RAHUL RASTOGI,DELHI V. ACIT, CIRCLE 1(1)(1), MEERUT

ITA 845/DEL/2024

AI Insights

The case involves Rahul Rastogi, the appellant, who contested the reassessment order issued by the National Faceless Assessment Centre, Delhi, concerning the assessment year 2017-18. The reassessment was based on allegations of bogus long-term capital gains (LTCG) amounting to Rs.1,22,88,973, derived from transactions involving shares of Eicher Motors Ltd. The Income Tax Department claimed these transactions were part of a scheme to convert unaccounted cash into legitimate income through forged documents. The Tribunal examined the legality of the reopening of the assessment, focusing on the procedural adherence to sections 147 and 148 of the Income Tax Act, and the substantive validity of the reasons provided for such reopening.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474548 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2017-2018
• Other Referred Cases: Sejal Jewellary & Anr. vs. ACIT, Shyam Sunder Khandelwal vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: KAPIL GOEL
• Keywords: Reassessment proceedings; Bogus purchase; Reopening of assessment; Capital Gains; Principle of natural justice; Sham transactions; Search and seizure; Accommodation entries; Earning of tax free income; Reason to believe; Borrowed satisfaction; Penny stocks; Bogus
• Section: 147; 148; 143(3); 250; 143(1); 153C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.845/Del/2024 Assessment Year: 2017-18 Rahul Rastogi, C/o Kapil Goel, Advocate, F-26/124, Sector-7, Rohini, New Delhi – 110 085. PAN: AGBPR5152P Vs ACIT, Circle-1(1)(1), Meerut. (Appellant) (Respondent) Assessee by : Shri Kapil Goel, Advocate Revenue by : Ms Harpreet Kaur Hansra, Sr. DR Date of Hearing : 28.02.2025 Date of Pronouncement : 07.03.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the assessee against the order dated 22.01.2024 of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.NFAC/2016-17/10144882 arising out of the appeal before it against the order dated 29.03.2022 passed u/s 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by National Faceless Assessment Centre, Delhi (hereinafter referred to as the Ld. AO). ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 2 2. On hearing both the sides, we find that the ld. AR for the assessee has primarily stressed on the fact that the exercise of jurisdiction of reopening is vitiated as on incorrect reasoning and without application of mind the reopening has been done. The relevant grounds as raised by the assessee are reproduced below; “JURISDICTIONAL GROUNDS (IMPUGNED REOPENING ACTION U/S148 IS TOTALLY INVALID) 10.1 That impugned order of passed u/s 250 by national faceless appeal centre /cita, dismissing appeal of assesse and sustaining impugned assessment order of Ld AO (National faceless assessment centre) and impugned reopening u/s 148 by ACIT Circle 1(1)(1) Meerut, are totally illegal, unlawful and contrary to mandate of 1961 Act as jurisdictional notice u/s 148 is issued on 01- 04-2021 for all practical purposes which is purportedly dated 31.03.2021 and thus invalid as issued in old law after enactment of Finance Act 2021; 10.2 That impugned order of passed u/s 250 by national faceless appeal centre /cita, dismissing appeal of assesse and sustaining impugned assessment order of Ld AO (National faceless assessment centre) and impugned reopening u/s 148 by ACIT Circle 1(1)(1) Meerut, are illegal and void ab initio for want of valid assumption of jurisdiction u/s 148 of 1961 Act (lack of valid reasons u/s 148(2); reopening made on basis of “borrowed satisfaction” and lack of valid sanction u/s 151); 10.3 That impugned order of passed u/s 250 by national faceless appeal centre /cita, dismissing appeal of assesse and sustaining impugned assessment order of Ld AO (National faceless assessment centre) and impugned reopening u/s 148 by ACIT Circle 1(1)(1) Meerut, are unlawful as complete reasons along with relevant annexures were not furnished by Ld AO to appellant despite being requested and sans the supply of complete reasons proceedings are not valid ; 10.4 That impugned order of passed u/s 250 by national faceless appeal centre /cita, dismissing appeal of assessee and sustaining impugned assessment order of Ld AO (National faceless assessment centre)are unlawful as edifice of the reassessment proceedings were based upon material/information found from search operation on Kundu Group on Rohtak on 25.02.2021as disclosed in the show cause notice which ought to have been initiated under section 153C only as per special law and therefore proceedings initiated under section 148 are invalid; ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 3 On violation of CBDT Instruction 20/215 dated 29.12.2015 and lack of valid/requisite “SCN” and violation of mandate of sec 142(3) of 1961 Act and total violation of principle of natural justice 10.5 That impugned order of passed u/s 250 by national faceless appeal centre /cita, dismissing appeal of assessee and sustaining impugned assessment order of Ld AO (National faceless assessment centre) and impugned reopening u/s 148 by ACIT Circle 1(1) (1) Meerut, are invalid and unlawful for want of valid SHOW CAUSE NOTICE as mandated u/s 144B of 1961 Act (no underlying relied upon material provided as such) read with CBDT instruction 20/2015 dated 29.12.2015; 10.6 That impugned order of passed u/s 250 by national faceless appeal centre /cita, dismissing appeal of assesse and sustaining impugned assessment order of Ld AO (National faceless assessment centre) and impugned reopening u/s 148 by ACIT Circle 1(1)(1) Meerut , as assessment is made in clear violation of mandate of sec 142(3) of 1961 Act for total lack of confrontation of back material and sans any cross examination (though requested).” 3. In this context, we find that the assessee is an individual and has income from house property, income from business, income from capital gain and income from other sources and filed a return declaring Rs.18,24,660/-. The ITR of the assessee was processed on the returned income, however, the case was selected for reopening and a notice for reopening was issued on 31.03.2021. The reopening was done for alleged bogus capital gain of Rs.1,22,88,973/- on the basis that certain ante dated forged contract note through sub-brokers Karnam Services Pvt. Ltd. were found as part of sham transactions of bogus LTCG investigated by Directorate of Income-tax (Systems). 4. The ld. AR has submitted that in the reasons for reopening, no facts are mentioned which would show as to what information was examined. The ld. AR has submitted that objections to the show cause notice were filed along with ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 4 the contract note and bank statement, copy of which is placed at pages 51-74 of the paper book. It was submitted that only a sum of Rs.86,94,779/- was earned by the assessee in the form of LTCG. It is established by the ld. AR on the basis of computation of total income that capital gains (STT) u/s 10(38) of Rs.86,94,779/- was claimed. The annexure giving details of the transactions show that the assessee had transacted in Eicher Motors’s shares. Ld. AR has also submitted on the basis of material on record that there appears to be two set of reasons for reopening with the assessing officer. Further ld. AR has submitted that in case the alleged escapement was on the basis of search and seizure operation in Kunndu Group, Rohtak then the assessment should have been u/s 153C of the Act. 5. Ld. DR has relied the orders of ld. Tax authorities below. It was submitted that these objections are fresh and should have been as additional grounds. 6. At the outset we will like to observe that the said issue are not rasied for the first time but as ground no. 1 and 2 have been considered by the ld. CTIA), though the objections of assumption of jurisdiction u/s 147/148 of the Act, was made in different or to say more general manner. However, ld. CIT(A) has disposed of the same in para 8 with sub-para. Thus assessee was not required to raise the issue by way of additional grounds. 7. After taking into consideration the facts and circumstances and submissions, we find that at page 6 of the paper book, there is a notice u/s 148 ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 5 of the Act dated 31.03.2021 and corresponding to it at page 11 is the copy of reasons recorded for reopening and we consider it appropriate to reproduce the same here below:- “Vide Instruction F.No. 225/40/2021/ITA-ll dated 04.03.2021 of CBDT and Instruction No. 28 dated 23.03.2021 of Directorate of Income Tax (System), the case of the assessee has been pushed on the Insight Portal as “potential case’’ for escapement of income as per the provisions of section 147 of the Income Tax Act, 1961. The information was perused along with the profile and other records available on the system and otherwise. An independent opinion was formed after going through the whole records on the modus operandi by which the income was not assessed and hence the provisions of the section 147 was attracted. 2. In this case, the assessee has booked bogus long term capital gain of Rs. 1,22,88,973/- through reputed stocks by issuing ante dated forged contract notes through sub broker Karnam Securities Private Limited as mentioned in the investigation report of Investigation Wing, Rohtak. Through a web of sham transactions bogus Long Term Capital Gain or investment the assessee has used to suppress his income. By going through the complete information I by independent opinion have reason to believe that there has been escapement of income on this account. 3. On perusal of the record it is seen that the assessee has filed ITR for A.Y. 2017-18 on 21.12.2017 declaring income of Rs.18,24,660/-. Further, as per records the case of the assessee has not been assessed u/s 143(3) of the Act. 4. On the above mentioned facts and through independent opinion, I have reason to believe THAT an income to the tune of Rs.1,22,88,973/- has escaped assessment for the aforesaid year.” 8. Pertinent to mention is that the ld. AR submitted before us on the basis of the information received under the Right to Information Act, the copy of which is also placed on record that this is the very reopening reasons which was reproduced for the purpose of taking approval u/s 151 of the Act. 9. In contradiction to the aforesaid as we take into consideration the show cause notice issued to the assessee as to why proposed variation should not be ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 6 made, the copy of which is available at page 35 to 50 of the paper book, we find that although in this notice dated 26.03.2022 in para No.2 the AO refers to a notice u/s 148 issued on 31.03.2021, however, the reasons for reopening narrated are very illustrative and not the same as we have reproduced above and for completeness we prefer to reproduce the same:- “Preliminary Assessee is an individual and has Income from Business, Income from Capital Gain and Income from other sources. The assessee filed return of income for A Y 2015-16 declaring total income of Rs. 18,24,660/- on 21.12.2017. The ITR was processed at returned income. No assessment was made u/s 143(3) of the IT Act. Information The information has been received on Insight Portal, as potential case. An information received from the office of the DDIT(lnv.), Rohtak regarding claim of bogus Long-Term Capital Gain by furnishing fabricated ante-dated contract note. As per information, A search and seizure action was carried out in case of Tradenext Securities Limited (Erstwhile Lifeline Securities Limited) along with one beneficiary of long term capital gains exempt u/s 10(38), Kundu Group of Rohtak on 25.02.2021. During the search and post search investigations, it was found that the assessee and his family members have taken long term capital gain (LTCG), exempt u/s 10(38) of the Act in FY 2012-13, 2013- 14, 2014-15 and 2015-16 through investment in shares of INDUSIND Bank. Further, in case of assessee beneficiary covered during the search, it is clearly established by the investigation wing that the exempt LTCG claimed is bogus and an accommodation entry to bring the unaccounted cash in the books of account. The assessee beneficiary covered during the search i.e. Kundu Group is into the civil contractors business and is generating huge unaccounted cash by booking bogus expenses in the name of subcontractors and through bogus purchase of construction material. Then as admitted by the counsel of the group, by paying commission of 2%, the same cash is brought in the books of members of Kundu family by taking accommodation entries of bogus LTCG by forging the ante dated contract notes. It was informed that this was not the case of trading in Penny Stock but in this scam, shares of well-known running companies were used. These were the shares which were frequently traded on NSE/BSE and which have shown exponential increase in price in last few years. Modus Operandi- ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 7 The modus operandi is simply to convert the unaccounted cash of the assessee in his account as his accounted income and without paying any tax on it. Any Assessee having unaccounted cash approaches the entry operator directly or through an intermediary. The entry operator takes the cash along with commission of 2-3% and by layering it through multiple accounts bring it in the conduit account in whose name shares are purchased on the exchange. The shares are then transferred off market either directly to the account of the assessee-beneficiary or from the conduit account to the account of broker and then to the account of assessee beneficiary. The assessee beneficiary then sells the shares on the exchange and sale proceeds are received in his bank account. To make the sale receipts as genuine exempt LTCG, the entry operator issued the ante-dated forged contract notes in the name of the assessee. Thus the assessee’s own unaccounted money is brought in his books as exempt income by paying commission of 2-3% depending on how the assessee approached the operator directly or through an intermediary. The difference in this modus operandi from the modus of LTCG through penny stocks is that in this case, when the shares are sold through exchange by the assessee-beneficiary, the shares are purchased by genuine investors unlike penny stocks where shell companies act as purchasers of shares. Therefore, it is established beyond doubt based on the search and post search investigation that the assessee-beneficiary have claimed bogus exempt LTCG u/s 10(38) in genuine shares with the help of the brokers like Lifeline Securities Limited by forging the antedated contract notes. The shares were never purchased in the name of the assessee- beneficiary on exchange as mentioned in the contract notes. Rather the shares were purchased through the stock market, by entry-operator controlled entity in the year when the shares are to be credited off market to the demat account of the assessee-beneficiary. The shares are then transferred to the account of the assessee-beneficiary within a few days of purchase by way of off market transfers, using accounts controlled and managed by entry providers, from where it was sold within a few days. The accounts through which shares were purchased on exchange to be transferred to the assessee-beneficiary were accounts of dummy persons and there is huge cash deposit or credits from non- existing entities in these accounts. In this manner, the assessee’s own unaccounted money was camouflaged as exempt Long Term Capital Gain and no tax was paid on it. According as per the information Shri Rahul Rastogi (the assessee) sold shares of M/s Eicher Limited at total consideration of Rs. 1,22,88,973/-. ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 8 3. The assessee filed return of income for AY 2017-18 declaring total income of Rs. 18,24,660/- on 21.12.2017. No information related to the share transaction made by the assessee as informed by the investigation wing was given by the assessee in his ITR. It has been established by the enquiries conducted by the investigation wing that the assessee has entered into the transaction of trading in shares of M/s EICHER Limited in order to bring his unaccounted money which was in the cash form into his regular books/ bank accounts. It is clear from the report received from the Investigation Wing and the ITR filed by the assessee for the A.Y. 2017-18 that the assessee had received Rs. 1,22,88,973/- as price of shares and given Rs.3,68,669/- @3% as commission to the entry provider in cash. 4. As discussed in Para 3 above the assessee had entered into this share transaction to bring his unaccounted money into his regular books/bank accounts. Therefore, I have reason to believe that the assessee's income of Rs.1,22,88,973/- has escaped assessment for the A.Y. 2017-18. Applicability of the provisions of Section 147/151 to the facts of the case In this case, return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, S.no Name of the Beneficiary PAN Date Quantity of Share Rate Amount 1 Rahul Rastogi AGBPR5152P 12.07.2016 30 20793.525 623805.75 2 Rahul Rastogi AGBPR5152P 13.07.2016 111 20793.525 2308081.275 3 Rahul Rastogi AGBPR5152P 14.07.2016 141 20793.525 2931887.025 4 Rahul Rastogi AGBPR5152P 15.07.2016 60 20793.525 1247611.5 5 Rahul Rastogi AGBPR5152P 18.07.2016 8 20793.525 166348.2 6 Rahul Rastogi AGBPR5152P 18.07.2016 40 20793.525 831741 7 Rahul Rastogi AGBPR5152P 18.07.2016 22 20793.525 457457.55 Rahul Rastogi AGBPR5152P 20.07.2016 79 20793.525 1642688.475 8 Rahul Rastogi AGBPR5152P 27.07.2016 100 20793.525 2079352.5 Total 12288973.275 ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 9 in this case, the only requirement to initiate proceedings u/s 147 is reason to believe which has been recorded as previous paras. It is pertinent to mention here that in this case the assessee has filed return of Income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was carried out. The return was merely processed u/s 143(1) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a fit case where income chargeable to tax has escaped assessment. In this case more than 4 years have elapsed from the end of the assessment year under consideration. Hence necessary sanction to issue the notice u/s 148 is being obtained from Principal Commissioner of Income Tax as per the provisions of section 151 of the Act.” 10. We also observe that when the ld. AO was dismissing the objections of the assessee in respect of notice u/s 148 of the Act vide order dated 24.12.2021, the copy of which is placed at pages 29-34 of the paper book, it is the same set of reasons for reopening the assessment which was supplied to the assessee and, on the basis of the approval u/s 151 of the Act was sought to have been reproduced. 11. Thus the ld. AR has successfully established before us that the copy of reasons for reopening of assessment relied by the AO for seeking approval u/s 151 of the Act and the copy supplied to the assessee along with the notice u/s 148 of the Act are completely different in content when compared with the reasons as reproduced in the show cause notice dated 26.03.2022. It was only while issuing show cause notice dated 26.03.2022, the ld. AO has given a detailed account the alleged transaction which indicate of alleged escapement of the income. ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 10 12. This establishes that at the time of recording of the reasons on the basis of which notice u/s 148 was issued on 31.03.2021, the AO had not made any effort to examine as to what was the nature of income allegedly escaped assessment. There is no mention of the scrip in which the trading was done and the reasons do not depict if the assessee’s return in which the assessee had shown similar transactions leading to LTCG were examined. 13. The ld. AR has established before us on the basis of the copy of return and computation available at pages 1-5 of the paper book that a long-term capital gain of Rs.86,99,778/- arising out of the transactions in the scrip of Eicher Motors Ltd. was mentioned. 14. As we go through the notice proposing variation, we find that there is mention of the fact that on the basis of the information received from the Office of the DDIT (Inv.), Rohtak and arising out of search and seizure operation on Kundu group, Rohtak, the assessee was found to have transacted in shares of M/s Eicher Motors Ltd. for a total consideration of Rs.1,22,88,973/-. In this show cause notice dated 26.03.2022, the ld. AO records that the assessee had filed return of income declaring total income of Rs.18,24,660/- on 21.12.2017 but also records that no information relating to share transaction made by the assessee as informed by the Investigation Wing was given by the assessee in his ITR. Certainly, these observations of the ld. AO are incorrect. 15. It is also established that when the ld. AO was seeking approval u/s 151 of the Act, it was mentioned in the approval that income escaping assessment ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 11 was ‘0’. Same shows lack of appreciation of facts of the case at time of giving approval. 16. Thus, we are of the considered view that the ld. AO had proceeded to reopen the case of the assessee by merely relying that the information, either received from Directorate of Income-tax (Systems) wherein the case of the assessee was considered to be a potential case for escapement or the Investigation Wing report arising out of search and seizure operations in case of Kundu group of Rohtak on 25.02.2021. However, there was no application of independent mind on the details of transaction which were reported by assessee and which allegedly escaped the reporting. Ld. AO was completely unmindful of the fact that some of these transactions were very much part of the computation filed by the assessee and mentioned that there was complete un- reporting of these transactions. 17. After taking into consideration the aforesaid facts, we are also convinced that if the reopening was on the basis of the search and seizure operations carried out in the case of Kundu group of Rohtak and which was the foundation for issuing notice u/s 148 of the Act, then, in that case, the provisions of section 153C of the Act would have come into effect and the case of the assessee could not have been on the basis of the provisions of section 147/148 of the Act. The reliance in this regard can be placed on the decision of the Hon’ble Bombay High Court in the case of Sejal Jewellary & Anr., in Writ Petition No.3057 of 2019 and Others, order dated 18.02.2025 wherein a decision of the Hon’ble ITA No.845/Del/2024 Rahul Rastogi vs. ACIT 12 Rajasthan High Court in the case of Shyam Sunder Khandelwal vs. ACIT in Civil Writ Petition No.18363/2019 dated 19.03.2024 has been relied. 18. Thus, we are of the considered view that the challenge of assumption of jurisdiction in the case of the assessee u/s 147/148 of the Act raised by the assessee vide jurisdictional grounds No.10.1 to 10.6 deserve to be sustained. Consequently the appeal is allowed and impugned reassessment order is quashed. Order pronounced in the open court on 07.03.2024. Sd/- Sd/- (S. RIFAUR RAHMAN) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:07th March, 2024. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "