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Facts
The assessee filed an original return of income, and subsequently, a search action was conducted. Initial assessment proceedings under Section 153A were accepted. Later, based on information from the Investigation Wing regarding bogus long-term capital gains managed by Shri Naresh M. Jain, the Assessing Officer reopened the assessment under Section 147. The AO made an addition of Rs. 1,86,14,057/-.
Held
The CIT(A) held the reassessment order as unsustainable in law and deleted the addition. The ITAT upheld the CIT(A)'s finding, stating that the reopening was based on mere suspicion and general information about Shri Naresh Jain's activities and not on specific material linking the assessee to benefiting from these transactions. The ITAT also noted a procedural violation regarding the timing of the assessment order after the rejection of the assessee's objection.
Key Issues
Whether the reassessment under Section 147 was validly initiated without specific material linking the assessee to alleged bogus transactions and whether the procedural norms were followed.
Sections Cited
132, 153A, 147, 10(38), 68, 148
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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
This appeal has been preferred by the assessee against order dated 05.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals), Pune -12 [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds:
1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), Pune-12 erred in deciding reopening of assessment u/s. 147 of the Income Tax Act 1961 is bad in law ignoring the fact that u/s. 147 of the Income Tax Act 1961 is bad in law ignoring the fact that u/s. 147 of the Income Tax Act 1961 is bad in law ignoring the fact that the case was re the case was re-opened u/s.147 of the Act on the basis of information n the basis of information received from the investigation wing that assessee had entered into received from the investigation wing that assessee had entered into received from the investigation wing that assessee had entered into bogus transactions amounting to Rs.1,86,15,057/ bogus transactions amounting to Rs.1,86,15,057/-" 2. "Whether on the facts and in the circumstances of the case and in 2. "Whether on the facts and in the circumstances of the case and in 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), Pune law, the Ld. CIT(A), Pune-12 erred in deciding assessment order passed ding assessment order passed u/s. 147 of the Income Tax Act 1961 is bad in law ignoring the fact that u/s. 147 of the Income Tax Act 1961 is bad in law ignoring the fact that u/s. 147 of the Income Tax Act 1961 is bad in law ignoring the fact that the case was re the case was re-opened u/s.147 of the Act on the basis of information opened u/s.147 of the Act on the basis of information received from the investigation wing that assessee had entered into received from the investigation wing that assessee had entered into received from the investigation wing that assessee had entered into bogus transactio bogus transactions amounting to Rs.1,86,15,057/-." 3. "Whether on the facts and in the circumstances of the case and in 3. "Whether on the facts and in the circumstances of the case and in 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), Pune law, the Ld. CIT(A), Pune-12 is erred in not deciding the case on merits 12 is erred in not deciding the case on merits ignoring the fact that the case was re ignoring the fact that the case was re-opened u/s. 147 of the Act on the opened u/s. 147 of the Act on the basis of information received from Investigation wing, Mumbai that the of information received from Investigation wing, Mumbai that the of information received from Investigation wing, Mumbai that the assessee had traded in penny stock scrip assessee had traded in penny stock scrip- M/s Scan Steel Limited M/s Scan Steel Limited amounting to Rs.1,47,41,298/ amounting to Rs.1,47,41,298/- and M/s. Devine Multimedia (India) and M/s. Devine Multimedia (India) Limited amounting to Rs.38,73,759/ Limited amounting to Rs.38,73,759/-" 4. "Whether on the facts 4. "Whether on the facts and in the circumstances of the case and in and in the circumstances of the case and in law, the Ld. CIT(A), Pune law, the Ld. CIT(A), Pune- 12 is erred in deleting addition made by the 12 is erred in deleting addition made by the assessing officer by disallowing claim of the assesse u/s. 10(38) on the assessing officer by disallowing claim of the assesse u/s. 10(38) on the assessing officer by disallowing claim of the assesse u/s. 10(38) on the ground that the gains were earned through bogus penny stock ground that the gains were earned through bogus penny stock ground that the gains were earned through bogus penny stock transactions and ctions and companies to whom sold shares belonged were bogus. companies to whom sold shares belonged were bogus.
2. Briefly stated facts of the case are that the assessee had filed Briefly stated facts of the case are that the assessee had filed Briefly stated facts of the case are that the assessee had filed original return of income on 22.09.2012 declaring total income at original return of income on 22.09.2012 declaring total income at original return of income on 22.09.2012 declaring total income at Rs.9,98,710/-. Subsequently, a search and seizure action u/s . Subsequently, a search and seizure action u/s 132 . Subsequently, a search and seizure action u/s of the Income-tax Act, 1961 (in short ‘the Act’) was carried out on tax Act, 1961 (in short ‘the Act’) was carried out on tax Act, 1961 (in short ‘the Act’) was carried out on 20.10.2016 at the premises of 20.10.2016 at the premises of ‘Ranka’ Group including the Group including the assessee. Consequently Consequently, the proceedings for search assessments proceedings for search assessments were initiated and the were initiated and the Assessing Officer accepted the return o Assessing Officer accepted the return of income declared u/s 153A of the Act vide his order dated income declared u/s 153A of the Act vide his order dated income declared u/s 153A of the Act vide his order dated 30.12.2018. Subsequently, information was received from the 30.12.2018. Subsequently, information was received from the 30.12.2018. Subsequently, information was received from the Mumbai Investigation Wing that assessee obtained benefit of bogus Mumbai Investigation Wing that assessee obtained benefit of bogus Mumbai Investigation Wing that assessee obtained benefit of bogus long term capital gain in a script which was managed and operated long term capital gain in a script which was managed and operated long term capital gain in a script which was managed and operated by one Shri Naresh M. Jain. On the basis of the information, the e Shri Naresh M. Jain. On the basis of the information, the e Shri Naresh M. Jain. On the basis of the information, the Assessing Officer recorded reasons to believe that income escaped Assessing Officer recorded reasons to believe that income escaped Assessing Officer recorded reasons to believe that income escaped assessment and issued notice u/s 148 of the Act. After following assessment and issued notice u/s 148 of the Act. After following assessment and issued notice u/s 148 of the Act. After following due procedure under the law, the Assessing Officer completed the due procedure under the law, the Assessing Officer completed the due procedure under the law, the Assessing Officer completed the assessment u/s 147 of the Act on 25.11.2019 assessment u/s 147 of the Act on 25.11.2019, wherein he made wherein he made addition of Rs.1,86,14,057/ addition of Rs.1,86,14,057/- on account of disallowance on account of disallowance of claim of long term capital gain u/s 10( long term capital gain u/s 10(38) of the Act and treated the same as ) of the Act and treated the same as unexplained cash credit u/s 68 of the Act. unexplained cash credit u/s 68 of the Act.
3. On further appeal, the Ld. CIT(A) held the reassessment order ppeal, the Ld. CIT(A) held the reassessment order ppeal, the Ld. CIT(A) held the reassessment order as unsustainable in law and also as unsustainable in law and also deleted the addition on merit. deleted the addition on merit.
4. Aggrieved, the Revenue is in appeal before us by way of raising Aggrieved, the Revenue is in appeal before us by way of raising Aggrieved, the Revenue is in appeal before us by way of raising grounds as reproduced above. grounds as reproduced above.
5. Before us, the Ld. counsel for the assess Before us, the Ld. counsel for the assessee has also filed ee has also filed application under Rule 27 of the Income Rule 27 of the Income-tax Appellate Tribunal tax Appellate Tribunal Rules 1963 ( in short the ‘ITAT Rules’) ( in short the ‘ITAT Rules’) for raising grounds in for raising grounds in support of finding of the Ld. CIT(A) on validity of the reassessment. support of finding of the Ld. CIT(A) on validity of the reassessment. support of finding of the Ld. CIT(A) on validity of the reassessment.
We have heard rival submission of the We have heard rival submission of the parties on the ground parties on the ground No. 1 and 2 of the Revenue challenging the validity of the No. 1 and 2 of the Revenue challenging the validity of the No. 1 and 2 of the Revenue challenging the validity of the reassessment and ground raised in application under Rule 27 of the reassessment and ground raised in application under Rule 27 of the reassessment and ground raised in application under Rule 27 of the ITAT Rules by the assessee. We find that the Ld. CIT(A) on the issue ITAT Rules by the assessee. We find that the Ld. CIT(A) on the issue ITAT Rules by the assessee. We find that the Ld. CIT(A) on the issue of the validity of the reassessment ha of the validity of the reassessment has held as under: s held as under:
“4.2 I have gone through the assessment order, Statement of facts as 4.2 I have gone through the assessment order, Statement of facts as 4.2 I have gone through the assessment order, Statement of facts as well as the submission made during the appellate proceedings. In the the submission made during the appellate proceedings. In the the submission made during the appellate proceedings. In the case of the appellant, assessment proceedings were initially case of the appellant, assessment proceedings were initially case of the appellant, assessment proceedings were initially completed u/s 153A of the Act accepting the returned income. It is also completed u/s 153A of the Act accepting the returned income. It is also completed u/s 153A of the Act accepting the returned income. It is also not disputed that, during the course of the assessment proceed not disputed that, during the course of the assessment proceed not disputed that, during the course of the assessment proceedings u/s 153A, the appellant had filed all the requisite details regarding u/s 153A, the appellant had filed all the requisite details regarding u/s 153A, the appellant had filed all the requisite details regarding the claim of LTCG. However, as the assessment proceedings u/s 153A the claim of LTCG. However, as the assessment proceedings u/s 153A the claim of LTCG. However, as the assessment proceedings u/s 153A of the Act were barred by limitation of time, the AO passed an order of the Act were barred by limitation of time, the AO passed an order of the Act were barred by limitation of time, the AO passed an order accepting the income returned by the appellan accepting the income returned by the appellant. If the assessment was t. If the assessment was barred by limitation then there was no question of passing any order barred by limitation then there was no question of passing any order barred by limitation then there was no question of passing any order even by accepting the returned income. The Appellant has also even by accepting the returned income. The Appellant has also even by accepting the returned income. The Appellant has also challenged the reopening being made in a mechanical manner without challenged the reopening being made in a mechanical manner without challenged the reopening being made in a mechanical manner without appreciation of material on recor appreciation of material on record. The appellant has also raised the objection in terms of violation of The appellant has also raised the objection in terms of violation of The appellant has also raised the objection in terms of violation of natural justice by relying on the decision of Jurisdictional High court in natural justice by relying on the decision of Jurisdictional High court in natural justice by relying on the decision of Jurisdictional High court in the case of Asian Paints (Supra) wherein it was held that after passing the case of Asian Paints (Supra) wherein it was held that after passing the case of Asian Paints (Supra) wherein it was held that after passing the order rejecting the objection rai the order rejecting the objection raised by the appellant, the AO is sed by the appellant, the AO is supposed to pass an order not before four weeks from such order In supposed to pass an order not before four weeks from such order In supposed to pass an order not before four weeks from such order In the instant case the order rejecting the objection raised by the the instant case the order rejecting the objection raised by the the instant case the order rejecting the objection raised by the appellant was disposed of on 08/11/2019 and the assessment order appellant was disposed of on 08/11/2019 and the assessment order appellant was disposed of on 08/11/2019 and the assessment order has been passed on 25/11/20 has been passed on 25/11/2019. i.e. prior to completion of 19. i.e. prior to completion of four weeks after rejecting the objection. It is pertinent to note that the AO weeks after rejecting the objection. It is pertinent to note that the AO weeks after rejecting the objection. It is pertinent to note that the AO had sufficient time before the assessment would have become barred had sufficient time before the assessment would have become barred had sufficient time before the assessment would have become barred by limitation of time and therefore he should have waited for four by limitation of time and therefore he should have waited for four by limitation of time and therefore he should have waited for four weeks before passing the assessment order as has been laid down by passing the assessment order as has been laid down by passing the assessment order as has been laid down by the Hon’ble Jurisdictional High Court. Thus, following the binding the Hon’ble Jurisdictional High Court. Thus, following the binding the Hon’ble Jurisdictional High Court. Thus, following the binding judicial pronouncement, the assessment order is held bad in law. judicial pronouncement, the assessment order is held bad in law. judicial pronouncement, the assessment order is held bad in law. On perusal of the reasons for reopening as well as rejection of On perusal of the reasons for reopening as well as rejection of On perusal of the reasons for reopening as well as rejection of objection the AO has merely stated the fact of one Shri Naresh jain AO has merely stated the fact of one Shri Naresh jain AO has merely stated the fact of one Shri Naresh jain having admitted before the authorities that he was indulged in having admitted before the authorities that he was indulged in having admitted before the authorities that he was indulged in providing the LTCG and STCG. providing the LTCG and STCG. However, it is not a case of the AO that However, it is not a case of the AO that the said Naresh jain had admitted having provided LTCG to t the said Naresh jain had admitted having provided LTCG to t the said Naresh jain had admitted having provided LTCG to the appellant himself and therefore in absence of any such admission or appellant himself and therefore in absence of any such admission or appellant himself and therefore in absence of any such admission or for that matter having any material to show that the appellant was for that matter having any material to show that the appellant was for that matter having any material to show that the appellant was actually the beneficiary of such bogus claim, the reopening made actually the beneficiary of such bogus claim, the reopening made actually the beneficiary of such bogus claim, the reopening made merely on a general statement and not on the basis of merely on a general statement and not on the basis of any specific any specific information that the appellant was an actual beneficiary of the information that the appellant was an actual beneficiary of the information that the appellant was an actual beneficiary of the accommodation entries provided by the said Shri Naresh Jain, cannot accommodation entries provided by the said Shri Naresh Jain, cannot accommodation entries provided by the said Shri Naresh Jain, cannot be upheld. Further at no point the AO has brought on record any be upheld. Further at no point the AO has brought on record any be upheld. Further at no point the AO has brought on record any material to show that the appellant had dealt material to show that the appellant had dealt with the said Shri with the said Shri Naresh Jain. It is also not a case of the AO that in Naresh Jain. It is also not a case of the AO that in either of the either of the transactions of sales or purchase of scrips Shri Naresh Jain was transactions of sales or purchase of scrips Shri Naresh Jain was transactions of sales or purchase of scrips Shri Naresh Jain was involved in such transaction and therefore, it cannot be inferred that involved in such transaction and therefore, it cannot be inferred that involved in such transaction and therefore, it cannot be inferred that the AO has acted on specific infor the AO has acted on specific information in the case of the appellant mation in the case of the appellant that income had escaped the assessment barring the fact that that income had escaped the assessment barring the fact that that income had escaped the assessment barring the fact that according to the AO the scrips were penny stock and to support his according to the AO the scrips were penny stock and to support his according to the AO the scrips were penny stock and to support his claim the AO has relied on a chart showing fluctuation in said scrips. claim the AO has relied on a chart showing fluctuation in said scrips. claim the AO has relied on a chart showing fluctuation in said scrips. It is true that such It is true that such fluctuation does raise the suspicion about fluctuation does raise the suspicion about transactions being genuine in such scrips, but mere suspicion cannot transactions being genuine in such scrips, but mere suspicion cannot transactions being genuine in such scrips, but mere suspicion cannot be made as the ground for reopening the case. It is a trite law that be made as the ground for reopening the case. It is a trite law that be made as the ground for reopening the case. It is a trite law that suspicion howsoever strong it may be but it cannot partake the suspicion howsoever strong it may be but it cannot partake the suspicion howsoever strong it may be but it cannot partake the character of proof. Thus in absence of any direct and proximate proof. Thus in absence of any direct and proximate proof. Thus in absence of any direct and proximate material brought on record, the reopening does not meet the test of law material brought on record, the reopening does not meet the test of law material brought on record, the reopening does not meet the test of law and hence the same is held to be bad in law, more so when during the and hence the same is held to be bad in law, more so when during the and hence the same is held to be bad in law, more so when during the course of the erstwhile assessment proceedings the appellant ha course of the erstwhile assessment proceedings the appellant ha course of the erstwhile assessment proceedings the appellant had already filed the necessary documentary evidence which has not been already filed the necessary documentary evidence which has not been already filed the necessary documentary evidence which has not been found fault with. found fault with.” 6.1 We find that in the reasons recorded, the Assessing Officer has We find that in the reasons recorded, the Assessing Officer has We find that in the reasons recorded, the Assessing Officer has merely referred that ce merely referred that certain scrips were managed and operated by s were managed and operated by Shri Naresh Jain. The AO further The AO further observed that assessee bserved that assessee had also transacted in those scrip transacted in those scrips and therefore he recorded recorded the reasons to believe that income escaped believe that income escaped, whereas there is no information of the whereas there is no information of the evidence indicating link of the assessee with Shri Naresh Jain. In evidence indicating link of the assessee with Shri Naresh Jain evidence indicating link of the assessee with Shri Naresh Jain absence of any such re e of any such relevant material, the Assessing Officer he Assessing Officer recorded reasons to believe that income escaped assessment. The recorded reasons to believe that income escaped assessment. The recorded reasons to believe that income escaped assessment. The Hon’ble Supreme Court in the case of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316 (SC) held that for Brokers (P.) Ltd. [2007] 161 Taxman 316 (SC) Brokers (P.) Ltd. [2007] 161 Taxman 316 (SC) recording reasons to believe that recording reasons to believe that income escaped, it is necessary to it is necessary to have relevant material on which have relevant material on which a reasonable person can make the reasonable person can make the requisite belief but in the case there is no material but in the case there is no material to to establish link of the assessee of having taken benefit of the services of Shri Naresh of the assessee of having taken benefit of the services of Shri Naresh of the assessee of having taken benefit of the services of Shri Naresh Jain and the information only is relati information only is relating to the activity of the scrip ng to the activity of the scrips managed and operated by Shri Naresh Jain. managed and operated by Shri Naresh Jain. In view of the above, n view of the above, we do not find any infirmity in the finding of the Ld. CIT(A) on the we do not find any infirmity in the finding of the Ld. CIT(A) on the we do not find any infirmity in the finding of the Ld. CIT(A) on the issue in dispute. Accordingly issue in dispute. Accordingly, we uphold the same. The ground N we uphold the same. The ground Nos. 1 and 2 of the appeal of the Revenue are accordingly dismissed and 1 and 2 of the appeal of the Revenue are accordingly dismissed and 1 and 2 of the appeal of the Revenue are accordingly dismissed and the ground raised in application under Rule 27 of the ITAT Rules is ground raised in application under Rule 27 of the ITAT Rules is ground raised in application under Rule 27 of the ITAT Rules is accordingly allowed.
6.3 Since, we have already Since, we have already upheld quashing of the reassessment of the reassessment proceedings by the Ld. CIT(A) proceedings by the Ld. CIT(A), the issue of addition on merit is the issue of addition on merit is merely rendered academic merely rendered academic, which is left open and we are not which is left open and we are not adjudicating at this stage. adjudicating at this stage.
In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on nounced in the open Court on 28/10/2024. /10/2024.