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Facts
The assessee has appealed against an order confirming the validity of a notice issued under section 148 and the consequent order passed under section 147 of the Income Tax Act. The Assessing Officer (AO) initiated reassessment proceedings based on information received from an investigation wing regarding accommodation entries for bogus long-term capital gains.
Held
The Tribunal held that the reassessment proceedings were not sustainable in the eyes of the law. The reasons recorded by the AO were found to be not in accordance with law as they failed to demonstrate independent application of mind. The AO relied solely on information received from the investigation wing without independent verification.
Key Issues
Whether the reassessment proceedings initiated by the AO under section 147/148 are valid and based on proper application of mind and independent inquiry, or if they are vitiated due to reliance on borrowed satisfaction and lack of due diligence.
Sections Cited
147, 148, 69A, 10(38), 143(1), 144B
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Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘’SMC” JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 532/JP/2024
ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 28-02-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2013-14 raising therein following grounds of appeal. ‘’1. On the facts and circumstances of the case, the ld. (A) has erred in confirming the validity of notice issued u/s 148 of the Act and the consequent order passed u/s 147 of the Act.
1. 2. The ld.CIT(A) has erred on facts and in law in confirming the addition made by AO u/s 69A of the Act by SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR holding that long term capital gain of Rs.9,33,836/- on sale of shares of M/s. Parikh Herbals Ltd. claimed exempt u/s 10(38) is bogus by making various incorrect and irrelevant observations,’’ 2.1 As per the brief facts of the present case, the assessment under section 147 r.w.s. 144 B of the Income Tax Act was completed their by making additions under section 69A of the Act on account of sale proceeds of the shares. 2.2 Although assessee preferred appeal before ld CIT(A) but the same was dismissed after considering the arguments of the parties and also evaluating the facts. 2.3 Aggrieved by the order of Ld CIT(A), the assessee has now preferred the present appeal for me on the grounds mentioned here in above. 2.4 Ground No. 1 raised by assessee relates to challenging the order of Id CIT (A) in conforming to the validity of notice issued under section 148 of the Act and consequent order passed under section 147 of the Act. 2.5 Ld AR appearing on behalf of assessee reiterated the same arguments as were raised by him before the revenue authorities and also relied upon his written submission.
‘’It is submitted that the AO in the reasons recorded has observed that SEBI has passed some order on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from the income tax department as well as its own surveillance system and that of the stock exchange has taken appropriate action in case of suspect scrips. SEBI also banned trading of such SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR shares. On the basis of information collected during search & survey operations assessee is identified as one of the beneficiary in the scrip of Parikh Herbals Ltd./ Safal Herbs Ltd. Sh. Jignesh Shah and Umang Shah have admitted that scrip has been used to give accommodation entries to the beneficiaries and assessee is one of such beneficiary and that the company did not exist at its address.
From the reasons recorded it can be noted that AO has issued notice u/s 148 solely on the basis of information received from DDIT(Inv.), Unit-1(3), Ahmedabad. Neither the order of SEBI nor the statement of Jignesh Shah and Umang Shah was provided along with the reasons recorded nor there is any affirmation that Sh. Jignesh Shah and Umang Shah has admitted that assessee has taken any accommodation entry in the scrip of Parikh Herbals Ltd./ Safal Herbs Ltd. through them. The company is a listed stock exchange company having registered office at A-66, IInd Floor, Gurunanakpura, Vikas Marg, Laxmi Nagar, East Delhi as available on the MCA site and therefore the statement of Jignesh Shah that the company does not exist at its address has no basis. The AO has not made any independent enquiry to ascertain the existence of the company before issuing notice u/s 148. Thus the issuance of notice is solely on the basis of information received and not on the basis of any independent examination by the AO. Hence issuance of notice u/s 148 is illegal & bad in law. Reliance in this connection is placed on the following cases:- B.U. Bhandari Autolines (P.) Ltd. Vs. ACIT (2023) 292 Taxman 195 (Bombay) (HC) Where AO issued a reopening notice on ground that an information was received that assessee was beneficiary of accommodation entries by way of bogus sales from a shell entity, since there was no material or basis for AO to hold that transaction between assessee and said entity was not a genuine transaction of sale and further AO had not independently applied his mind to said information received to come to the conclusion that transaction in question was only a paper transaction, impugned reopening notice was to be quashed. Sabh Infrastructure Ltd. Vs. ACIT (2017) 398 ITR 198 (Del.) (HC) Where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons. Deepraj Hospital Pvt. Ltd. Vs. ITO (2018) 65 ITR 663 (Agra) (Trib.) If the reopening is based on information received from the investigation dept., the reasons must show that the AO independently applied his mind to the information and formed his own opinion. The AO in the reasons has just stated the information received and his conclusion about the alleged escapement of income. As to what the AO did with the information made available to him is not discernible from the reasons. The reasons must also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO thereon as also the conclusions thereof. Further where the reasons make a reference to any document, such document and / or relevant portion SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR thereof must be enclosed along with the reasons. Therefore, reasons recorded by the AO are found to be not in accordance with law. Consequently, the reassessment proceedings, culminating in the order under appeal, are also not sustainable in the eye of law and they too are cancelled. Nothing further survives for adjudication. In the absence of the link between the information available with AO and formation of belief by AO for reassessment, reassessment proceedings are not valid.
Smt. Sudesh Rani Vs. ACIT (2023) 225 DTR 1 (Chd.) (Trib.) For assumption of jurisdiction u/s 147 the AO has to form a prima facie opinion on the basis of tangible material that there is an escapement of income. Reasons recorded and/or the documents available on record must show a nexus and relevancy to the opinion formed by the AO regarding escapement of income. In the instant case, information was received from Principal Director of IT (Inv.) regarding entry of bogus long-term capital gains at platform of Calcutta Stock Exchange and basis the same the AO recorded the reasons to believe that income of the assessee has escaped assessment. What information is available with the AO is neither stated nor enclosed with the reasons so recorded by him and thus not discernible from the reasons so recorded. Mere fact that the assessee sold certain shares with certain value on the stock exchange cannot by itself be held as tangible material. Further the AO has not just recorded a reason to believe rather recorded a conclusive finding that assessee is involved in manage trading of penny stock to convert his undisclosed income into exempt income. AO has to record reasons as to why the transaction reflected in the return of income and claimed exempt is liable for taxation which has escaped assessment and such reasons to believe must be based on tangible material. Whole exercise shows a predetermined mind on the part of the AO to issue notice u/s 148 and complete lack of application of mind. AO has simply relied upon the report and conclusion drawn upon by Investigation Wing without carrying out any preliminary enquiry and investigation and establishing the necessary nexus between material and formation of belief that income has escaped assessment. There is clearly no independent application of mind by the AO. Thus, the notice issued u/s 148 and consequent reassessment proceedings are set aside. Smt. Anshita Vimal Jain Vs. ITO (2023) 199 ITD 168 (Surat) (Trib.) Where AO merely on basis of information received from Investigation wing, Mumbai with reference to search carried out in case of one ‘GJ’ reopened assessment on ground that assessee had taken accommodation entries of bogus purchase bills from ‘GJ’, since AO had not recorded his own satisfaction and had not made any effort to examine and to discuss material received from Investigation wing, reassessment so made was to be quashed. Pioneer Town Planners Pvt. Ltd. Vs. DCIT (2018) 170 DTR 237 (Del.) (Trib.) AO having formed the belief that assessee’s income has escaped assessment only on the basis of some material received from the Investigation Wing without making any effort to examine and discuss the material received from the Investigation Wing and without application of the mind to the same, it follows that he initiated the reassessment SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR proceedings on the basis of borrowed satisfaction without application of his own mind and therefore, reassessment proceedings and all consequent proceedings and orders including impugned reassessment are bad in law and not sustainable. Smt. Sunita Jain Vs. ITO (2017) 49 CCH 0330 (Ahd.) (Trib.) The Hon’ble ITAT after relying on the decision of Gujarat High Court in case of Harikishan Sunderlal Virmani Vs. DCIT, quashed the assessment framed u/s 147. The Hon’ble High Court in its case held that the material on the basis of which the AO seeks to assume the jurisdiction under section 147 of the Act is the information received from the external source viz. the Principal Director of Income Tax (Investigation), Ahmadabad. It cannot be disputed that on the basis of the information received from another agency, there cannot be any reassessment proceedings. However, after considering the information/ material received from other source, AO is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification.
It is submitted that the AO has incorrectly mentioned while disposing the objection of assessee that assessee has not declared the long term capital gain in the return filed in response to notice u/s 148 whereas in this return assessee has shown exempt income of Rs.9,30,821/- comprising of capital gain exempt u/s 10(38) at Rs.9,29,292/- and dividend from shares at Rs.1529/-. Further Ld. CIT(A) while upholding the notice issued u/s 148 has referred to various decisions but all these decisions are on different facts or are in different context. In view of above, notice issued u/s 148 and the consequent order passed u/s 147 is illegal & bad in law and the same be quashed.’’ 2.6 On the contrary ld DR appearing on behalf of the department relied upon the orders passed by the revenue authorities. It was also submitted that the assessee had purchased the shares on 29th April 2011 but the shares were received in Demat account only on 08.08.2012 and the shares were sold on the very next day i.e. 09. 08.2012 and which is self explanatory that the whole transaction in Penny script is pre-planned.
2.7 I have heard the counsel for both the parties and have also perused the material placed on record, judgements cited before me and also the orders passed by the revenue authorities. I found that as per the facts of the present case, although return of the assessee under section 143(1) of the Act was processed but AO on the basis of information received from DDIT(Inv.), Unit-1(3), Ahmedabad that M/s Parikh Herbals Ltd./ Safal Herbs Ltd. listed in Bombay Stock Exchange provide entries of tax exempt long term capital gain to the beneficiaries and assessee is one of such person who has availed accommodation entries of bogus capital gain issued notice u/s 148 dt. 18.03.2020 by recording the reasons which is placed at PB 24-27. The assessee filed objection against reopening of the assessment (PB 28- 31). The AO, however, observed that assessee has not disclosed the long term capital gain/ said transaction either in her original return of income filed on 15.02.2014 or in the return of income filed in response to notice u/s 148 on 23.03.2021 though the said transaction were reflecting in the bank statement. Further the scrip which generated LTCG is a penny stock company and a scheme for converting black money into white as independently confirmed by SEBI. The notice u/s 148 was issued after verification of details filed by the assessee in the ITR. The sufficiency of reasons is not to be considered while issuing notice u/s 148 and thus the objection raised by the assessee were rejected. Now what I have SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR observed is that on the basis of information collected during search and survey operations, assessee is identified as one of the beneficiaries in the script of Parikh herbals limited/ Safal herbs limited. Shri Jignesh Shah and Umang Shah have admitted that script has been used to give accommodation entries to the beneficiaries and Assessee is one of such beneficiary and that the company did not exist at its address. However, from the reasons recorded it can be noted that AO has issued notice u/s 148 solely on the basis of information received from DDIT(Inv.), Unit-1(3), Ahmedabad. Neither the order of SEBI nor the statement of Jignesh Shah and Umang Shah was provided along with the reasons recorded nor there is any affirmation that Sh. Jignesh Shah and Umang Shah has admitted that assessee has taken any accommodation entry in the scrip of Parikh Herbals Ltd./ Safal Herbs Ltd. through them. The company is a listed stock exchange company having registered office at A-66, IInd Floor, Gurunanakpura, Vikas Marg, Laxmi Nagar, East Delhi as available on the MCA site and therefore the statement of Jignesh Shah that the company does not exist at its address has no basis. The AO has not made any independent enquiry to ascertain the existence of the company before issuing notice u/s 148. Thus the issuance of notice is solely on the basis of information received and not on the basis of any independent examination by the AO. Hence issuance of notice u/s 148 is illegal & bad in law.
SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR 2.8 After having gone through the facts and also appreciating the arguments put forth before me I am of the considered view that in case if the reopening is based on information received from the investigation wing then in that eventuality the reasons must show that the AO independently applied his mind to the information and formed his own opinion. The AO in the reasons in the present case has just stated the information received and his conclusion about the alleged escapement of income but he has not mentioned anywhere as to what the AO did with the information made available to him is not discernible from the reason. In my considered view, the reasons must also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO thereon as also the conclusion thereof, further where the reasons make a reference to any document then in that eventuality such document and/or relevant portion their of must be enclosed along with the reasons. In the present case what information is available with the AO is neither stated nor enclosed with the reasons so recorded by him and thus not discernible from the reasons so recorded. Therefore reasons recorded by the AO are found to be not in accordance with law. On the above preposition I rely upon following decisions.
B.U. Bhandari Autolines (P) Ltd. vs ACIT (2023) 292 Tax an 195 Bombay (HC) 2. Sabh Infrastructure Ltd. vs ACIT (20197) 398 ITR 198 (Del. – HC)
SMT. SUDHA AGARWAL VS ITO, WARD 6(4), JAIPUR 3. Deepraj Hospital Pvt. Ltd. vs ITO (2018) 65 ITR 663 (Agra-Trib) 4. Smt. Anshita Vimal Jain vs ITO (2023) 199 ITD 168 (Surat-Trib) 5. Pioneer Town Planners Pvt. Ltd vs DCIT (2018) 170 DTR 237 (Del-Trib) 6. Smt.Sunita Jain vs ITO (2017) 49CCH 033- Ahd-Trib)