NIRMALA KUMARI CHORDIA,CHENNAI vs. ITO NCW 5(2), CHENNAI

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.

done for the impugned assessment year as well as merits of the

additions done under the head ‘’income from other sources’’.

ITA Nos.1636/Chny/2018 :- 2 -:

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.

ITA Nos.1636/Chny/2018 :- 3 -:

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.

ITA Nos.1636/Chny/2018 :- 4 -:

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.

ITA Nos.1636/Chny/2018 :- 5 -:

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

ITA Nos.1636/Chny/2018 :- 6 -:

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

ITA Nos.1636/Chny/2018 :- 7 -:

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

ITA Nos.1636/Chny/2018 :- 8 -:

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,( ITA Nos.1236 &

1237/Kol/2017, dated 18.08.2017) and that of Mumbai Bench of the

ITA Nos.1636/Chny/2018 :- 9 -:

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

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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.

Departmental Representative was that reasons clearly indicated

escapement of income from assessment.

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

ITA Nos.1636/Chny/2018 :- 11 -:

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.

ITA Nos.1636/Chny/2018 :- 12 -:

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

ITA Nos.1636/Chny/2018 :- 13 -:

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

ITA Nos.1636/Chny/2018 :- 14 -:

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

ITA Nos.1636/Chny/2018 :- 15 -:

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.