2022 (11) TMI 414 - AT - Income Tax

Reopening of assessment u/s 147 - case was re-opened on the basis of third party information - Trading in shares (intra day) - allegation of transactions in penny stock scrip - unexplained income - assessee submitted that the transaction was made through Bombay Stock Exchange ( BSE ) assessees broker Jainam Share Consultants Pvt Ltd. - No payment for purchase of share was made to the broker and all the transactions were intra-day transaction and assessee earned profit on such overall transaction - HELD THAT - AO passed his assessment order for want of reply or evidence and it is the case of assessee that he has furnished complete details regarding such transaction before CIT(A). NFAC/CIT(A) was duty bound to verify the fact and such evidence either of his own or by seeking remand report from the assessing officer. On careful analysis of such evidence find that the assessee has successfully prove that he has entered into intra-day transaction share of Scan Steel Ltd. Assessee has not paid the purchase cost nor received the entire sale consideration rather received the gain of Rs.1, 655/- which cannot be considered as accommodation entry of gain of penny stock transaction. Therefore direct the Assessing Officer to delete the entire addition. So far as objection raised by Ld. Sr-DR for the Revenue that assessee has made cash deposit in his bank account find that assessee has shown such deposit as income from other sources . Therefore the submission raised by Ld. Sr-DR for the Revenue is mis-placed. Assessee s appeal is allowed.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act.
2. Sustaining addition of Rs.2,57,370/- as unexplained income.
3. Procedural fairness and opportunity to the assessee.
4. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Validity of notice under Section 148 of the Income Tax Act:
The assessee challenged the validity of the notice issued under Section 148, arguing that the Assessing Officer (AO) did not have a valid reason to believe that income chargeable to tax had escaped assessment. The AO had reopened the assessment based on information from the Joint Director of Income-tax (Investigation), which indicated that the assessee had sold penny stock scrips of Scan Steels Ltd. for Rs.2,57,370/-. The assessee contended that the AO reopened the case on borrowed satisfaction without independent investigation.

2. Sustaining addition of Rs.2,57,370/- as unexplained income:
The AO treated the transaction amount of Rs.2,57,370/- as unexplained income due to the absence of details or explanation from the assessee. The assessee argued that the transaction was an intra-day trade through the Bombay Stock Exchange, resulting in a profit of only Rs.1,655/-. The NFAC/CIT(A) upheld the AO's addition, stating that the trading in penny stocks was manipulated to generate bogus long-term capital gains for tax evasion. However, the Tribunal found that the assessee had provided sufficient evidence showing that the transactions were intra-day and that only the profit of Rs.1,655/- should be considered.

3. Procedural fairness and opportunity to the assessee:
The assessee argued that the AO did not provide a fair opportunity to present his case. The AO issued a show cause notice with a short compliance period, and despite the assessee's request for adjournment, the AO passed the assessment order without considering the adjournment application. The Tribunal noted that the AO did not verify the details provided by the assessee, including bank statements and transaction records, and that the NFAC/CIT(A) failed to consider these details properly.

4. Condonation of delay in filing the appeal:
The appeal was filed with an eight-day delay due to the assessee being quarantined for Covid-19. The Tribunal accepted the assessee's explanation and condoned the delay, allowing the appeal to be heard on merits.

Conclusion:
The Tribunal found that the AO and NFAC/CIT(A) did not adequately consider the evidence provided by the assessee, which demonstrated that the transactions were intra-day trades resulting in a profit of Rs.1,655/-. The Tribunal directed the AO to delete the addition of Rs.2,57,370/- and allowed the assessee's appeal. The issue of the validity of reopening became academic as the appeal was decided on merits. The Tribunal also noted that the cash deposit of Rs.67,500/- was shown as "income from other sources" and did not affect the decision on the main issues.