2023 (11) TMI 850 - AT - Income Tax

Validity of assessment u/s 143(3) instead of Assessment u/s 153C - Addition u/s 68 - Bogus LTCG - Penny stock purchases - HELD THAT - There may be a case where situation and condition of section 153C is satisfied, in that case the AO has to proceed only u/s 153C. But in the present case, the AO has conducted scrutiny under CASS and the search-information has been made use as additional or ancillary information, we do not feel that the present case has the situation or condition which warrants application of section 153C. In that view of matter, we are of the considered view that the AO is very much justified in framing assessment u/s 143(3). Therefore, there is no worth in the ground of assessee. The same is hereby dismissed. Bogus LTCG - Question raised by AO nowhere suggests that the assessee s name figured in search material was shown to assessee. Moreover, mere showing of material to a lady-assessee does not serve effective purpose. Therefore, the AO must supply the material or information required by assessee. Taking into account these aspects, we are of the considered view that there is a need on the part of assessee to submit purchase-bill or other evidence of purchase and the AO has to rectify his contradictory finding after taking into account assessee s submission.There has to be a finding on source and mode of investment. There is also a necessity to verify the status of 1,300 shares sold in AY 2014-15. Furthermore, there is a strong necessity on the part of AO to supply search-material to assessee. Thereafter, the AO would take a fresh call on the issue. Therefore, this ground is fit for remitting back to the file of AO and we do so. Appeal of assessee is partly allowed for statistical purpose.

Summary

Issues Involved:
1. Whether the assessment should have been made under section 153C instead of section 143(3).
2. Whether the addition under section 68 by treating long-term capital gain (LTCG) on shares as bogus was justified.

Summary of Judgment:

Issue 1: Applicability of Section 153C vs. Section 143(3)
The assessee contended that the assessment should be null and void as it was made under section 143(3) instead of section 153C, given that the assessment was based on search material from another entity ("Moira / Nyati Group"). The assessee argued that the scheme of the Income-tax Act mandates assessments under section 153C when material pertaining to another person is found during a search. The AO, however, issued a scrutiny notice under section 143(2) and conducted the assessment under section 143(3).

The Tribunal found merit in the Revenue's argument that the case was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) and that the search report was used merely as ancillary information. The Tribunal noted that the initial selection for scrutiny was independent of the search material. The Tribunal concluded that the assessment under section 143(3) was justified and dismissed this ground of the assessee.

Issue 2: Addition under Section 68 and Treatment of LTCG as Bogus
The assessee claimed that the lower authorities erred in treating the LTCG from the sale of shares of Kappac Pharma as bogus. The assessee provided details of the purchase and sale transactions, asserting that the shares were purchased off-market in physical form, later dematerialized, and sold through a stock exchange, with all transactions being genuine and through banking channels.

The Revenue argued that the purchase of shares was dubious, as the assessee failed to provide a purchase bill and the transactions had characteristics of being managed to generate bogus LTCG. The AO's assessment relied on search findings indicating that the assessee was a beneficiary of such managed transactions.

The Tribunal observed contradictions in the AO's findings regarding the submission of the purchase bill. It also noted the need for clarity on the source and mode of payment for the purchase of shares and the status of shares sold in the previous assessment year. Importantly, the Tribunal highlighted the necessity for the AO to provide the search material to the assessee, which was repeatedly requested but not supplied.

Given these discrepancies and the need for further verification, the Tribunal remitted the matter back to the AO for fresh consideration, directing the AO to rectify contradictory findings, verify the source and mode of investment, and provide the requested search material to the assessee.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal remanding the case back to the AO for further examination and fresh adjudication on the merits of the addition under section 68 and the treatment of LTCG.