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Facts
The assessee filed a return of income declaring total income and claiming exempt income under Section 10(38) for AY 2014-15. Information was received that the scrip 'Luminai Tech' was a penny stock used for accommodation entries providing Long-Term Capital Gain/Short Term Capital Loss. The assessee's case was re-opened, and the claimed exempt income was added back. The CIT(A) confirmed the AO's order.
Held
The Tribunal noted inconsistencies in the scrip names mentioned by the Investigation Wing and the AO, and that the AO failed to apply his mind and establish the identity of the exit provider. The linkage between the scrip, the alleged penny stock companies, and the assessee was not established, making the reopening and assessment order null and void.
Key Issues
Whether the reopening of assessment and the subsequent addition were valid without establishing the nexus with alleged penny stock transactions and the identity of the exit provider.
Sections Cited
148, 68, 10(38)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRIPAVAN KUMAR GADALE & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order ofthe National Faceless Appeal Centre (NFAC), Delhidated 23.06.2023 u/s.250of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2014-15. The assessee has raised the following grounds of appeal: -
1. The notice issued under section 148 of the Act is null and void, bad in law and ultra vires the provisions of the Act. The Learned CIT(A) NFAC, Delhi has erred in confirming the action taken by the Learned Assessing Officer without appreciating the facts of the case from the right perspective.
2. The Learned CIT(A) NFAC, Delhi has erred in confirming the action taken by the Learned Assessing Officer of making an addition of Rs. 82,80,751/- under section 68 of the Act without appreciating the facts of the case in the right perspective. 3. The Learned CIT(A) NFAC, Delhi has erred in confirming the action taken by the Learned Assessing Officer wherein he has erred in not appreciating that the Appellant has disclosed the LTCG of Rs.80,99,396/- under Schedule Exempt Income in the return of income filed for the year under reference. 4.The Appellant reserve the right to amend, alter or add to the grounds of appeal.
2. The brief facts of the case are thatthe assessee Individual filed her return of income on 24.07.2014 declaring total income at Rs. 12,98,590/- and also claimed exempt income u/s. 10(38) of the Act amounting to Rs. 82,80,751/-. There was a piece of information received from the office of the Director of Income Tax (Inv.), Kolkata that the scrip namely Luminai Tech is penny stock scrip and in connivance with the promoters, brokers, entry operators and exit providers accommodation entry has been provided to various beneficiaries as Long-Term Capital Gain/ Short Term Capital Loss. Based on this information case of the assessee was re-opened u/s. 148 of the Act and amount claimed exempt u/s. 10(38) of the Act was added back to the income of the assessee. Assessee being aggrieved with the same preferred an appeal before the Ld. CIT (A), NFAC, Delhi. Who in turn confirm the order of AO. Now,the assessee being aggrieved with the order of First Appellate Authority, preferred this appeal before us.
3. We have reviewed the order of AO and Ld. CIT(A), reasons for re-opening and submissions of the assessee along with grounds raised before us.The following points emerged out of our review of various orders and documents placed before us during the hearing of the case:
The report of the Investigation Wing, Kolkata indicates the name of the scrip as Luminai Tech. In contrast, AO himself vide his order, para 3, page 2 discusses some PS Global and Redford Global Limited. As a matter of fact, on record, the assessee herself declares that she dealt with the shares of PS Global and Redford Global Limited but the name and reference of Luminai Tech are totally out of context;
The observation made above establishes that despite possessing information from the Investigation Wing, Kolkata, AO had not bothered to apply his mind before and after the re-opening of the case. The same observation is further strengthened by the fact that in the same assessment order, the AO is discussing the scrip of Jolly Plastic Ltd. and its ban by SEBI, being a penny stock involved in price rigging to provide artificial Long-Term Capital Gain/ Short Term Capital Loss vide para 5.2 of the assessment order;
The assessing officer discussed in detail the modus operandi of transactions involving fictitious Long-Term Capital Gain/ Short Term Capital Loss but nowhere established the identity of the exit- provider which is a sine qua nonin such types of transactions and is always a part of any investigation report on such issues;
In the whole assessment order,we have not found any link between Luminai Tech vis-à-vis PS Global and Redford Global Limited or Jolly Plastic Ltd.Rather assessee vide her letter dated: 22.11.2021, placed on pages no. 58-60 of the paper book filed before us categorically raised this issue but the same is disposed of by the AO without addressing the same vide his letter dated: 10.01.2022, placed on pages 61-62 of the paper book. In his letter also, AO was discussedabout PS Global and Redford Global Limited.
4. We have reviewed the order of Ld. CIT (A)also but again this linkage of names of the scrips of the companies under consideration was missing. Both the orders of lower authorities substantially failed to establish the link betweenLuminai Tech vis-à-vis PS Global and Redford Global Limited or Jolly Plastic Ltd.In addition to this identity and statement of the exit provider are also not there in any of the orders of lower authorities. Given these circumstances, there may be a possibilitythat PS Global and Redford Global Limited or Jolly Plastic Ltd. may be the penny stocks and involved in fictitious transactions of providing Long-Term Capital Gain/ Short Term Capital Loss but in this case, the re-opening of the matter was done without application of mind and without establishing the identity of the exit provider, which must in such type of case to establish the nexus between the assessee and fictitious entry providers.
In the result, based on the above factual observations, proceedings carried out by the AO and further confirmed by the Ld. CIT(A) is declared to be null and void as the same is assumed without proper jurisdiction. The Assessment Order passed is declared to be null and void and the same is set aside.
In the result, the appeal of the assessee is allowed.