ASHOK JASRAJ JAIN, HUF, MUMBAI V. ACIT-19(1), MUMBAI

ITA 5609/MUM/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9428 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 28-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Earning of tax free income; Accommodation entries; Reason to believe; Reassessment proceedings; Capital Gains
• Section: 147; 68; 148; 132; 271(1)(c); 69C; 139; 143(3); 133A; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI KULDIP SINGH (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 5609/MUM/2019 Assessment Year: 2014-15 Ashok Jasraj Jain, HUF, 45/12, Rajkotwala Bldg., 2 nd floor, 1 st Carpenter Street, C.P. Tank, Mumbai-400 004. Vs. ACIT-19(1), Matru Mandir Bldg., Tardeo Road, Mumbai-400 007. PAN No. AAAHJ 0191 D Appellant Respondent Assessee by : Mr. Mehul Shah, AR Revenue by : Mr. Manoj Sinha, DR Date of Hearing : 23/08/2022 Date of pronouncement : 31/10/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 24/06/2019 passed by the Ld. Commissioner of Income- tax(Appeals)-30, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014-15. In the proforma prescribed for filing appeal, the assessee has raised various grounds challenging the addition of ₹1,67,70,454/- made by the Assessing Officer, which has been confirmed by the Ld. CIT(A). Before us, the assessee filed application on 04/08/2022 for raising additional 1. The ACIT 19(1), Mumbai (hereinafter referred to as the Assessing Officer) erred in issuing notice u/s 148 of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the issue of notice u/s 148 is bad in law and needs to be quashed. The appellant further, contend that the reasons recorded by the Assessing Officer are vague, insufficie mind and hence, the consequent assessment proceedings are void and illegal. 2. We have heard rival submission of the parties admissibility of the additional ground raised by the assessee being l fresh facts required, same was admitted in the case of decision of the Hon’ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 3. Brief facts relevant to adjudication of the issue in dispute are that assessee filed return of income confirmed by the Ld. CIT(A). Before us, the assessee filed application on 04/08/2022 for raising additional ground as under: The ACIT 19(1), Mumbai (hereinafter referred to as the Assessing Officer) erred in issuing notice u/s 148 of the Act. appellants contend that on the facts and in the circumstances of the case and in law, the issue of notice u/s 148 is bad in law and needs to be quashed. The appellant further, contend that the reasons recorded by the Assessing Officer are vague, insufficient and without application of mind and hence, the consequent assessment proceedings are void and have heard rival submission of the parties ibility of the additional ground. The additional ground raised by the assessee being legal in nature and no investigation of fresh facts required, same was admitted in view of settled principle in the case of decision of the Hon’ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383. Brief facts relevant to adjudication of the issue in dispute are that assessee filed return of income for the year under consideration Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 2 confirmed by the Ld. CIT(A). Before us, the assessee filed application round as under: The ACIT 19(1), Mumbai (hereinafter referred to as the Assessing appellants contend that on the facts and in the circumstances of the case and in law, the issue of notice u/s 148 is bad in law and The appellant further, contend that the reasons recorded by the nt and without application of mind and hence, the consequent assessment proceedings are void and have heard rival submission of the parties on the additional grounds egal in nature and no investigation of in view of settled principle in the case of decision of the Hon’ble Supreme Court in the case of Brief facts relevant to adjudication of the issue in dispute are for the year under consideration i.e. AY 2014-15 on 28/03/2016 declaring total income of ₹4,66,879/-. The return of income filed by the assessee was processed under section 143(1 short ‘the Act’). 3.1 Thereafter, on the receipt of information from of Income-tax (Investigation), Kolkata, the recorded reasons to believe that income and he issued notice under section 148 of the which was duly served upon the assessee. Subsequently notices for completing scrutiny proceedings were issued and complied with. In the reassessment proceedings order 147 read with section 143(3) of the Assessing Officer rejected the claim of the assessee of long capital gain of ₹1,67, Kaushlya Enterprises Ltd (MKEL), whi assessee as exempt under section 10(38) of the on 28/03/2016 declaring total income of The return of income filed by the assessee was ssed under section 143(1) of the Income-tax Act, 1961 ( on the receipt of information from ax (Investigation), Kolkata, the Assessing Officer recorded reasons to believe that income had escape issued notice under section 148 of the Act on 15/09/2016, which was duly served upon the assessee. Subsequently notices for completing scrutiny proceedings were issued and complied with. In the reassessment proceedings order 147 read with section 143(3) of the Act dated 28/12/2017, the rejected the claim of the assessee of long 67,45,253/- on sale of shares of M/s Matra Kaushlya Enterprises Ltd (MKEL), which was claimed s exempt under section 10(38) of the Act Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 3 on 28/03/2016 declaring total income of The return of income filed by the assessee was tax Act, 1961 (in on the receipt of information from the Directorate Assessing Officer escaped assessment on 15/09/2016, which was duly served upon the assessee. Subsequently, statutory notices for completing scrutiny proceedings were issued and complied with. In the reassessment proceedings order under section dated 28/12/2017, the rejected the claim of the assessee of long-term on sale of shares of M/s Matra ch was claimed by the Act and held the same as unexplained taxable income Act and also added accommodation entry, which was held unexplained expenditure the rate of the 2% under section 6 the assessment order is reproduced as under: “15. Thus, considering the findings of the search/ survey, inquiries conducted in the case of brokers, operators, entry providers and exit providers and on the basis of the SEBI and NSE findings, the nature of transaction entered into by the asssessee for receiving LTCG in respect of shares of M/s MKEL and the exemption claimed us 10(38) of the IT. Act, 1961 are not allowed. Since, these transa genuine and not resulting in a genuine capital gains, hence, the sale proceeds received by the assessee of Rs. 1,67,70,454/ MKEL is treated as unexplained taxable income earned during the year and accordingly, a income of the assessee during the relevant Year under consideration. Further, an amount of (commission paid to the entry provider/operator) is being added to the total income of the assessee us 69C of IT Act, 1961 on account of unexplained expenditure. Penalty proceeding u/s. 271(1)(c) are separately initiated for furnishing inaccurate particulars of income leading to evasion of tax. 4. The Ld. CIT(A) also upheld same as unexplained taxable income in terms of section 68 of the and also added alleged commission paid for obtaining accommodation entry, which was held unexplained expenditure 2% under section 69C of the Act. The relevant part of the assessment order is reproduced as under: Thus, considering the findings of the search/ survey, inquiries conducted in the case of brokers, operators, entry providers and exit oviders and on the basis of the SEBI and NSE findings, the nature of transaction entered into by the asssessee for receiving LTCG in respect of shares of M/s MKEL and the exemption claimed us 10(38) of the IT. Act, 1961 are not allowed. Since, these transactions are not treated as genuine and not resulting in a genuine capital gains, hence, the sale proceeds received by the assessee of Rs. 1,67,70,454/- on shares of M/s. MKEL is treated as unexplained taxable income earned during the year and accordingly, added under section 68 of the IT. Act, 1961 to the total income of the assessee during the relevant Year under consideration. Further, an amount of ₹3,35,409/- i.e. 2% of (commission paid to the entry provider/operator) is being added to the total income of the assessee us 69C of IT Act, 1961 on account of unexplained expenditure. Penalty proceeding u/s. 271(1)(c) are separately initiated for furnishing inaccurate particulars of income leading to evasion of tax.” Ld. CIT(A) also upheld the addition observing as under: Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 4 in terms of section 68 of the paid for obtaining accommodation entry, which was held unexplained expenditure at . The relevant part of Thus, considering the findings of the search/ survey, inquiries conducted in the case of brokers, operators, entry providers and exit oviders and on the basis of the SEBI and NSE findings, the nature of transaction entered into by the asssessee for receiving LTCG in respect of shares of M/s MKEL and the exemption claimed us 10(38) of the IT. ctions are not treated as genuine and not resulting in a genuine capital gains, hence, the sale on shares of M/s. MKEL is treated as unexplained taxable income earned during the year dded under section 68 of the IT. Act, 1961 to the total income of the assessee during the relevant Year under consideration. i.e. 2% of ₹1,67,70,454/- (commission paid to the entry provider/operator) is being added to the total income of the assessee us 69C of IT Act, 1961 on account of unexplained expenditure. Penalty proceeding u/s. 271(1)(c) are separately initiated for furnishing inaccurate particulars of income the addition observing as under: “5.7 CONCLUSION To reiterate, the facts of the case, as at para 5.4 and 5.5 supra, 30,000 shares of Matra Kaushalya Enterprise Ltd were acquired from Pranjal Trading Co P Ltd; purchase invoice of Kaushalya Global was for 30000 shares for Rs 3,00,000/ 10/- per share. Appellant has furnished a copy of purchase invoice at pp 29 of paper book. This is clearly an off market transaction. The demat account was credited with 30,000 The appellant has furnished contract notes for sale of Matra Kaushalya Enterprise Ltd through Dhwaja Shares & Securities Pvt Ltd from 21.01.2014 to 29.01.2014 for 1,67,70,453/ share is approximately Rs. 558/ of bank account in Bank of Baroda where the appellant has highlighted Rs. 55,29,416, Rs. 49,38,584, Rs.52,42,363 received on 28.01.2014, 29.01.2014 and 30.01.2014 respectively from Dhwaja Shares & Securities Pvt Ltd account of appellant in Indusind Bank at pp 39 of the paper reveals that 30000 shares of Matra Kaushalya Enterprises Ltd was debited on 21.01.2014 - this is strange as the last sale took place on 29.01. These are placed at Annexure. This transaction of purchase is an off debited in the demat account prior to the sale which is purportedly through the stock exchange. There is a spectacular gain in price from Rs. 10/-per share to Rs. 558/560 per share. In the light of the afore cited decisions and the sale being post improbable, the action ofthe Ld AO in holding the transaction to be bogus is upheld. The addition on account of commission on CONCLUSION To reiterate, the facts of the case, as at para 5.4 and 5.5 supra, 30,000 shares of Matra Kaushalya Enterprise Ltd were acquired from Pranjal Trading Co P Ltd; purchase invoice of Kaushalya Global was for 30000 shares for Rs 3,00,000/- on 26.11.2012 for face value of Rs per share. Appellant has furnished a copy of purchase invoice at pp 29 of paper book. This is clearly an off market transaction. The demat account was credited with 30,000 shares on 13.12.2012. The appellant has furnished contract notes for sale of Matra Kaushalya Enterprise Ltd through Dhwaja Shares & Securities Pvt Ltd from 21.01.2014 to 29.01.2014 for 1,67,70,453/-where the sale price per share is approximately Rs. 558/-; the bank statement at pp 38 of the PB of bank account in Bank of Baroda where the appellant has highlighted Rs. 55,29,416, Rs. 49,38,584, Rs.52,42,363 received on 28.01.2014, 29.01.2014 and 30.01.2014 respectively from Dhwaja Shares & Securities Pvt Ltd reveals that the total is Rs 1,57,10,363/ account of appellant in Indusind Bank at pp 39 of the paper reveals that 30000 shares of Matra Kaushalya Enterprises Ltd was debited on this is strange as the last sale took place on 29.01. These are placed at Annexure. This transaction of purchase is an off - market transaction. The sale is debited in the demat account prior to the sale which is purportedly through the stock exchange. There is a spectacular gain in price from Rs. er share to Rs. 558/560 per share. In the light of the afore cited decisions and the sale being post -debit of demat account being improbable, the action ofthe Ld AO in holding the transaction to be bogus is upheld. The addition on account of commission on Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 5 To reiterate, the facts of the case, as at para 5.4 and 5.5 supra, 30,000 shares of Matra Kaushalya Enterprise Ltd were acquired from Pranjal Trading Co P Ltd; purchase invoice of Kaushalya Global was furnished on 26.11.2012 for face value of Rs per share. Appellant has furnished a copy of purchase invoice at pp 29 of paper book. This is clearly an off market transaction. The demat The appellant has furnished contract notes for sale of Matra Kaushalya Enterprise Ltd through Dhwaja Shares & Securities Pvt Ltd from where the sale price per ; the bank statement at pp 38 of the PB of bank account in Bank of Baroda where the appellant has highlighted Rs. 55,29,416, Rs. 49,38,584, Rs.52,42,363 received on 28.01.2014, 29.01.2014 and 30.01.2014 respectively from Dhwaja Shares & reveals that the total is Rs 1,57,10,363/-. The demat account of appellant in Indusind Bank at pp 39 of the paper reveals that 30000 shares of Matra Kaushalya Enterprises Ltd was debited on this is strange as the last sale took place on 29.01.2014. market transaction. The sale is debited in the demat account prior to the sale which is purportedly through the stock exchange. There is a spectacular gain in price from Rs. er share to Rs. 558/560 per share. In the light of the afore cited debit of demat account being improbable, the action ofthe Ld AO in holding the transaction to be bogus is upheld. The addition on account of commission on the accommodation entry @ 2 percent is reasonable and is upheld. Accordingly, grounds of appeal no 1 and 2 are dismissed. 5. Before us, the Ld. containing pages 1 to 182 in support of grounds raised on merit of addition. He has also filed another paperbook containing pages 1 to 54 in support of additional round raised challenging the validity of the reassessment proceedings. 6. In respect of additional assessee referred to the which are placed on page 10 and 11 of the paperbook challenging the validity of the reassessment proceedings assailed reasons recorded by the grounds: (a) There is a lack of application of the mind by the Officer while recording reasons accommodation entry @ 2 percent is reasonable and is upheld. Accordingly, grounds of appeal no 1 and 2 are dismissed.” Ld. Counsel of the assessee filed a paperbook containing pages 1 to 182 in support of grounds raised on merit of ddition. He has also filed another paperbook containing pages 1 to 54 in support of additional round raised challenging the validity of the reassessment proceedings. In respect of additional ground raised, the Ld. assessee referred to the reasons recorded by the Assessing Officer which are placed on page 10 and 11 of the paperbook challenging the validity of the reassessment proceedings. The assailed reasons recorded by the Assessing Officer is a lack of application of the mind by the while recording reasons; Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 6 accommodation entry @ 2 percent is reasonable and is upheld. of the assessee filed a paperbook containing pages 1 to 182 in support of grounds raised on merit of ddition. He has also filed another paperbook containing pages 1 to 54 in support of additional round raised challenging the validity of Ld. Counsel of the Assessing Officer which are placed on page 10 and 11 of the paperbook challenging . The Ld. Counsel Assessing Officer on following is a lack of application of the mind by the Assessing In the reasons recorded assessee had not disclose sale of shares of MKEL and had also not filed r income (regular) for the year under consideration, whereas the assessee not only file 28/03/2016 but also duly shown the income on sale of shares of MKEL under the head capital gain’. Therefore, his mind while recording reasons under section 148 of the bad in law and deserve to be quashed. (b) There is no live link of the material relied upon and belief formed thereupon (i) The Assessing Officer received that several penny stock companies consequent to its the reasons recorded, the Assessing Officer assessee had not disclosed the receipt of ₹1,67,70, sale of shares of MKEL and had also not filed r income (regular) for the year under consideration, whereas the assessee not only filed original return of 28/03/2016 but also duly shown the income on sale of KEL under the head ‘income from long ’. Therefore, the Assessing Officer his mind while recording reasons and thus, under section 148 of the Act and consequent assessment is bad in law and deserve to be quashed. There is no live link of the material relied upon and belief thereupon: Assessing Officer recorded that information was received that ‘SEBI’ has suspended trading in shares of several penny stock companies consequent to its Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 7 Assessing Officer has noted that 1,67,70,454/- on sale of shares of MKEL and had also not filed return of income (regular) for the year under consideration, whereas return of income on 28/03/2016 but also duly shown the income on sale of income from long-term Assessing Officer did not apply and thus, notice issued and consequent assessment is There is no live link of the material relied upon and belief recorded that information was has suspended trading in shares of several penny stock companies consequent to its investigation of ‘MKEL’ suspended in other shares is not relevant material for forming belief in the case of the assessee. During the course of the reassessment proceeding also no such material indicating suspension of trading in shares of ‘MKEL’ by ‘ (ii) In the reasons recorded it is mentioned that information was received from directorate of investigation, based on search/ operators/intermediaries/beneficiaries long-term capital gain LTCG or long (LTCL) was provided to beneficiaries by way of accommodation entries. But in the material supplied by the investigation, name of the assessee is not appearing. The information under refer investigation, but, nowhere stated that trading in shares were suspended by the SEBI. The trading suspended in other shares is not relevant material for forming belief in the case of the assessee. During the course of the reassessment proceeding also no such material indicating suspension of trading in shares of ‘SEBI’ has been provided to the assessee. In the reasons recorded it is mentioned that information was received from directorate of investigation, based on search/survey on the premises of certain operators/intermediaries/beneficiaries and found that term capital gain LTCG or long-term capital loss was provided to beneficiaries by way of accommodation entries. But in the material supplied by the investigation, name of the assessee is not appearing. The information under reference including the statement of Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 8 , but, nowhere stated that trading in shares were suspended by the SEBI. The trading suspended in other shares is not relevant material for forming belief in the case of the assessee. During the course of the reassessment proceeding also no such material indicating suspension of trading in shares of has been provided to the assessee. In the reasons recorded it is mentioned that information was received from directorate of investigation, Kolkata premises of certain and found that term capital loss was provided to beneficiaries by way of accommodation entries. But in the material supplied by the investigation, name of the assessee is not appearing. The ence including the statement of alleged operators or intermediaries or beneficiaries for brokers have never been provided to the assessee. (c) Reasons recorded based on suspicion The Assessing Officer mentioned that quantum of long case of the assessee was found suspicious and therefore detailed investigation was undertaken ( reopening the assessment) applying various tools of Income-tax Department website etc. 6.1 The Ld. Counsel cannot be reopened merely on decision in the case of Writ Petition No. 2627 of 2016 the Hon’ble Bombay Investments P. Ltd. (ITA No. 1297 of 2015 alleged operators or intermediaries or beneficiaries for brokers have never been provided to the assessee. Reasons recorded based on suspicion Assessing Officer in Para 5 of the assessment order has mentioned that quantum of long-term capital gain in the case of the assessee was found suspicious and therefore investigation was undertaken (i.e. by reopening the assessment) applying various tools of Department data, BSE data, Counsel of in support of his contention that cannot be reopened merely on reason to suspect, decision in the case of Coronation Agro industries Ltd Vs DCIT No. 2627 of 2016. He also referred to the decision of Bombay High Court in the case of PCIT v. Shodiman Investments P. Ltd. (ITA No. 1297 of 2015) Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 9 alleged operators or intermediaries or beneficiaries for brokers have never been provided to the assessee. of the assessment order has term capital gain in the case of the assessee was found suspicious and therefore i.e. by way of reopening the assessment) applying various tools of data, BSE data, money control of in support of his contention that assessment reason to suspect, relied on the Coronation Agro industries Ltd Vs DCIT . He also referred to the decision of PCIT v. Shodiman ), wherein the reassessment proceedings based on the reason to suspect was held invalid. 7. The Ld. DR on the other hand submitted that reasons have been validly recorded by the non-filing of income by the assessee in the reasons reco trivial matter and not a substantive issue to ho proceeding as invalid. formed, the Ld. DR admitted that information received contained general modus operandi term capital gain from the shares, which were manipulated by the operators or brokers at Calcutta, specific name of the assessee was not required. Regarding reason to suspicion, the that the Assessing Officer investigation by the Directorate to investigation and assessment proceedings. Accordingly reassessment proceedings based on the reason to suspect was held DR on the other hand submitted that reasons have been validly recorded by the Assessing Officer and mentioning of filing of income by the assessee in the reasons reco trivial matter and not a substantive issue to hold the reassessment s invalid. Regarding absence of live link with the belief DR admitted that information received contained modus operandi and the assessee being beneficiary of long term capital gain from the shares, which were manipulated by the operators or brokers at Calcutta, specific name of the assessee was not required. Regarding reason to suspicion, the Ld. Assessing Officer was referring to suspicion before Directorate of Income-tax Investigation to investigation and assessment proceedings. Accordingly Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 10 reassessment proceedings based on the reason to suspect was held DR on the other hand submitted that reasons have and mentioning of filing of income by the assessee in the reasons recorded was a ld the reassessment Regarding absence of live link with the belief DR admitted that information received contained ng beneficiary of long- term capital gain from the shares, which were manipulated by the operators or brokers at Calcutta, specific name of the assessee was Ld. DR submitted erring to suspicion before Investigation and not to investigation and assessment proceedings. Accordingly, he submitted that reassessment proceeding have been validly initiated in the case of the assessee. 8. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record has assailed the validity of reassessment proceeding defects in reasons recorded. the reasons recorded by the on page 10 and 11 of the paperbook 1. An information was received in this case from the Directorate Income (Investigation), Kolkata, stating that the investigation comes department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bo capital gain and bogus trading of shares of various penny stock companies. 2. The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate submitted that reassessment proceeding have been validly initiated in the case of the assessee. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record has assailed the validity of reassessment proceeding defects in reasons recorded. Therefore, it is relevant to repro the reasons recorded by the Assessing Officer, which are available on page 10 and 11 of the paperbook -2, as under: An information was received in this case from the Directorate Income (Investigation), Kolkata, stating that the investigation comes department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term capital gain and bogus short term capital loss/bogus business loss through trading of shares of various penny stock companies. The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 11 submitted that reassessment proceeding have been validly initiated We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee has assailed the validity of reassessment proceeding in view of it is relevant to reproduce , which are available An information was received in this case from the Directorate Income-tax (Investigation), Kolkata, stating that the investigation comes out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged gus short term short term capital loss/bogus business loss through The investigation conducted by the Kolkata Investigation Directorate stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such b carried out, admitted that they charged commission on the amount involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG income and thereby converted undisclosed income into tax free income without paying taxes. Information was received that the SEBI has suspended trading in shares of several penny stock companies consequent to its investigation. The Investigation Wing Kolkata ha action u/s 132 and survey action u/s 133A of the I.T. Act on various operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator were artificially rigging the pric purpose of giving accommodation entries in the form of long term capital gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra Kaushal Enterprises Ltd. (MKEL). 3. As per the information available on record, the assessee sold shares the penny stock company M/s MKEL disclosed the receipt and has not filed the return of income. 4. The company M/s MKEL h 2013. Thus its performance did not command any substantial increase in prices short period. In view of all the above facts, the amount received by the assessee is unexplained. 5. On the basis of the aforesaid info applying my mind, I have reasons to believe that income chargeable to tax of ₹1,67,70,454/- meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is reopened u/s 147 of the I.T. Act, 1961 for AY 2014 informed that all such brokers through whom such transaction were carried out, admitted that they charged commission on the amount involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG e and thereby converted undisclosed income into tax free income without paying taxes. Information was received that the SEBI has suspended trading in shares of several penny stock companies consequent to its investigation. The Investigation Wing Kolkata had carried search action u/s 132 and survey action u/s 133A of the I.T. Act on various operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator were artificially rigging the prices of several such companies for the purpose of giving accommodation entries in the form of long term capital gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra ushal Enterprises Ltd. (MKEL). As per the information available on record, the assessee sold shares the penny stock company M/s MKEL ₹1,67,70,454/-. The assesesse has not disclosed the receipt and has not filed the return of income. The company M/s MKEL had losses for the year ending 2011, 2012 and 2013. Thus its performance did not command any substantial increase in prices short period. In view of all the above facts, the amount received by the assessee is unexplained. On the basis of the aforesaid information available with me and after duly applying my mind, I have reasons to believe that income chargeable to tax - has escaped assessment for AY 2014-15 within the meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is pened u/s 147 of the I.T. Act, 1961 for AY 2014-15. Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 12 rokers through whom such transaction were carried out, admitted that they charged commission on the amount involved in these transactions. It was also informed that the assessee has traded in the shares of penny stock companies to generate bogus LTCG e and thereby converted undisclosed income into tax free income without paying taxes. Information was received that the SEBI has suspended trading in shares of several penny stock companies consequent d carried search action u/s 132 and survey action u/s 133A of the I.T. Act on various operators who were indulging in trading in shares of penny stock companies. It was found during the search and survey that the operator es of several such companies for the purpose of giving accommodation entries in the form of long term capital gains against equivalent amount of cash after deducting their commission. The list of such companies included the penny stock company M/s Matra As per the information available on record, the assessee sold shares the . The assesesse has not ad losses for the year ending 2011, 2012 and 2013. Thus its performance did not command any substantial increase in prices short period. In view of all the above facts, the amount received by rmation available with me and after duly applying my mind, I have reasons to believe that income chargeable to tax 15 within the meaning of section 147 of the I.T. Act, 1961. Accordingly, the case is 8.1 Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the mind by the Assessing Officer that income escaped assessment. We find that the in Para 3 of the reasons recorded has noted that the assessee has not disclosed the receipt of of income, whereas before us the assessee has filed a of income filed under provision of section 139 of the Assessing Officer in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the said return of income on sale of the shares amounting to long-term capital gain and claim the Assessing Officer incorrect facts merely on the basi without verifying the same from the record available with him. Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the Assessing Officer while recording reasons to believe income escaped assessment. We find that the Assessing Officer of the reasons recorded has noted that the assessee has not the receipt of ₹1,67,70,454/- and has not filed the return of income, whereas before us the assessee has filed a of income filed under provision of section 139 of the in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the said return of income, the assessee has declared the receipt on sale of the shares amounting to ₹1,67,45,253/- term capital gain and claimed the same as exempt. Therefore, Assessing Officer has recorded reasons to believe based on incorrect facts merely on the basis of the information received and without verifying the same from the record available with him. Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 13 Firstly, the assessee has challenged the validity of the reassessment proceeding on the ground of nonapplication of the while recording reasons to believe Assessing Officer of the reasons recorded has noted that the assessee has not and has not filed the return of income, whereas before us the assessee has filed a copy of return of income filed under provision of section 139 of the Act. The in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. ee has declared the receipt under the head the same as exempt. Therefore, has recorded reasons to believe based on s of the information received and without verifying the same from the record available with him. It makes clear that there is a total non of the AO while recording the reasons for reopening of the assessment. In the case of 147 (Del), the Hon’ble Delhi High Court held that the AO should apply his mind in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 of the Act. 8.2 Secondly, we find that the suspension of trading in some shares by the Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of trading in the shares other than belief that income escaped The Hon’ble Supreme Court in the case of Brokers Private limited issue of notice, the question is whether there was relevant material makes clear that there is a total non-application of mind on the part of the AO while recording the reasons for reopening of the In the case of CIT v. G & G Pharma (2015) 384 ITR , the Hon’ble Delhi High Court held that the AO should apply his mind in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 we find that the Assessing Officer suspension of trading in some shares by the Security and Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of ing in the shares other than MKEL is not relevant for making escaped assessment in the case of the assessee The Hon’ble Supreme Court in the case of Rajesh Jhaveri Private limited 291 ITR 500 (SC), held that issue of notice, the question is whether there was relevant material Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 14 application of mind on the part of the AO while recording the reasons for reopening of the CIT v. G & G Pharma (2015) 384 ITR , the Hon’ble Delhi High Court held that the AO should apply his mind in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 has referred to Security and Exchange Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of MKEL is not relevant for making in the case of the assessee. Rajesh Jhaveri Stock eld that at the stage of issue of notice, the question is whether there was relevant material on which a reasonable person c that income escaped assessment. information referred that SEBI suspended trading in some penny stock shares is not relevant for forming belief that income arising from sale of shares of MKEL has escaped assessment. 8.3 Thirdly, the Assessing Officer recorded that case was reopened in view of the suspicion that income escaped assessment investigation. The relevant finding of the reproduced as under: “5. Suspicion of Revenue 5.1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long term capital gainwas found suspicious and detailed investigation of this issue was undertaken. Various tools availabl ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI. on which a reasonable person could have formed a requisite that income escaped assessment. But, in the present case the information referred that SEBI suspended trading in some penny stock shares is not relevant for forming belief that income arising from sale of shares of MKEL has escaped assessment. Assessing Officer in assessment order has recorded that case was reopened in view of the suspicion that assessment and therefore wanted detailed . The relevant finding of the Assessing Officer reproduced as under: Suspicion of Revenue 1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long term capital gainwas found suspicious and detailed investigation of this issue was undertaken. Various tools available were examined including ITD data, BSE data, money control website, taxman, court rulings, internet as well as investigation wing report and findings of the SEBI.” Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 15 ould have formed a requisite belief in the present case the information referred that SEBI suspended trading in some penny stock shares is not relevant for forming belief that income arising from sale of shares of MKEL has escaped assessment. in assessment order has recorded that case was reopened in view of the suspicion that and therefore wanted detailed Assessing Officer is 1 The assessee earned long term capital gain in the current year and claimed it as exempt u/s 10(38) of the act. This quantum of huge long term capital gainwas found suspicious and detailed investigation of this e were examined including ITD data, BSE data, money control website, taxman, court rulings, internet ” 8.4 It is evident that the reasons recorded where he fo suspicious and thereafter he is referring to the undertaken by him, where Income-tax Department taxman, court rulings Internet as well as investigation wing report and finding of the SEBI Assessing Officer has referred to the suspicion before carrying out investigation by the factual position and therefore same is rejected. 8.5 The Ld. Counsel High Court in the case of Coronation Agro industries Ltd (supra), wherein Hon’ble High Court has held based on reason to suspect cannot the Hon’ble High Court is reproduced as under: is evident that the Assessing Officer is referring to the reasons recorded where he found the long-term capital gain a suspicious and thereafter he is referring to the detailed where he has referred to various tools including Department data, BSE data, money control website, taxman, court rulings Internet as well as investigation wing report SEBI. Thus, the contention of the has referred to the suspicion before carrying out investigation by the Investigation Wing, is not born factual position and therefore same is rejected. Counsel relied on the decision of the Hon’ble Bombay High Court in the case of Coronation Agro industries Ltd (supra), wherein Hon’ble High Court has held that reassessment proceeding based on reason to suspect cannot be valid. The relevant finding of the Hon’ble High Court is reproduced as under: Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 16 is referring to the term capital gain as detailed investigation he has referred to various tools including ata, money control website, taxman, court rulings Internet as well as investigation wing report . Thus, the contention of the Ld. DR that has referred to the suspicion before carrying out is not borne out of above relied on the decision of the Hon’ble Bombay High Court in the case of Coronation Agro industries Ltd (supra), that reassessment proceeding valid. The relevant finding of “4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was n occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. 5. In the above view, prima facie, we are of the view that the impugned notice is withou that income chargeable to tax has escaped assessment." 8.6 Similarly the 29/09/2021 the case o No. 1197/Del/2019 reopening has to be based on the reliable material and not on the 4. We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape nt of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. 5. In the above view, prima facie, we are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment." Tribunal Delhi bench in decision dated the case of Dove Consultants Pvt. Ltd. Vs DCITITA No. 1197/Del/2019 for Assessment Year 2009 reopening has to be based on the reliable material and not on the Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 17 4. We note that the reasons in support of the impugned notice business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching indicate the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in ot on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape nt of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income 5. In the above view, prima facie, we are of the view that the t jurisdiction as it lacks reason to believe Delhi bench in decision dated Dove Consultants Pvt. Ltd. Vs DCITITA 2009-10 held that reopening has to be based on the reliable material and not on the basis of reason to suspect reassessment proceeding. 8.7 Similarly, Hon’ble Bombay High Court 16/04/2018 in the case of Pvt. Ltd. (Bombay High Court) Assessment Year 2003 cannot be initiated based on suspicious transactions in the bank account of Mahasagar 8.8 In the instant case also according to the found the long term capital gain declared by the assessee suspicious transactions and not as reliable i ascertaining, he needed the investigation. In our opinion, in view of the decision of the Hon’ble Shodiman Investments P. Ltd. (supra) Officer is not permitte to suspicion. basis of reason to suspect, accordingly, the Tribunal reassessment proceeding. Hon’ble Bombay High Court in judg case of PCIT Vs M/s. Shodiman Investments Pvt. Ltd. (Bombay High Court) in Income Tax ITA. 2003-04 held that reassessment proceeding cannot be initiated based on suspicious transactions in the bank account of Mahasagar Securities Ltd. In the instant case also according to the Assessing Officer found the long term capital gain declared by the assessee suspicious transactions and not as reliable information and for , he needed the investigation. In our opinion, in view of the decision of the Hon’ble Bombay High Court in the case of Shodiman Investments P. Ltd. (supra) cited above, the is not permitted to reopen assessment based on the reason Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 18 Tribunal quashed the in judgment dated PCIT Vs M/s. Shodiman Investments in Income Tax ITA. 1297 of 2015 eld that reassessment proceeding cannot be initiated based on suspicious transactions in the bank Assessing Officer he found the long term capital gain declared by the assessee as nformation and for , he needed the investigation. In our opinion, in view of Bombay High Court in the case of cited above, the Assessing based on the reason 8.9 In view of above discussion completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground assessee is allowed. 8.10 Since, we have already the arguments raised by the parties on the merit of the addition are rendered academic, and same. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Sd/- (KULDIP SINGH JUDICIAL MEMBER Mumbai; Dated: 31/10/2022 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT In view of above discussion, the reassessment proceeding completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground Since, we have already quashed the reassessment proceeding, the arguments raised by the parties on the merit of the addition are rendered academic, and therefore, we’re not adjudicating In the result, the appeal filed by the assessee is allowed. ounced in the open Court in 31/10 Sd/- KULDIP SINGH) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT Copy of the Order forwarded to : Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 19 the reassessment proceedings completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground raised by the the reassessment proceeding, the arguments raised by the parties on the merit of the addition are adjudicating upon In the result, the appeal filed by the assessee is allowed. 10/2022. - OM PRAKASH KANT) MEMBER 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Ashok Jasraj Jain, HUF ITA No. 5609/M/2019 20 BY ORDER, (Sr. Private Secretary) ITAT, Mumbai