as per the ld. Authorised Representative, assessee was never given an opportunity to cross- examine the said person. Ld. Authorised Representative submitted that assessee had filed an affidavit of Shri. Prakash Kumar Jojodia retracting his earlier statements. Contention of ld. Authorised Representative was that Shri Prakash Kumar Jojodia had affirmed the transactions of shares of M/s. Quest Financial Services Ltd as genuine.
According to him, similar transactions where capital gains were considered as bogus had come up before Bangalore Bench of the Tribunal in the case of Vimala Devi Chhajer and others vs. DCIT (ITA Nos.513 to 518/Bang/2010, 519 to 526/Bang/2010, 946 to 949, 955, 956, 970/Bang/2010, 1000 to 1005/Bang/2010 and 1071/Bang/2010, vide order dated 23.03.2011), and the Tribunal had held the capital gains claimed to be not bogus. Reliance was also placed on the decision of Kolkata Bench of the Tribunal in the case of Manish Kumar Baid and Mahendra Kumar Baid vs. AICT,( & 1237/Kol/2017, dated 18.08.2017) and that of Mumbai Bench of the Tribunal in the case of ITO vs. Arvind Kumar Jain, ITA No.4862/Mum/2014, dated 18.09.2017. As per the ld. Authorised Representative in the case decided by Kolkata Bench also the company in which concerned assessee had invested was merged with another listed company and the claim of long term capital gains was on sale of equity shares of such listed company. Further, as per the ld. Authorised Representative, Kolkata Bench had held that transactions relating to the long term capital gains could not be disbelieved since the sale of the shares were effected through registered stock brokers.
Again, as per the ld. Authorised Representative, equity shares of M/s.
Quest Financial Service Ltd held by the assessee were dematerialized or dematted and such dematting clearly proved the holding of shares by the assessee in the said company. Thus, according to him, lower authorities fell in error in disbelieving the long term capital gains and making an addition u/s.68 of the Act for the amounts which were received through a recognized stock exchange and source of which was clearly explained.
Per contra, ld. Departmental Representative strongly 10.
supporting the orders of the lower authorities submitted that Shri Prakash Kumar Jojodia was the promoter of M/s. Quest Financial Services Ltd. According to him, assessee was mentioned in the statement recorded from the said person, as one among many to whom he had provided accommodation entries. As per the ld. Departmental Representative, share price of M/s. Quest Financial Service Ltd were artificially jacked up without any credible financials for the said company. According to him, assessee could not say that she was not aware of the statement given by Shri Prakash Kumar Jojodia since assessee had filed an affidavit from the very same person retracting what he earlier said. According to him, additions were rightly made disbelieving the series of transactions, which were manufactured only for illegal evasion of tax.
On the aspect of reopening, the contention of the ld. Departmental Representative was that reasons clearly indicated escapement of income from assessment.
I have considered the rival contentions and perused the orders of the authorities below. First taking up the question whether the reopening was valid or not, admittedly, the original return was only subjected to a processing u/s.143(1) of the Act. When the original return was only processed u/s.143(1) of the Act, I cannot say that an assessment was been done after application of mind by the ld. Assessing Officer. Such processing in my opinion is a ministerial act.
In taking this view, I am fortified by the judgment of Apex Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd 291 ITR 500.
Reasons recorded by the ld. Assessing Officer for reopening the assessment read as under:-
‘’This office is in receipt of information, that there was a search operation in the case of Mls Quest Financial Services and Kwality Credit and Leasing Limited ,Key person Mr. Prakash Jajodia revealed the fact that he and his group involved in providing bogus Long Term Capital Gains to various persons on commission basis through a number of Private Limited shell companies owned or controlled by him as well as some listed penny stock companies. Smt. Nirmal Kumari Chordia is one of the beneficiaries. The transaction amount during the period is Rs.23,92,500 /-, the whole of which is bogus.
Therefore. I have reason to believe that income chargeable to tax relevant for' the A Y 2012-13 has escaped assessment due to failure on the part of assessee to disclose fully and truly all material facts relevant for the purpose of assessment. Considering the fact that original return was subject only to a processing u/s.143(1) of the Act, I am of the opinion that reason above given was relevant enough for resorting to a reopening.
Presence of a relevant reason is enough in such cases, and it is not necessary that escapement of income has to be established. Rules for reopening are much more liberal where original returns are only subject to processing u/s.143(1) of the Act. I therefore uphold the order of ld. Commissioner of Income Tax (Appeals) in so far as the reopening of assessment is concerned.
Coming to the merits of the additions what I find is that lower authorities had relied on a statement from one Shri. Prakash Kumar Jojodia who was the promoter and Director of M/s. Reward Agencies Pvt. Ltd which was amalgamated with M/s. Quest Financial Service Ltd, pursuant to a scheme sanctioned by Hon’ble Calcutta High Court. Once the scheme is sanctioned by Hon’ble Calcutta High Court, I cannot consider the amalgamation as a sham one. Ratio of allotment of shares in M/s. Quest Financial Service Ltd which was 1:
100, viz; hundred shares of M/s. Quest Financial Service Ltd., for one share of M/s. Reward Agencies Pvt. Ltd. This ratio was as per the approved scheme. This is clearly mentioned at para 3 to Schedule A of the said scheme, which read as under:-
‘’(a) The Transferee Company shall, without further act, deed, shall allot to every share-holders of M/s Dristi Buppliers Limited, 90 :Ninety) Equity share; of Rs. 10/ - each credited is fully paid up for 1 (One) equity shares of Rs. 10/- each fully paid up and held by such share-holders in M/S Drisu Suppliers Limited, and shall allot to every share holder of M/s Pran [eevan Distributors limited, 90 (Ninety: Equity shares of Rs 10/- each credited as fully pad ₹ up for :. (One) equity shares of 10/ - each fully paid up and held by such share-holders in M/s. Prun ]eevan Distributors Limited .and shall allot to every share-holders of M/5 Reward Agencies Limited 100 (Hundred) Equity share; of Rs. 10l- each credited as fully paid up for 1 (One) equity shares of Rs. 10/ - each fully paid up and held by such share-holders in Ms Reward Agencies Limited’’.
Though ld. Assessing Office considered the prices of shares of M/s.
Quest Financial Service Ltd, to have been jacked up artificially, nothing is available on record which could show what were the financials of M/s. Quest Financial Service Ltd. ld. Assessing Officer ought to have analysised the financials of the said company before coming to a conclusion that such financials were not at all in rhyme with the share prices. It may be true that assessee had acquired original shares in M/s. Reward Agencies P. Ltd in off-market transactions by paying cash.
However, backside of the share certificates of M/s. Reward Agencies P.
Ltd., clearly show that the equity shares were transferred to the assessee on 25.01.2011. Original owner of these shares were one M/s. Dristi Suppliers Private Limited and they had transferred such shares to M/s. Sanklap Vincom Private Limited on 25.10.2010. The seller of the shares to the assessee was M/s. Sanklap Vincom Private Limited. What relation Shri. Prakash Kumar Jojodia had with M/s.
Sanklap Vincom Private Limited is not available on record. Assessee has mainly relied on the orders of the Bangalore Bench of the Tribunal in the case of Vimala Devi Chhajer and others (supra) that of Kolkata Bench of the Tribunal in the case of Manish Kumar Baid (supra) and that of Mumbai Bench of the Tribunal in the case of Arvind Kumar Jain (supra). However in all these cases relied on by the assessee what I find is that statement relied on by the Revenue for disbelieving long term capital gains, did not mention the name of the concerned assessee clearly. As against this, the case of the Revenue here is that assessee’s name was mentioned by Shri Prakash Kumar Jojodia in the statement recorded from him. Thus the statement of Shri. Praksh Kumar Jojodia was the crucial link for disbelieving the long term capital gains claimed by the assessee. Rules of nature justice, in my opinion required such statement to be given to the assessee. Neither was it given nor assessee given an opportunity to cross examine Shri.
Prakash Kumar Jojodia. No doubt assessee might have filed an affidavit from Shri. Prakash Kumar Jojodia retracting his earlier statement. This will not in my opinion absolve the Revenue from its duty to place before the assessee the statement of Shri. Prakash Kumar Jojodia relied on by them for disbelieving the long term capital gains claimed by the assessee. The entire addition emanated from the statement given Shri. Prakash Kumar Jojodia and a finding that prices of the shares of M/s. Quest Financial Service Ltd were artificially jacked up. In my opinion sale of the shares, having been done recognized stock exchange and sale consideration having been received through banking channels, the sale as such ought not have been disbelieved unless there were strong reasons for disbelieving the claim. In the circumstances, I am of the opinion that the issue requires a fresh look by the ld. Assessing Officer. Ld. Assessing Officer has to give a copy of the statement of Shri. Prakash Kumar Jojodia to the assessee so that they can place their objections. Ld. Assessing Officer has to consider the merits of the objections if any filed by the assessee, and if required the assessees shall be given an opportunity to cross examine Shri. Prakash Kumar Jojodia. Ld. Assessing Officer also needs to correctly verify the financials of M/s. Quest Financial Services Ltd before coming to a conclusion that its share prices were jacked up. Needless to mention if the name of the assessee is not appearing in the statement of Shri. Prakash Kumar Jojodia, transactions giving rise to the long term capital gains cannot be disbelieved, unless there are other very strong reasons for doing so. With these directions, I set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.