2021 (12) TMI 808 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus LTCG - HELD THAT - AO had arrived at a bonafide belief that at least the LTCG which the assessee in his return of income had claimed to have earned from sale of shares of M/s JMD Telefilm Industries Ltd., had escaped assessment, by reason of the failure on his part to disclose fully and truly all material facts necessary for assessment. In the backdrop of the aforesaid factual position, we are unable to comprehend as to on what basis it is claimed by the ld. A.R that that A.O had reopened the case of the assessee on the basis of a borrowed satisfaction and/or on the basis of suspicion, conjectures and surmises, de hors any concrete material. A.O had before him sufficient material/information on the basis of which he had arrived at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. We may herein observe that at the stage of reopening of a case u/s 147 of the Act, the A.O is only required to have a cause or justification to know or suppose that income of the assessee chargeable to tax had escaped assessment and, no obligation is cast upon him to have finally ascertained the said fact by legal evidence or conclusion. Our aforesaid view is as per the mandate of the judgment of the Hon ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd 2007 (5) TMI 197 - SUPREME COURT AO had validly assumed jurisdiction u/s 147 of the Act and reopened the case of the assessee. We, thus, finding no infirmity in the validity of the jurisdiction assumed by the A.O for reopening the case of the assessee u/s 147 of the Act, uphold the same. The Ground of appeal No. 1 is dismissed. Addition u/s 68 - In the backdrop of our aforesaid deliberations are of the considered view that de hors any cogent material made available on record by the department which would prove to the hilt that the assessee had not carried out any genuine transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. and, in the garb of bogus entry of a tax exempt LTCG u/s 10(38) of the Act, laundered his unaccounted money, the assessee s duly substantiated claim of having carried out genuine transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. which is duly supported by him on the basis of documentary evidence, could not have been dislodged. Accordingly, for the reasons discussed at length by hereinabove, not finding favour with the view taken by the lower authorities, we herein set-aside the orders of the lower authorities qua treating the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee as a bogus transaction and, consequently vacate the addition made by the A.O under Sec. 68 Addition u/s 69C - Transaction of purchase/sale of shares of JMD Telefilms Industries Ltd by the assessee as a genuine transaction, therefore, the addition made by the A.O u/s 69C towards alleged commission which the assessee as per him would have paid for facilitating the bogus transaction of purchase/sale of shares has to meet the same fate and, is resultantly vacated. Levy of interest u/s 234B - As the levy of interest as per the judgment of the Hon ble Supreme Court in the case of CIT vs. Anjum M.H Ghaswala 2001 (10) TMI 4 - SUPREME COURT is mandatory, therefore, the A.O is directed to rework out the same while giving appellate effect to our order. The Ground of appeal No. 5 is allowed for statistical purposes in terms of our aforesaid observations. Assessee appeal is partly allowed.

Issues Involved:
1. Validity of the reopening of the assessment under Section 147 of the Income Tax Act, 1961.
2. Denial of exemption under Section 10(38) for Long-Term Capital Gains (LTCG) from the sale of shares.
3. Addition of the sale proceeds as unexplained cash credit under Section 68.
4. Addition under Section 69C for alleged commission paid for the sale of shares.
5. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of the Assessment:
The assessee challenged the reopening of the assessment on the grounds that it was based on "borrowed satisfaction" and lacked concrete material or evidence. The Tribunal held that the Assessing Officer (A.O.) had validly assumed jurisdiction under Section 147 after duly applying his mind to the information from the Directorate of Systems, which was based on investigations by the Directorate of Investigation, Kolkata. The A.O. had a bona fide belief that income had escaped assessment due to the assessee's failure to disclose all material facts. The Tribunal found no infirmity in the A.O.'s action and upheld the reopening of the case.

2. Denial of Exemption under Section 10(38):
The A.O. denied the exemption under Section 10(38) for LTCG of ?5,93,45,030/- from the sale of shares of JMD Telefilms Industries Ltd., treating the transactions as bogus and manipulated. The Tribunal observed that the A.O. failed to establish any nexus between the assessee and the parties who purchased the shares. The Tribunal noted that the A.O.'s conclusions were based on general observations and unsubstantiated statements without concrete evidence. The assessee provided substantial documentary evidence, including share application forms, bank statements, and contract notes, to support the genuineness of the transactions. The Tribunal held that the A.O.'s reliance on assumptions and preponderance of human probabilities was insufficient to dislodge the assessee's claim. Consequently, the Tribunal allowed the assessee's claim for exemption under Section 10(38).

3. Addition of Sale Proceeds as Unexplained Cash Credit under Section 68:
The A.O. added the entire sale proceeds of ?6,06,49,780/- as unexplained cash credit under Section 68, alleging that the LTCG was a pre-arranged method to evade taxes. The Tribunal found that the A.O. failed to prove any connection between the assessee and the alleged exit providers or loss-taking beneficiaries. The Tribunal emphasized that the A.O. did not dislodge the authenticity of the documentary evidence provided by the assessee. The Tribunal concluded that the addition under Section 68 was unjustified and vacated it.

4. Addition under Section 69C for Alleged Commission Paid:
The A.O. made an addition of ?36,38,987/- under Section 69C, assuming that the assessee would have paid commission for obtaining the bogus LTCG entry. The Tribunal, having held the transaction of purchase/sale of shares as genuine, vacated the addition under Section 69C as well.

5. Levy of Interest under Section 234B:
The assessee challenged the levy of interest under Section 234B. The Tribunal noted that the levy of interest is mandatory as per the judgment of the Hon'ble Supreme Court in CIT vs. Anjum M.H Ghaswala. The A.O. was directed to rework the interest while giving appellate effect to the Tribunal's order.

Conclusion:
The Tribunal partly allowed the appeal, upholding the reopening of the assessment but vacating the additions made under Sections 68 and 69C. The Tribunal also directed the A.O. to rework the interest under Section 234B.

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