2024 (11) TMI 179 - HC - Income Tax

Reopening of assessment - reason to believe - Allegations of accommodation entries and bogus transactions, denying exemption u/s 10(38) - HELD THAT - Insofar as the petitioner is concerned, the allegation clearly is that the petitioner had purchased 4800 (four thousand eight hundred) shares of Aurobindo, a listed entity, worth ₹56,04,000/-, by an off-market transaction (not through a recognized stock exchange). This was the first limb of the alleged transaction of avoiding payment of tax. This limb of transaction is admitted. AO had noted that investment of such a value was not commensurate with the returns furnished by the assessee during three years (AY 2014-15, 2015-16 2016-17). Admittedly, a copy of the report had been provided to the petitioner. A hard copy of the said report has also been handed over to this Court during the course of the proceedings. As noted that the said report is fairly comprehensive and has sought to deconstruct the manner in which the accommodation entries were being routed through transaction in shares of listed companies, which were regularly traded on the stock exchange. The report indicates that as many as twelve listed companies were identified, whose shares were used for structuring the accommodation entries. The report also included Annexure A, setting out the details of the beneficiaries and the names of the listed companies whose shares had been transferred in Demat Accounts of the beneficiaries. Annexure A to the said report is not produced but the extract, which pertains to the petitioner, has been filed along with an additional affidavit filed on behalf of the Revenue, which clearly indicates that the transaction in respect of 4800 (four thousand eight hundred) number of shares of Aurobindo, through Mridul Securities, was identified as one of the transactions for structuring the accommodation entries. The petitioner in her response to the notice u/s 148A (b) of the Act had denied the allegations. However, it is material to note that she did not provide any details of the alleged transaction of purchase of 4800 (four thousand eight hundred) shares of Aurobindo. The petition is also bereft of any particulars as to the said particulars which were identified and also alluded to in the notice u/s 148A (b) of the Act. The petitioner has not disclosed the price that she had paid for the 4800 shares, the source of funds of the said price, the date on which the said shares were purchased and the date on which the shares were lodged or transferred in the name of the petitioner. In view of the above, we are unable to accept that the information available with the AO is not suggestive of the fact that income of the petitioner had escaped assessment.In the facts of the case, this condition for issuance of a notice under Section 148 of the Act, is clearly met. Decided against assessee.

Summary

Issues:
1. Impugning an order under Section 148A(d) of the Income Tax Act, 1961 for AY 2015-16.
2. Allegations of income escaping assessment based on information from a search conducted on Tradenext and Kundu Group.
3. Allegations of accommodation entries and bogus transactions leading to exemption under Section 10(38) of the Act.
4. Petitioner's denial of involvement with Tradenext and Kundu Group.
5. Purchase of 4800 shares of Aurobindo Pharma Ltd. through Mridul Securities in an off-market transaction.
6. Lack of disclosure of details regarding the purchase of Aurobindo Pharma Ltd. shares.

Analysis:

1. The petitioner challenged an order under Section 148A(d) of the Income Tax Act, 1961 for AY 2015-16, along with a notice issued under Section 148 of the Act. The AO's actions were based on information suggesting income escapement due to alleged transactions involving accommodation entries and bogus share dealings.

2. The AO acted on details from a search on Tradenext and Kundu Group, revealing suspicious activities leading to income exemption under Section 10(38) of the Act. The investigation highlighted fabricated contract notes, off-market share transfers, and misuse of identities to generate exempt income, implicating the petitioner indirectly.

3. The petitioner disassociated herself from Tradenext and Kundu Group but admitted to trading with Mridul Securities, purchasing 4800 shares of Aurobindo Pharma Ltd. The petitioner denied claiming long-term capital gains on these shares but failed to provide crucial details regarding the off-market transaction, raising suspicions.

4. The AO's order was supported by a detailed report outlining the modus operandi of generating undisclosed income through off-market share transactions. The report identified the petitioner's involvement in the purchase of Aurobindo Pharma Ltd. shares, indicating potential tax evasion through unexplained investments.

5. The court found the information available to the AO sufficient to suggest income escapement, rejecting the petitioner's claims of routine market purchases. The focus was on establishing whether the AO had valid grounds to issue the notice under Section 148, rather than determining the actual tax liability at this stage.

6. Ultimately, the court dismissed the petition, emphasizing the adequacy of information supporting the AO's actions and the need to address potential income escapement. The petitioner's lack of disclosure regarding the off-market share transaction further weakened her case, leading to the dismissal of the petition.