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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SH. SUDHANSHU SRIVASTAVA & SH. O.P. KANT
PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 22/10/2010 of learned Commissioner of Income-tax (Appeals)-XXIII, New Delhi [in short ‘CIT-A’] for assessment year 1999-2000, raising following grounds:
i. That the order of the learned A.O. as well as CIT-A is bad in law and against the facts of the case. ii. That the learned A.O. as well as CIT-A acted arbitrarily in treating the Security Deposit refund of Rs.40,000/- as income from undisclosed sources. iii. That the learned A.O. as well as CIT-A acted arbitrarily in treating the Capital gain of Rs.389528/- as income from undisclosed sources. iv. That the learned A.O. as well as CIT-A was not justified in disallowing the adjustment of Long Term Capital Loss against Short Term capital Gain of the assessee. v. That the assessee craves the right to add, delete, modify any one or more of the grounds of the appeal at the time of hearing.
2. Facts in brief of the case are that the assessee filed return of income on 29/12/1999 declaring total income of Rs.1,59,545/-. In the return of income, the assessee declared long-term capital gain of Rs.3,89,258/- which was set off against the capital loss brought forward from assessment year 1998-99 . 2.1 Subsequently, on receipt of information from the Directorate of Income Tax (Investigation) to the effect that the assessee was beneficiary of accommodation entries provided by M/s. My Money Securities Ltd., the Assessing Officer, issued notice under section 148 of the Income-tax Act, 1961 (in short ‘the Act’) on 31/03/2006. In view of no response of the assessee, the Assessing Officer issued notices under section 142(1) of the Act on 16/05/2006 and 31/10/2006 requesting the assessee to file the return of income. In response, the assessee filed a letter on 15/11/2006 stating that return of income filed on 29/12/1999 might be treated as having filed return in response to notice under section 148 of the Act. Thereafter, the Assessing Officer issued notice under section 143(2) of the Act on 30/11/2006 fixing the case on 8/12/2006. In view of the limitation, the Assessing Officer completed the assessment under section 147/143(3) of the Act on 29/12/2006. In assessment proceedings, the Assessing Officer noted long-term capital gain of Rs.3,89,258/- declared on sale of shares through M/s. My Money Securities and for verification of the entries of Rs.1,50,000/- and Rs.2,79,529/- received from M/s. My Money Securities Ltd., issued summon under section 131 of the Act to the Principle Officer of M/s. My Money Securities Ltd., which remained non-complied. The assessee also failed to justify the transactions. It was concluded by the Assessing Officer that considering facts and circumstances of the case, scrutiny of papers filed with assessee and information of the Investigation Wing, coupled with non-compliance of summon issued under section 131 of the Act by M/s. Money Securities Ltd., the assessee had received only entries from M/s. My Money Securities Ltd., without any actual transaction of sale of shares. Accordingly, he treated the money received from M/s. My Money Securities as income from other sources and disallowed the setoff of brought forward losses of Rs.3,89,258/-. Aggrieved, the assessee filed appeal before the Ld. CIT-A and challenged the reopening of the assessment proceedings as well as merit of the addition. The assessee also submitted confirmation of M/s. My Money Securities Ltd. as an additional evidence. The Ld. CIT-A forwarded the additional evidence to the Assessing Officer calling for a remand report. After taking into account the remand report and comments of the assessee on the remand report, the Ld. CIT-A upheld the legality of the reassessment proceeding as well as upheld the addition. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
At the outset, the learned counsel of the assessee referred to the application of the assessee dated to 2/2/2012 for admission of the following additional grounds: i. On the facts and under the circumstances of the case, the order of the CIT-A is bad in law.
ii. The CIT-A failed to appreciate that A.O. has no jurisdiction u/s 147 to reopen the case of the appellant since there was no fresh material before the A.O. for forming reasonable belief that the income of the assessee has escaped assessment within the meaning of section 147. iii. The CIT-A further failed to appreciate that the reasons recorded by the A.O. are mere internal note and not reasons as envisaged under Section 147.
The learned counsel submitted that the issue of no jurisdiction under section 147 of the Act for reopening of the assessment, was raised before the learned CIT-A, but left to be added in grounds of appeal due to inadvertence in the appeal filed before the ITAT and thus he prayed for admitting the above additional grounds. The Ld. counsel submitted that the additional ground raised are purely legal in nature and no further investigation of facts is required for disposing off these additional grounds. 4.1 On the other hand, Ld. Senior Departmental Representative opposed admission of the additional grounds and stated that no such grounds were taken before the Ld. CIT-A. 4.2 We have heard the rival submission and perused the relevant material on record in respect of admissibility of additional grounds raised by the assessee. In view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. Commissioner Of Income Tax, 1998 229 ITR 383 (SC), It is now a settled law that an assessee can raise legal grounds before any stage of appellate proceedings, if the facts in respect of the grounds are available on record and no investigation of fresh facts is required. In the present case, in the additional grounds, the assessee has challenged assumption of jurisdiction under section 147 of the Act, which is purely a legal ground and does not require investigation of fresh facts. In the circumstances, we admit the additional grounds raised
by the assessee.
5. Since in the additional ground, the assessee has challenged the assumption of jurisdiction itself, we are taking first the additional ground for adjudication.
6. The ld. Counsel supporting the additional grounds submitted paper book containing pages 1 to 73. He further referred to page 73 of the paper book, which is a copy of confirmation from M/s. My Money Securities Ltd. The learned counsel further referred to page 72 of the paper book, which contained copy of the reasons recorded and submitted that there was no fresh material before the Assessing Officer for forming reasonable belief that income had escaped. He further submitted that assessment has been reopened merely on the basis of an internal note of the Income Tax Department, which cannot be treated as reasons as required under section 147 of the Act. The Ld. counsel submitted that the Assessing Officer has reopened the assessment merely on the basis of information received from the Investigation Wing of the Income Tax Department and no mind was applied by the Assessing Officer in reopening the assessment and thus the requirements of ‘reason to believe’ for reopening of the assessment under section 147 of the Act, was not satisfied. In support of the contention, the Ld. Counsel, relied on the decision of the jurisdictional High Court in the case of Pr. Commissioner Of Income Tax Vs. G & G Pharma India Ltd, dated 8th October, 2015.
7. The Ld. Senior Departmental Representative, on the other hand, submitted that the Assessing Officer after taking into account the information provided by the Director of Income Tax (Investigation) that M/s. My Money Securities Ltd. was involved in providing entries and the M/s. My Money Securities Ltd., along with the statement of Mr. Sanjay Seth of M/s. My Money Securities Ltd., he formed belief that income in the case of the assessee escaped assessment. He submitted that the Assessing Officer has reopened the assessment after ascertaining that the information was from a credible source and the jurisdiction of the assessee lied with him. He further submitted that the facts of the case cited by the assessee were not applicable in the present case.
We have heard the rival submissions and perused the relevant material on record. The learned Commissioner of Income Tax (Appeals) has decided the issue of validity of reassessment proceedings in para-5 of the impugned order as under: “5. I have considered the facts of the case and the basis of reopening of assessment done by the Assessing Officer and objection to the same by the Authorized Representative. The assessment has been reopened on the basis of the information received by the Assessing Officer from Investigation Wing of the Department, which in turn is based upon survey conducted under section 133A of the Act, wherein M/s. My Money Securities Pvt. Ltd. was investigated and it was alleged that the totality of analysis of facts of the case show that M/s. My Money Securities Pvt. Ltd. had been giving accommodation entries to different assessee including Shiekher Chand Keshiv (HUF). It is logical for the Assessing Officer to form his belief on the basis of information conveyed to him by the Investigation Wing of the Department and therefore, I don’t find any infirmity on this issue and the action of the Assessing officer in this regard is upheld.”
For examining the issue of validly of assessment, it is necessary to reproduce the reasons recorded by the Assessing Officer, before issue of notice under section 148 of the Act, as under:
The Directorate of Investigation-I, New Delhi vide its officer letter no. 65 dated 24.03.2006 had sent a report in the case of Delhi. The letter was accompanies with a details report. A perusal of the report shows that Shaikhar Chander Keshiv HUF whose jurisdiction lies with undersigned has been a beneficiary of entries provided by My Money Securities Ltd. In view of the above credible information received from the DIT(Inv.). I have reasons to believe that the income of my assessee who stands as a beneficiary from the entry provider, which is chargeable to tax has escaped assessment, as per the provisions of section 147(a), (b) & (C) of the Income Tax Act, 1961. I am therefore satisfied that the said income on accommodation entries worth Rs.4,29,529/- has escaped assessment and accordingly after recording the above said reasons as laid down under the provisions of Section 148(2) of the Income Tax Act, propse to issue a notice to the above mentioned assessee u/s 148(1) of the I.T. Act, 1961.
On behalf of the assessee, the Ld. counsel challenged the reopening of the assessment on the ground that there was no fresh material before the Assessing Officer for forming reasonable belief that income of the assessee had escaped tax. This contention of the Ld. counsel is not found to be correct as report (survey) from the Director of Income Tax (Investigation) that the assessee was a beneficiary of accommodation entry provided by M/s My Money Securities Ltd was available before the Assessing Officer. The fact that this detailed report was also containing a statement of Sh. Sanjay Seth from M/s. My Money Securities Ltd., has not been disputed by the assessee. This report alongwith the statement of Sh. Sanjay Seth of M/s My Money Securities Ltd. is definitely a fresh material for the Assessing Officer, on the basis of which, he made a belief that income escaped assessment. Further, the Ld. Counsel submitted that reasons recorded are mere internal note and not reasons as envisaged under section 147 of the Act. This contention of the learned counsel is also not found to be correct as the fact of assessee being a beneficiary of accommodation entry was surfaced in survey proceedings at the premises of M/s My Money Securities, by the authorities of the Director of Income Tax (Investigation). The report was as a result of enquiries carried out by the Investigation Wing. The Assessing Officer has perused the letter of the Directorate of Investigation Wing alongwith the detailed report manifesting that the assessee was beneficiary of accommodation entries provided by M/s My Money Securities. He then verified that the jurisdiction of the assessee lied with him, and thereafter, he formed a reason to believe. We also note that the assessee did not object the reassessment proceedings before the Assessing Officer. In the case of G & G Pharma India Ltd. (supra), the Hon’ble High Court directed the standing counsel for the Revenue to produce the material on the basis of which the assessment was reopened. The Revenue failed to produce such material before the Hon’ble High Court, which is evident from paras 5 and 6 of the judgment, as under:
“5. When this appeal was first listed on 7th August 2015, the Court enquired from Mr. Kamal Sawhney, learned Senior Standing counsel for the Revenue, whether he could produce the materials on the basis of which the assessment was reopened. He sought and was granted three weeks time for this purpose. The matter was next listed on 10th September 2015 when on account of the fact that the date had been wrongly noted by the learned Standing counsel , the case was adjourned for today. It was made clear on 10th September 2015 that the order dated 7th August 2015 must be complied with positively before the next date of hearing.
Today when the case was called out, Mr. Sawhney produced before the Court the very same letter of the AO dated 15 th September 2010 which has been reproduced in its entirely in the impugned order of the ITAT. He submitted that the AO was himself present in the Court and further efforts would be made to locate the materials on the basis of which the AO formed his opinion regarding reopening of the assessment. The Court was not prepared to grant further time for this purpose since it was not clear that the materials were, in fact, available with the Department.”
The Hon’ble High Court concluded that basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment, was missing. When the learned counsel of the Revenue referred that CIT-A discussed the material produced during the hearing of the appeal, the Hon’ble court observed that unless that basic requirement is satisfied, a post-mortem exercise of analysing materials produced subsequent to the reopening, will not rescue an inherently defective reopening order from invalidity.
Thus, we respectfully agree with the ratio of the judgment that in absence of a material, recording reasons to believe that income escaped assessment was definitely a case of non application of mind by the Assessing Officer. But in the present case before us, availability of material before the Assessing Officer is not in doubt. There are cases where the Assessing Officer recorded reasons on the basis of information from the Investigation Wing, however, while recording reasons the Assessing Officer repeated the same entry multiple times and in such cases the Tribunal has held that the Assessing Officer has not applied his mind while recording the reasons. But in present case no such fact is observed. The only thing which is disputed before us is that the material was only internal note and it could not be termed as a fresh material. We have already rejected both these contention advanced on behalf of the assessee in preceding paras. In the present case, the Assessing Officer after going through the material which was received from a credible source and after verification that the assessee was within his jurisdiction, he formed a belief that the income had escaped assessment. Thus, the facts and circumstances of the present case are different from the facts and circumstances of the case cited by the assessee. In the case of Raymond Woollen Mills Vs. ITO (1999) 236 ITR 34, the Hon’ble Supreme Court held that if prima facie some material exist on the basis of which Department can reopen the case, it is sufficient to initiate the reassessment proceeding and the sufficiency or correctness of the material is not a thing to be considered at this stage. The same view has been expressed by the Hon’ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Broker (P) Ltd (2007) 291 ITR 500 (SC) as under:
“16. Sec. 147 authorises and permits the AO to assess or reassess income chargeable to tax 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 that 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 evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), for initiation of action under s. 147(a) (as the provision stood at the relevant time) fulfilment 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 [see ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)].”
In the facts and circumstances of the case discussed above and respectfully following the judgments of the Hon’ble Supreme Court as mentioned above, we uphold the finding of the learned Commissioner of Income-tax (Appeals) justifying the validity of the reassessment proceeding. Accordingly, the additional grounds of the appeal are dismissed.
In respect of grounds raised
in the appeal, the Ld. counsel submitted that out of the amount of Rs.4,29,528/- assessed by the Assessing Officer under the head “income from other sources”, the amount of Rs.40,000/- was security deposit given by the assessee to M/s. My Money Securities Ltd., and thus the addition of Rs.4,29,528/- was not justified. Further, he submitted that the broker M/s Money Securities Ltd. has confirmed purchase and sales of shares on behalf of the assessee. He further submitted that the only reliance placed by the Assessing Officer that the assessee had not given details of distinctive number of shares traded, cannot be a reason for doubting the genuine transactions. According to the Ld. counsel, if difference of value between sale and purchase is given or taken from the purchaser, this cannot be case of accommodation entry, in absence of any adverse material brought on record by the Assessing Officer.
15. On the contrary, the Ld. Senior DR, relying on the order of the lower authorities submitted that the assessee failed to justify purchase and sale of share through M/s My Money Securities Ltd. He submitted that the assessee has claimed to have traded in Scrips like ‘MTNL’, ‘Satyam Computers’, ‘Zee Telefilms’, ‘BPL Ltd.’, ‘Pentafour Software’ etc. but neither given any evidence that said transactions were carried out on the stock exchange. He said that if the shares were traded otherwise than stock exchange, then assessee should have given distinctive number of the shares traded, which he did not. He submitted that principle officer of M/s My Money Securities Ltd neither appeared before the Assessing Officer nor the assessee furnished any evidences in support of the claim of purchase and sales except receipt of sum M/s My Money Securities Ltd. He further submitted that name of the person who issued the said certificate, was not given in the certificate. In view of the submissions, he prayed that finding of the Ld. Commissioner of Income- tax (Appeals) on the issue in dispute might be upheld.
We have heard the rival submissions and perused the relevant material on record. The facts in brief are that the assessee claimed to have advanced a sum of Rs.40,000/-, as security on 19/11/98 to M/s. My Money Security Ltd. and further claimed to have purchased 6100 shares of various companies, namely, ‘MTNL’, ‘Satyam Computers’, ‘Zee Telefilms’, ‘BPL Ltd.’, ‘Pentafour Software’ for a sum of Rs.27,47,595/-. The assessee further claimed to have sold through M/s. My Money Securities Ltd. for a sum of Rs.31,38,205/-, earning a profit of Rs.3,90,610/-. The amount of Rs.4,29,528/- received through two cheques amounting to Rs.1,50,000/- and Rs.2,79,529/- was explained by the assessee as under: profit on sale of shares Rs. 3, 90, 610/- Refund of security money Rs. 40,000/- Total Rs. 4,30, 610/- Less: expenses Rs. 1,082/- Net amount received Rs. 4,29,528/-
Before the Assessing Officer, no evidence in support of purchase or sale of shares was filed by the assessee. A summon issued to the Principle Officer M/s. My Money Securities Ltd. asking for information with relation to the purchase and sale of shares was also remain un- complied with. Before the Ld. CIT-A, the assessee filed a copy of confirmation letter from M/s. My Money Securities Ltd, which was Assessing Officer calling for a remand report. After considering the remand report and the comment of the assessee on the said remand report, the observations made by the learned CIT(A), are summarized as under:
Payment of Rs. 40,000/- by the assessee to M/s. My Money Securities Ltd. on 19.11.1998 was confirmed as the same was appearing in the bank account of the assessee as well as in the bank account of M/s. My Money Securities Ltd.
The Investigation Wing of the Department carried out enquiries in respect of M/s. My Money Securities Ltd. and brought on record two concerns, namely, M/s. Batra Investments and M/s. Jha Investments, whose bank accounts had been opened in Corporation Bank, Karol Bagh, on the basis of introduction provided by M/s. My Money Securities Pvt. Ltd. The said concerns operated account No. 3403 (M/s. Batra Investments) and 3404 (M/s. Jha Investments), wherein huge amounts of cash had been deposited periodically and cheques have been issued to different parties. It was also brought on record that all the cash deposits in above mentioned accounts had ultimately found place in the bank accounts of M/s. My Money Securities Pvt. Ltd. During the course of recording of statement of Shri Sanjai Seth, C/o- M/s. My Money Securities Ltd. by Income Tax Officer (Inv.) on 28.12.2006, it was confronted that cash which was deposited in the accounts of M/s. Batra Investments and M/s. Jha Investments had been rotated through M/s. My Money Securities Ltd. as received cheques and forwarded the same after deducting their commission and no physical involvement of shares happened as there was no evidence that share transfer forms where stamped by the broker. It was also confronted that these dealings were merely transfer of cheques from one account to another and the account of the broker had been used to make the transaction look like genuine transfer of shares. In response to these, Mr. Sanjai Seth had no comments to rebut the conclusion arrived at by the Income Tax Officer (Inv.) Therefore, even though there was no direct specific admission by M/s. Money Securities Ltd., but there is enough circumstantial evidence to prove that the cheques issued by it are mere bank entries involving transfer of funds, but no actual transfer of shares ever took place.” 3. Merely receipt of cheques cannot satisfy genuineness of the transactions of purchase and sales. 4. The assessee failed to furnish distinctive number of shares purchased and sold, which is a fundamental requirement in security market and basis for maintaining share capital detail of a particular company. 5. The assessee failed to brought on record to justify the rate of scripts on the date of purchase and sale.
In view of observations, the Ld. CIT-A concluded that no sale of shares by the assessee through M/s My Money Securities Ltd., actually happened and the receipt/payment of cheques was a pre-arranged affair and therefore, the action of the Assessing Officer in treating the profit as income from other sources was confirmed.
Before us also, no evidence which could justify the purchase and sale of the shares was filed. Before us, the Ld. counsel could not confirm whether the transactions were carried out on the stock exchange, or were carried out otherwise than stock exchange. The assessee has not furnished any distinctive number of the shares traded, and without which it cannot be verified from the Company, whether the assessee traded in those shares. The assessee has even not justified the rate of purchase and sale of each scrip as compared to the rate quoted on stock exchange. It was the onus of the assessee to establish the genuineness of the transaction of purchase and sale of the sales and the assessee has failed to discharge this onus. In view of these circumstances, in our opinion, the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute, are comprehensive and well reasoned. However, as far as amount of Rs. 40,000/- claimed to have been given by the assessee to M/s My Money Securities Ltd. as security deposit, is concerned, the Ld. CIT-A has confirmed the fact of giving Rs. 40,000/- by the assessee on the basis of both the bank account of the assessee and the bank account of M/s My Money Security Ltd. In view of this confirmation, no addition is required to made in respect of amount of Rs. 40,000/- and said amount is required to be reduced from the addition of Rs.4,29, 529/-made by the Assessing Officer under the head ‘income from other sources’. We direct accordingly. Thus, ground No. 2 of the appeal is allowed, whereas ground No. 3 of the appeal is dismissed. 20. In ground No. 4, the assessee has challenged disallowing of adjustment of long-term capital loss against the short-term capital gain on sale of shares. In our opinion, this ground is consequential in nature. In the return of income, the profit on purchase and sale of shares was claimed short-term capital gain and the brought forward long-term capital loss of earlier years was set off as per the provisions of section 74 of the Act. But, since the claim of the short-term capital gain on sale of shares has not been accepted and said receipt on alleged sale of shares has been assessed as income from other sources, the assessee cannot be allowed to set off of brought forward long-term capital loss against the income from other sources as per the provisions of section 74 of the Act. This ground is accordingly dismissed. 21. In the result, appeal of the assessee is partly allowed The decision is pronounced in the open court on 17th March, 2017.