ITO WARD-7(1), KOLKATA, AAYAKAR BHAWAN, KOLKATA V. SHREEPATI CAPITAL AND FINANCE PRIVATE LIMITED, MUMBAI

ITA 241/KOL/2024

AI Insights

The case involves Shreepati Capital and Finance Pvt. Ltd., a non-banking finance company engaged in trading shares and derivatives, which faced a reassessment under section 148 of the Income Tax Act, 1961, for the assessment year 2012-13. The AO believed that the assessee had escaped assessment on LTCG claimed as exempt income from trading in a penny stock, based on information received from ADDL.CITT-43, Kolkata. The assessee contested the jurisdiction of the AO to issue notice under section 148 beyond four years and argued that all transactions were disclosed in the original assessment. The Ld. CIT(A) and the tribunal found that the AO's belief was not based on any new evidence but on unsubstantiated allegations, leading to the dismissal of the revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23094 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Other Referred Cases: Calcutta Club Ltd. vs. ITO, Sheo Nath Singh vs. Appellate Assistant CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Earning of tax free income; Reason to believe; Bogus
• Section: 147; 148; 143(3); 139(1)

Judgement Text

" 3 I.T.A. No. 241/Kol/2024 Assessment Year: 2012-13 Shreepati Capital and Finance Pvt. Ltd. is vague and there has been nothing of reason to believe to reopen the assessment. The Ld. Counsel submits that the assessee is a regular trader in shares, securities and derivatives and had traded in shares and securities in all the 40 different scrips during FY 2011-12 and none of the transaction of the assessee in the securities market have been questioned by any of the regulators at any point of time. The submission of the Ld. Counsel of the assessee is that the order passed by the Ld. CIT(A) is completely based upon the facts, available on record and the judicial pronouncement of the High Courts. 6. Upon hearing the submission of the counsel of the respective parties, we have perused the order passed by the AO as well as Ld. CIT(A). On perusal of the order the following facts have been emerged: i) The assessee is a non-banking finance company engaged in the business of shares and derivatives since past several years. ii) The assessee filed return of income u/s 139(1) of the act on 26.09.2012. iii) the assessment was completed u/s 143(3) of the Act on 31.03.2015. iv) The AO issued notice u/s 148 of the Act on 30.03.2019. v) the assessee filed return of income u/s 148 of the Act on 12.04.2019 vi) the assessee objected the jurisdiction of the AO to issue notice u/s 148 beyond four years vide its letter dated 15.11.2019 and also sought details of records and documents relied upon by the AO on his belief. vii) The objection of the assessee were no doubt summarily disposed of vide letter dated 22.11.2019 without dealing with the same on merit. 7. Now look at the reasons recorded by the AO in opening the case of the assessee and it is essential to reproduce herein below: “4.4.1. The following is the reason to believe recorded by the AO 4 I.T.A. No. 241/Kol/2024 Assessment Year: 2012-13 Shreepati Capital and Finance Pvt. Ltd. In this case credible information was received through e-mail from ADDL.CITT-43, Kolkata, vide dissemination of time baring for AY 2012-13 dated 28.03.2019. From the perusal of the information it was gathered that the assessee under reference had traded in share in share scripts of M/s Scan Steel Limited, (BSE Scrip Code no. 511672) which on subjective investigation was establish as a penny stock company. The LTCG, claimed as exempt income, amounted to Rs. 8,11,250/-. From the accompanying report on the said penny stock company it was ascertained that the company been used to facilitate of in accounted income of members beneficiaries in the form of exempt capital gain or short Term Capital Loss in their books of accounts through entry providers by manipulation of stock prices on the stock exchange. Significantly, the assessee company traded the script during this opportune moment i.e FY 2011-12 (AY-2012-13) and amassed the bogus LTCG and claimed exempt income. It is a pertinent question to establish the underhand dealing-gain of the assessee company. In view of the facts as detailed above, it is a crystal clear that the LTCG arising out of the clandestine share trading was preconceived and was the outcome of preplanned dealing. The entire amount of the LTCG should be taxed as income in the hands of the assessee company. In the light of the above information received, I have every reason to believe that the amount of LTCG purportedly claimed as exempt income to tune of Rs. 8,11,250/- had escaped assessment under the provision of section 147.” 8. Going over the aforesaid there is no doubt that the AO did not conduct any enquiry nor referred to the documents duly submitted by the assessee during the assessment. The assessee in its written objection pointed out that he has not claimed any LTCG so allegation that income of Rs. 8,11,250/- has escaped assessment is imaginary allegation. It is pertinent to mention here that the assessee had submitted all the desired documents during the proceedings of first assessment and there was no failure on his part to disclose all the fact fully and truly. It is also further undisputed facts that the assessee had provided complete details of share transaction including in transaction of shares SSL shares and AO did not take any adverse view on the share transacted in its order of first assessment proceedings. These details were available on record and AO could have established that the assessee had not declared any LTCG in his return of income filed or more specifically have not declared any LTCG share transaction in the shares of SSL. 9. We have gone through the order passed by the Ld. CIT(A), and find that the Ld. CIT(A) has discussed the facts submitted by the assessee with the documentary evidence and further discussed the judgement of the Hon’ble High Court and Hon’ble Supreme Court. The Ld. A.R has also drawn the attention of this tribunal on an order 5 I.T.A. No. 241/Kol/2024 Assessment Year: 2012-13 Shreepati Capital and Finance Pvt. Ltd. passed by Kolkata High Court in Calcutta Club Ltd. vs. ITO, reported in 2020 (2) TMI 737 (Cal-HC). We have gone through the cited decision by the AR and find that Hon’ble High Court has held thus: “ Reopening of assessment u/s 147- Defective notice- no whispering in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly material facts- Hence that: The impugned notices under Section 148 and the proceedings under Section 147 are not sustainable in the law and should be quashed for the reasons that admittedly impugned proceedings initiated under Section 147 and notices issued under section 148 which were issued after the expiry of four years from the end of relevant assessment year and in view of the fact that there is no whispering in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly material facts for assessment and in view of the fact that the assessing officer could not establish that the information of alleged escaped income was not within his knowledge and was not considered at the time of passing of the assessment order under Section 143(3) and it came to his knowledge subsequent to the assessment order passed under section 143(3) of the Income Tax Act, 1961 and that subsequent decision of the Hon’ble Supreme Court reversing the legal position prevailing at the time of regular assessment cannot be called an omission or failure on the part of the assessee in disclosing fully and truly the material facts necessary for relevant assessment. Writ petition is allowed and the impugned proceedings under Section 147 and notices dated March 26, 2014 under Section 148 of the Income Tax Act, 1961 are quashed – Decided in faovur of assessee.” 10. Further we find that the Ld. CIT(A) has also discussed the Judgment of the Hon’ble Supreme Court passed in the case of Sheo Nath Singh vs. Appellate Assistant CIT [1971] 82 ITR 147 (SC), the Hon’ble Supreme Court while considering the similar provisions of Section 34(1A) of the Indian Income Tax Act, 1922, held as under: “There can be no manner of doubt that the words ‘reason to believe’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court.” The Ld. CIT(A) has clearly held that from perusal of the facts and circumstances of the case it is without doubt that there was non-application of mind by the Ao in recording the reasons to believe to assume the jurisdiction to reassessment. 6 I.T.A. No. 241/Kol/2024 Assessment Year: 2012-13 Shreepati Capital and Finance Pvt. Ltd. 11. Going over the facts of the case and the order passed by the Ld. CIT(A), we do not find any infirmity in the impugned order, accordingly, the appeal of the revenue is hereby dismissed. In the result, the appeal filed by the revenue is dismissed. Order is pronounced in the open court on 25th March, 2025 Sd/- Sd/- (Rajesh Kumar/राजेश क ुमार) (Pradip Kumar Choubey /Ĥदȣप क ुमार चौबे) Accountant Member/लेखा सदèय Judicial Member/ÛयाǓयक सदèय Dated: 25th March, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- ITO, Ward-7(1), Kolkata 2. Respondent – Shreepati Capital & Finance Pvt. Ltd., 401, Shreepati Arcade, A. K. Marg, Nana Chowk, Mumbai-400036 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata "