VIPINLUMAR SANKLECHA, MUMBAI V. ITO WARD 16 (3)(5), MUMBAI

ITA 6612/MUM/2019

AI Insights

The case involves an appeal by Vipinkumar Sanklecha against the reassessment order passed by the Income Tax Officer (ITO) for the assessment year 2011-12. The reassessment was based on information received from the Directorate of Income Tax (Investigation) suggesting that the shares of M/s Nivyah Infrastructure & Telecom Services Ltd, in which Sanklecha had invested, were part of a scheme to introduce unaccounted income into the books of beneficiaries through exempt capital gains. The ITO reopened the assessment, treating the transactions as bogus and adding the proceeds as unexplained income under section 68 of the Income Tax Act. The Tribunal found that the reopening was not justified as it was based on incorrect facts and did not meet the legal standards required for such an action.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 300108 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-11-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 21-10-2019
• Other Referred Cases: GKN Driveshafts (India) Ltd. vs ITO, Asian Paints Ltd. v. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Reason to believe; Reassessment proceedings
• Section: 147; 148; 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM आयकर अपील सं/ I.T.A. No.6612/Mum/2019 (निर्धारण वर्ा / Assessment Years: 2011-12) Vipinkumar Sanklecha A/303, Bhattad Tower, Opp. Kora Kendra Ground, R. M. Bhattad Road, Borivali (W), Mumbai-400092. बिधम/ Vs. ITO, Ward-16(3)(5) Room No. 447, 4 th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400020. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAYPS5062N (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 21/11/2022 घोषणा की तारीख /Date of Pronouncement: 29/12/2022 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-07, Mumbai dated 02.08.2019 for the assessment year 2011-12. 2. At the outset, the Ld. AR drew our attention to ground nos. 1 & 2 which are the legal issues raised by the assessee against the action of the AO to have reopened the assessment without satisfying the condition precedents as laid down u/s 147 of the Income Tax Act, 1961 (hereinafter “the Act”) as well as for not following the Hon’ble Supreme Court as well the Hon’ble Bombay High Court decision cited by him. The ground nos. 1, 2 & 3.1 reads as under: - “1. The Id. CIT (A) erred in confirming the reopening of assessment without appreciating that the reopening of the assessment is bad in law, invalid and liable to be quashed in as much as: Assessee by: Shri Ajay Singh Revenue by: Shri Mahender Ahuja ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 2 a) Reasons recorded for reopening of assessment are reason to suspect and not reason to believe. b) Reopening is upon direction of third party and therefore borrowed reason. 2. The reassessment order passed by the AO is in violation of the guidelines laid down by the hon’ble Supreme Court and as such the Id. CIT (A) erred in upholding the same. 3.1 The AO/ CIT(A) erred in law and facts in treating the transaction of sale of shares of listed company as bogus and thereupon making an addition of Rs.15,93,445/- under section 68 of the Act, being the sale proceeds of such transaction, treating the same as unexplained income. The reasons given are wrong, contrary to facts of the case and against the provision of law.” 3. Assailing the action of AO to have re-opened the assessment without satisfying the condition precedent, the Ld. AR of the assessee Shri Ajay Singh drew our attention to para no. 1 of the re-assessment order u/s 143 r.w.s 147 of the Act dated 27.12.2018 wherein the AO has taken note of the information which he received from DDIT (Inv.)/Unit-8(3), Mumbai-38 carried out by the assessee which is reproduced as under: - “In this case information was received from DDIT (Inv.)/Unit- 8(3)/Penny stock, Mumbai-38, vide their letter dated 23.03.2018 wherein stated that M Nivyah Infrastructure & Telecom Services Ltd (formerly known as S V Electricals) is a penny stock listed on BSE with scrip code (517534) and this company has been used to (facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt Capital Gain or Short Term Capital Loss in their books of accounts. Further it ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 3 was noticed that share price of M/s Nivyah Infrastructure & Telecom Services Ltd (formerly known as S V Electricals) rose from Rs. 39/- on 21.07.2009 to Rs. 2050/- on 15.01.2011 and dipped Rs. 47.20/- on 18.07.2012.” 4. Thereafter, the Ld. AR drew our attention to page no. 5 of the assessment order wherein the AO has taken note of the facts in respect of very same scrip i.e. M/s. Nivyah Infrastructure & Telecom Services Ltd. (in short “M/s. NN & TS Ltd.”) which is as under: - “This company was having market price of share at around Rs.5.5/- on .01.2009 and thereafter, the price was jacked up to Rs. 171/- on 06.12.2010 in 24 months. Thus, within in 24 months the price was jacked up nearly 31 times. After that the price was maintained in the range of Rs. 171/-. So that (the interested beneficiaries were able to book the long term gains. After that the price was made to fall freely so that interested beneficiaries who had booked at high market price can avail bogus short Term Capital Loss. Thereafter the prices have gone down to merely Rs.47.20/- in 18.07.2012.” 5. Thereafter, the Ld. AR drew our attention page no. 8 of the Ld. CIT(A) order wherein the assessee has raised the legal issue before the Ld. CIT(A) which reads as under: - “Ground No 03. “That the learned Assessing Officer has proceeded to complete the assessment without considering the objections to the issuance of notice u/s.148 of I.T. with a reasoned and speaking order, in gross violation of the procedure laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs ITO (2003) 259 ITR (SC), thus the said assessment order issued be declared null and void." ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 4 Chronological sequence of events with respect to the impugned reassessment proceedings are: Facts emanating from the sequence of events narrated above reveals as follows: a. The Ld AO never provided verbatim copy of reasons as recorded prior to issue of notice. b. The Ld. AO was time and again requested to provide copy of reasons recorded (kindly see page ....of the paper book) c. After in ordinate delay, along with notice u/s 142(1) dated 09/10/2018 vide annexure attached to the said notice sought certain details and communicated reasons (copy attached kindly see page 32 of the paper book), but never provided copy of reasons as recorded prior to issue of notice. d. Be it be so, the appellant on the basis of the communication received, immediate filed its objection vide its letter dated 29/10/2018 (kindly see page 33-34 of the paper book) e. The Ld AO without considering the Objections to issuance of notice u/s.148 of I.T. with a reasoned and speaking order, in gross violation of the procedure laid down by the Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs ITO (2003) 259 ITR (SC) vide its letter dated 17/12/2018 communicated rejection of LTGG and passed assessment order. f. That apart even if letter of rejection (which is not speaking order for disposing off objections) is construed as disposition of objections, The Learned AO erred in completing he assessment in utter disregard o the guidelines laid down the Jurisdictional Bombay High Court in Asian Paints Ltd. v. DCIT (2008) 296 ITR 90 ITR by completing the assessment in haste immediately after disposing off the objections raised by the appellant without ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 5 waiting for a period of four weeks from the date of receipt of order disposing off the objections of appellant.” 6. After drawing my attention to the aforesaid relevant facts regarding the legal issue against re-opening the assessment, the Ld. AR brought to our notice more relevant facts which are necessary for adjudication of this case i.e. the Ld. AR brought to my notice that the return of income was filed for the earlier year i.e. AY. 2009-10 wherein at page no. 54, the assessee has shown the investment in shares M/s. S.V. Electricals which has been made on 12.01.2009, 13.01.2009, 16.01.2009, 20.01.2009 & 03.02.2009. The Ld. AR also drew my attention to page no. 52 of the AY. 2009-10 (ROI along with balance-sheet as on 31.03.2009) wherein the assessee had filed all the details before the AO including the fact of the assessee having invested in various shares to the tune of Rs.43,50,507/- which included the investment in shares of M/s. S.V. Electricals now known as M/s. NI & TS Ltd. (refer chart at page no. 54 of the PB). Thereafter, the Ld. AR drew our attention to page no. 19 of the PB which contains the return of income for AY. 2010-11 wherein the balance-sheet (refer page 20 of the PB), the assessee has shown the investment in share to the tune of Rs.35,44,831/- which is discernable and at page no. 20 of the PB as well as page no. 21 (chart depicting the investment in various shares which includes that of M/s. S.V. Electricals now known as M/s. NI & TS Ltd.). By drawing my attention to the aforesaid facts, Ld. AR contended that the assessee is a regular investor in share which ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 6 included shares of M/s. S.V. Electricals now known as M/s. NI & TS Ltd.. The Ld. AR also drew my attention to the fact that in this relevant AY. 2011-12 the assessee had filed his return of income on 18.08.2011 by declaring total income of Rs.3,71,826/- (refer page no. 1 & 2 of the PB) and assessee claimed Long Term Capital Gain (LTCG) of Rs.72,75,204/- (on sale of shares of M/s. NI & TS Ltd. of Rs.14,59,463/-). It was brought to my notice that while filing the return of income, the assessee had shown Long Term Capital Gain (LTCG) & Short Term Capital (STCG) against the sale of shares, which were purchased over period of time from registered stock broker M/s. Sanghavi Brothers Brokerage Ltd. and same has been reflected in Demat statements. Details of LTCG & STCG are discernable on perusal of page no. 13A-14 of the PB and Demat statement at page no. 24 of the PB and Brokers ledger statement at page no. 50 & 51 of the PB. 7. The Ld. AR also brought to my notice that the following facts in respect to his challenge against the re-opening of assessment by AO i.e. assessee received the notice u/s 148 of the Act dated 29.03.2018 (refer page no. 3 of the PB); and pursuant to which the assessee had requested for reasons recorded dated 10.07.2018 (refer page no. 8 of the PB) as well as reminder on 26.09.2018 (refer page no. 11 of the PB); and pursuant to which the reason recorded was provided by AO only on 09.10.2018 (refer page no. 15-16 of the PB). The assessee vide letter to AO dated 29.10.2018 filed his objection against reopening of assessment. The assessee brought to the notice of the AO that the ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 7 shares of M/s. S.V. Electricals (now M/s. NI & TS) were sold at an average price of Rs.159.35/-. Therefore, the assessee contested the correctness of the information (refer para 3 supra) on the basis of which the AO asserted that share price of this scrip rose to Rs.2050/- on 15.01.2011 which is wholly incorrect or false and so it is not pertaining/relevant to the facts of the assessee’s case [refer 4 supra, where the AO himself in the re-assessment order acknowledges that price of this scrip rose up to Rs. 171 as on 06.12.2010, so assessee wonders as to how the information of DDIT(Inv.) could say about price at Rs.2050/-]. The assessee brought to the notice of AO that all the transactions including that of this scrip were duly disclosed in return of income in prior years and had duly enclosed demat holding statements of the scrips. Therefore on the aforesaid facts, the assessee objected to the reopening but it was brought to my notice that the AO rejected the assessee’s objection vide letter dated 18.12.2018 and has framed the re-assessment order dated 27.12.2018 which means that the assessee has not been given four (4) weeks’ time as directed by the Hon’ble Bombay High Court in the case of Asian Paint Ltd. Vs. DCIT 296 ITR 90. The Ld. AR submitted that the action/omission of the AO not to give at least four (4) weeks time before he frames the assessment order falls foul of the binding decision of the Hon’ble Bombay High Court in Asian Paints (supra). And therefore, this action of the AO is bad in law and so it cannot be sustained. 8. The Ld. AR also brought to my notice that basic reason for reopening the assessment was itself bad in law because the facts noted ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 8 is per-se incorrect. According to the Ld. AR, the condition precedent for reopening the assessment is “reason to believe escapement of Income”. However, according to the Ld. AR, the factual basis itself was wrong which is discernable from the reason recorded which is found placed at page no. 16 of the PB. According to the AR, the adverse information can only trigger “reason to suspect”, and not “reason to believe”; and essential condition precedent to re-open is “reasons to believe escapement of income” and not “reason to suspect”. Therefore, according to the Ld. AR, the condition precedent for reopening has not been satisfied as well as the AO has not given four (4) weeks, time after the objection has been rejected by him as per Asian Paint Ltd. (supra) decision. Therefore, on both counts the reopening of assessment has to be struck down. 9. Per contra, the Ld. CIT-DR supported the action of the Ld. CIT(A) as well as the AO. 10. Having heard both the parties and after perusal of the records, it is noted that the condition precedent for reopening the assessment is “reason to believe escapement of Income”. Herein this case, the assessee has raised the legal issue against the action of AO to have reopened the assessment without satisfying the condition precedent as stipulated u/s 147 of the Act. For assailing the same (legal issue against re-opening/jurisdiction), the Ld. AR drew our attention to the page no. 16 of the PB wherein the reasons recorded for reopening of the assessee is found placed which reads as under: - ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 9 “reasons for reopening. Information has been received from DDIT (Inv.) Unit-8(3), Mumbai vide letter dated 23/03/2018 wherein stated that M/s Nivyah Infrastructure & Telecom Services Ltd is a penny stock listed on BSE with scrip code (517534) and this company has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt Capital Gain or Short term capital loss in their books of accounts. Further it was noticed that share price of M/s Nivyah Infrastructure & Telecom Services Ltd rose from Rs. 39/- on 21.07.2009 to Rs. 2050/- on 15.01.2011 and dipped Rs. 47.20/- on 18/07/2012. However, the financial of the company for the relevant period do not show any substantial change so as to support such as huge share price movement. The company does not have business worthwhile to justify the sharp rise in market of shares. Sharp rise in the market price of this entity is not supported by financial fundamental of the company. Both purchase and sale of the shares are concentrated within few persons entity. The exit provider do not have credit worthiness they are either non- filers or have filed nominal return of income and have not paid tax. The Directorate of Investigation has made available various confessional statements of entities involved in the transactions for generating such bogus claims of LTCG. There is enough reason to believe that not only the claim of exemption under section 10(38) by you is prima facie bogus but by making such bogus claim you have clearly failed to disclose all material facts for determination of income. As per information available to this office there has been a transaction to the tune of Rs.15,99,950/- which is bogus LTCG u/s 10(38) of the Income Tax Act, 1961. ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 10 In view of the above facts, and circumstances of the case, I have reasons to believe that income to the tune of Rs. 15,99,950/- has escaped assessment within the meaning of section 147 of the I.T. Act, 1961. Accordingly notice u/s. 148 issued. Naresh Shankarrao Khapre Ward-16(3)(5), Mumbai 11. From a perusal of the reason recorded supra, we note that the AO has noted that he got information from DDIT(Inv.) dated 23.03.2018 that shares of M/s. NI & TS was a penny scrip and its shares has been used to facilitate introduction of un-accounted income of beneficiaries in the form of exempt capital gain/short term capital loss. According to the information shares price rose from Rs.39 as on 21.07.2009 to Rs.2050 on 15.01.2011 and later on dipped to Rs.47.20/- on 18.07.2012. According to AO, sharp rise in the market price of this scrip is not supported by financial fundamental of the company. According to AO both purchases and sale of shares are concentrated with in few persons. And the DDIT (Inv.) has made available various confessional statement of entities involved in the transaction for generating such bogus claim of LTCG. So according to AO, there is enough reason to believe that claim of exempt LTCG u/s 10(38) of the Act is bogus. According to AO, since there has been transaction made by assessee to the tune of Rs.15,99,950/- which was bogus LTCG claim, it has escaped assessment. So the AO re-opened the assessment by issuance of notice u/s 148 of the Act dated 29.03.2018. 12. When I have to examine the legal issue to see whether the AO had met the requirement of law in the aforesaid reasons recorded to ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 11 validily re-open the assessment, I note that the information on the basis of which the AO has resorted to re-open the assessment suffers from incorrect facts. From a perusal of the reasons recorded it shows that AO after receipt of information from the DDIT (Inv.) that scrip of M/s. NI & TS was a penny stock which price rose from Rs.39 to Rs.2050 (as on 15.01.2011) and assessee had sold the shares of this company in this assessment year, he made up his mind that LTCG from this scrip was bogus and so income escaped assessment. According to me, the information from DDIT(Inv.) dated 23.03.2018 at best can only trigger “Right to suspect” and not “Right to believe, escapement of income”. Therefore when AO received the information about the assessee’s transaction of scrip of M/s. NI & TS, [which according to DDIT (Inv.) was a penny stock and price rose from Rs.39 to Rs.2050 as on 15.01.2011], the AO ought to have conducted a preliminary enquiry and collected material relevant to assessee regarding the transaction of assessee in M/s. NI & TS and then recorded the correct facts while recording the reasons to validily re-open the assessment. In this case, it is noted that assessee has bought the shares of this scrip between 12.01.2009 to 26.10.2009 and thereafter, has sold the same in this year between 09.11.2010 to 06.12.2010 at an average price of Rs.159.35/- and had duly disclosed the purchase of this scrip in AY. 2009-10, AY. 2010-11 & sale of the same in AY. 2011-12. Assessee has purchased the shares through registered stock brokers and Dematerialized the same as noted (supra). It is also noted that assessee had been regularly investing in number of shares which included the shares of M/s. S. V. Electricals (now known as M/s. NI & TS) and claimed LTCG of ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 12 Rs.14.59,463/- on sale of this scrip and not Rs.15,99,950/- as stated in the reasons recorded (supra). And even in the re-assessment order AO acknowledges that scrip price rose from Rs 5.5/- to Rs.171 and not Rs.2050/- as alleged in the reasons recorded, which price according to AO the scrip had as on 15.1.2011. Even if this fact i.e, the scrip price rose to Rs.2050 as on 15.1.2011, then assessee’s last transaction of sale was dated 06. December 2010 was only at Rs 171/-. Then the question is if everything was planned/fixed by few persons to convert the unaccounted money as exempt LTCG, then assessee ought to have waited for a month time to have made a huge gain of Rs.2050 per share rather than selling for Rs.171 per purchase which itself shows that AO ought to have made preliminary enquiry before re-opening. Even in the re-assessment order AO makes the addition of Rs.15,93,445/- which also does not match with the income escaping assessment as stated in the reasons recorded. So the facts stated in the reasons recorded are not correct and therefore on incorrect facts itself the re-opening fails. Moreover, I find that assessee requested for reasons recorded on 10.07.2018 (refer page 8 of the PB) and reminded AO about non-receipt of reasons despite asking for a copy on 27.09.2018 (refer page 11 of the PB). And only on 09.10.2018, the AO gave a copy of reasons recorded (refer page 15-16 of the PB) and the assessee objected to re-opening on 29.10.2018 (refer page 17-18 of the PB) and the AO rejected the objection vide order dated 17.12.2018 and passed the re-assessment order dated 27.12.2018. This action of AO is against the binding order of Hon’ble Bombay High Court in Asian Paints (supra) wherein the Hon’ble High Court has directed the AO to ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 13 dispose of the objection filed by the assessee (against re-opening) in such a manner that assessee gets at least four (4) weeks time to approach the Hon’ble High Court if he desires, and then only pass the assessment order u/s 147/143(3) of the Act. However, it is noted that despite requesting for copy of reasons as early as on 10.07.2018 [and reminder on 27.09.2018], the AO furnished a copy only on 09.10.2018 (delayed approx three (3) months); and assessee’s objection dated 29.10.2018 was disposed of only on 17.12.2018 [approx two (2) months] and passed the assessment order on 27.12.2018, which goes against the binding order of Hon’ble High Court in Asian Paints (supra). So I hold the action of AO to re-open/reassess the income of the assessee as bad in law on both counts as discussed. So the re- assessment order dated 27.12.2018 is quashed. 13. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 29/12/2022. Sd/- (ABY T. VARKEY) JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 29/12/2022. Vijay Pal Singh, (Sr. PS) ITA No.6612/Mum/2019 A.Y. 2011-12 Vipinkumar Sankelecha 14 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai