RITU SANJAY MANTRY,MUMBAI vs. ITO 24(3)(4), MUMBAI

On the assessee’s appeal against the reopening, the ld. Commissioner of Income Tax (Appeals) dismissed the same by holding as under:

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO 4.2 I have considered the facts of the case and also perused the material available on record including the case laws cited by the appellant. It is found that originally, no scrutiny assessment was made by the Id. AO for the impugned AY u/s 143(3) of the Act. While based on information received from DGIT(C&!B), New Delhi that the assessee has taken accommodation entry from M/s Magasagar Securities Pvt. Ltd. (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of Rs.10,32,289/- and, therefore, is indulging in non-genuine and bogus capital gains from transaction of sale and purchase of shares and pre-dated contract notes were issued by the Brokers to manipulate and introduce long, term capital gains in favour of the assessee which are exempt from tax u/s 10(38) of the Act leading to escapement of income from taxation , which led to issue of notice dated 20/03/2014 u/s 148 of the Act. The reasons were recorded and duly communicated to the assessee. The information received by the AO was certainly in the nature which provided reason to have reasonable belief that there has been a concealment of income and concealment of material facts on part of the assessee. Once such reason to believe is formed by the AO, he is well within his powers to issue notice u/s 148 as per procedure laid down in the Act. It was held in the case of S. Narayanappa v. CIT (1967) 63 ITR 219(5C) that there should be facts before the ITO that reasonably give rise to a belief that what is held by him must of course be in good faith. It cannot be a mere pretence, but the facts on the basis of which he entertained the belief need not at this stage be irrefutably conclusive to support his tentative conclusion where such an inference can be drawn sufficiency of reasons cannot questioned at the preliminary stage.

4.3 The aforesaid facts regarding involvement in securing accommodation entries with an intention to reduce taxable income was a tangible material, which gave rise to belief that the income of the appellant has escapes assessment. What is important at the time of formation of belief by the ld. AO regarding this escapement or underassessment of income is sufficiency of the reasons for reopening of assessment and not its accuracy that cannot be questioned at that time. In the case of Praful Chunilal v. ACT (1988) 148 CTR 62 it was held that if the AO honestly comes to the conclusion that a mistake has been made, it matters nothing so far as his jurisdiction to initiate the proceedings u/s 147 is concerned.

4.4 Receipt of afore-stated information from the DGIT(C&IB), New Delhi in my considered view is fresh and tangible material which has live link and nexus with the formation of belief that the income of the assessee has escaped assessment, and keeping in view that the original assessment was not framed u/s 143(3) of the Act and no opinion was ever formed by the ld. AO and hence,

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO there is no change of opinion, and also keeping in view the ratio of decision of Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (2007) 291 ITR 500 (SC), reopening of the assessment is upheld.

6. I have heard both the counsels and perused the records. As regards the reopening of the issue, on a careful consideration I note that the assessment in this case was based on information received from DGIT(Investigation) that the assessee has taken accommodation entry from M/s. Mahasagar Securities Pvt. Ltd. (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of Rs.10,32,289/- and, therefore, it has indulged in non genuine and bogus capital gain from transaction of sale and purchase of shares and predated contract notes were issued by the brokers to manipulate and introduce long term capital gains in favour of the assessee which are exempt from tax u/s. 10(38). This was taken to have lead to escapement of income from taxation. From the above, it is manifest that there is tangible and cogent material received by the Assessing Officer which clearly showed that the assessee was beneficiary of the above manipulated accommodation entry giving rise to the bogus long term gains. This forms the reason to believe by the Assessing Officer that income has escaped assessment. The information so received by the Assessing Officer has live link with reason to believe that income has escaped assessment. On this incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO about escapement of income and the same is not required to be proved to be hilt. In this regard, I refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500:-

"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court).”

7. The above discussion and precedent from Apex Court fully justify the validity of reopening in this case. Further I find that the Ld. CIT(A) has carefully examined the issue and has properly appreciated the issue. Hence, I do not find any infirmity in the same. Accordingly, I uphold the order of the Ld. CIT(A) on the issue of reopening. Since, the issue has been decided on the basis of the Hon’ble Apex Court decision, the other case laws referred by assessee are not supporting the assessee’s case.

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO Apropos ground relating to merits of addition 8. Brief facts of the issue as per Assessing Officer’s order reads as under: "5. On perusal of submissions and return of income filed, the investigation carried by the undersigned reveals that the assessee has purchased share from Cable Corporation of India Ltd. through the Mahasagar Securities Pvt. Ltd. and Alliance Intermediateries & Network Pvt. Ltd. During the course of assessment proceedings, it is noticed that LINK INTIME INDIA PVT. LTD is the registrar authority of Cable Corporation of India Ltd. An information under section 133(6) vide letter dated 25-02-2015 is called for from LINK INTIME INDIA PVT. LTD regarding genuineness of transactions in scripts / commodity held by the assessee during the FY under consideration.

5.1 LINK INTIME INDIA PVT. LTD vide letter dated 27-02-2015 stated the assessee (shareholder) is not holding any shares under demat account no. IN301151/22161785 in the above mentioned company i.e. Cable Corporation of India Ltd.)

5.2 It is pertinent to mention as per information received from DDIT(Inv) none of the companies run by Shri Mukesh Chokshi has a valid license as a broker to trade on any stock exchange as on date, or during the period when the alleged transactions were carried out for the beneficiaries. As per the provisions of section 13 of the Securities Contracts (Regulation) Act, 1956, the Central government has notified Greater Mumbai (where choksis companies are situated) since 1957, as one of the areas in which any contract other than transactions entered into between members of a recognized stock exchange as an illegal transaction.

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO company as per the details available with us as on 21st February 2008 and 315t March 2008." Taking into account the above facts, it is evident that the transactions shown by the assessee through M/s Mahasagar Securities Pvt. Ltd are nothing but colorable device using forged and fabricated bills / contract note for the purpose of evasion of tax. Accordingly I strongly hold that assessee has entered into bogus shares transactions lo the tune of Rs.10,39,289/- and the same is brought to tax by adding the equivalent amount to the total income of the assessee. Penalty proceedings under section 271(l)(c) are initiated for furnishing inaccurate particulars of income and thereby evading the tax liability.

7. Addition under section 69C on account of commission paid towards shares broking Vide para no. 6 it is well established fact brought on records that the assessee has entered into bogus shares transactions to the tune of Rs.10,39,289/- and the same is brought to tax by adding the equivalent amount to the total income of the assessee. For the commission paid towards such transactions carried by the assessee, I estimate @ 2% of Rs.10,39,289/- (bogus shares transactions) amounting to Rs.20,786/- as commission paid towards share broking is brought to tax under the provisions of 69C of the I. T. Act 1961.

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO 2009. On the date of search it was discovered that Shri Mukesh M. Chokshi, a chartered accountant by profession, had floated some 36 companies from his office at Shree Sadashiv CHS, Santacruz (E), Mumbai and all these companies were found to be engaged in the business of issuing bogus bills for providing short term capital gain / loss. Long term capital gain and speculation profit / loss. The companies run by Shri Mukesh M Chokshi were receiving commission for all these activities. These transactions are not done through the stock exchange but the bills show them to be so and appear to be genuine transactions done through the stock exchanges. The client gives cash against these profit bills. The cash is deposited in the subsidiary accounts and funds are subsequently transferred to the Bank account of the broking company issuing the bill (i.e. Alliance Intermediaries & Network Pvt. Ltd., Mahasagar Securities Pvt. Ltd, GoldstarFinvest Pvt. Ltd).In case of loss, cheque is received from clients and cash is returned to them.

7.1 Apparently there has been an unexpected jump in the value of the scrip during the short period of time. The assessee has claimed to have purchased 28000 shares of cable Corporation for Rs. 49,223/- on 1.11.2006 in a off- market deal and has claimed to have sold those shares for Rs. 10,33,291/- on 1.2.2008 and 6,2.2008. There is no apparent reason for this astronomical appreciation of value of the said scrip in short span of time as claimed by the assessee. On perusal of submissions and return of income filed, the investigation carried by the undersigned reveals that the assessee has purchased share from Cable Corporation of India Ltd. through Mahasagar Securities Pvt. Ltd. and Alliance Intermediateries & Network Pvt. Ltd. During the course of assessment proceedings, it is noticed that LINK INTIME INDIA PVT. LTD. is the registrar authority of Cable Corporation of India Ltd. An information under section 133(6) vide letter dated 25.02.2015 is called for from LINK INTIME INDIA PVT. LTD. regarding genuineness of transactions in scripts/commodity held by the assessee during the FY under consideration. LINK INTIME INDIA PVT. LTD. vide letter dated 27.02.2015 stated the assessee (shareholder) is not holding any shares under demat account no. IN2301151/22161785 in the above mentioned company i.e. Cable Corporation of India Ltd.). The assessee has failed to furnish any explanation as to why the shares have been shown as dematerialized just before the date of sale whereas he has shown the date of purchase of shares as 1.11.2006.

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO 11. Thereafter the ld. Commissioner of Income Tax (Appeals) referred to several case laws on the subject and compared the same with the facts of the case and thereafter, he concluded as under:

7.17 I am of the considered opinion that if viewed in the light of observations made by Hon’ble ITAT in the above case and the facts and circumstances as discussed above in the light of the judicial pronouncements as referred to above, the dealing in shares by the appellant in above scrip has to be taken as dealing in penny stocks which was in the form of accommodation entries and, hence, the entire sale consideration of this scrip has to be treated as unexplained cash credit within the meaning of section 68 of the Act and the same is to be added to the total income of the appellant. The order of the Id. AO is upheld accordingly. Further, since the findings of the Id. AO that the impugned transactions were in the nature of accommodation entries was upheld as above, the estimation of payment of commission for obtaining the said accommodation entries is also upheld. Grounds No. 2, 3 and 4 are accordingly dismissed.

The information was received that such manipulated transactions was done through companies run by Shri Mukesh Choksi. The Assessing Officer has given a finding that the assessee has taken entries from Mahasagar Securities Pvt. Ltd. involved in the shares scam case for Rs.10,39,289/- for bogus speculation profit during the financial year 2007-08. The Assessing Officer has found the assessee has paid cash of equivalent amount and received back by cheque and bogus contract notes and bills for the transactions not actually rooted through stock exchange. The Assessing Officer

(A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO has also noted that these facts are established by reply by Link Intime India Pvt. Ltd. vide letter dated 27.2.2015 which mentions as under:

"We wish to inform you that the said shareholder is not holding any shares under demat account no. IN301151/22161785 in the above mentioned company as per the details available with us as on 21st February 2008 and 315t March 2008."

(i) The assessee had on the advice of an income tax consultant purchased shares of two penny stock Kolkata based companies i.e., 8000 shares at the rate of Rs.5.50 per share on 08.08.2003 and 4000 shares at the rate of Rs.4/per share on 05.08.2003 from Syncom Marketing Pvt. Ltd. and of Skyzoom Distributors Pvt. Ltd. the payments were made by the assessee in cash for acquisition of shares of both the companies. The address of both the companies was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd and the address of the said broker was incidently the address of the two companies. Both the companies intimated the assessee on 07.04.2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the (A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO assessee received the shares of the new company in the ratio of 1:4 of the number of shares of the previous two companies held by the assessee. The assessee sold 2200 shares at an exorbitant rate of Rs.486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs.485.65. The shares were sold through another broker, viz. Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of India. The assessing officer did not accept the case of the assessee that she was entitled to exemption under Section 10(38) of the Income Tax Act. The assessing officer held that the aforesaid transactions of purchase of two penny stock shares for Rs.60,000/, the merger of the companies with a new company and the sale of the shares for Rs.11,58,930/fell within the ambit of adventure in the nature of trade and the assessee had profited by Rs.13,98,930/. The assessing officer, therefore, brought the aforesaid amount to tax under the head ‘business income’. (ii) Being aggrieved by the order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appeal filed by the assessee was dismissed and so was the subsequent appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal. (iii) On hearing the learned counsel for the assessee and on a perusal of the orders of the income tax authorities, it appears that there is no scope for interference with the said orders in this appeal. By referring to the aforesaid facts, which are narrated in the earlier part of this order, the authorities found that the assessee had made investment in two unknown companies of which the details were not known to her. It was held that the transaction of sale and purchase of shares of two penny stock companies, the merger of the two companies with another company, viz. Khoobsurat Limited did not qualify an investment and rather it was an adventure in the nature of trade. It was held by all the authorities that the motive of the investment made by the assessee was not to derive income but to earn profit. Both the brokers, i.e. the broker through whom the assessee purchased the shares and the broker through whom the shares were sold, were located at Kolkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of Rs.65,000/in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs.5.50 Ps. Per share and Rs.4/per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at Rs.486.55 Ps and Rs.485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer’s letter (A.Y. 2008-09) Ritu Sanjay Mantry vs. ITO seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. (iv) The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/had jumped to Rs.485/in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs.5/of a little known company would jump from Rs.5/to Rs.485/. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon’ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. The judgments reported in (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (SC) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT Versus Smt.Datta M. Shah) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand.