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TMI Blog2010 (2) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd to the assessee. It is well settled that the receipt of amount by the assessee is itself a prima-facie evidence against the assessee and the receipt can be treated to be the assessee's undisclosed income when the assessee is unable to prove and establish the nature and the genuineness of the receipt received from M/s. Kusum and Co. Thus uphold the addition only to the extent of Rs.3 lacs being credited in the assessee's bank account u/s.68/69 being unexplained money introduced in the bank account, in the present assessment year and the rest amount of Rs.4,04,340/- as introduced by the assessee in its bank account in the next financial year relevant to the A.Y. 1999-2000, which has also been remained unexplained AOdirected to make addition of Rs.4,04,340/- in the A.Y. 1999-2000 after reopening the assessment u/s.147 of the Act read with section 150 of the Act. Against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs.3 lacs allegedly on account of sale of shares. From the computation of income, it was noticed by the AO that the assessee has shown long term capital gain amounting to Rs.6,25,523/-, which was claimed exempted u/s.54F of the Act. The AO further stated in the assessment order that enquiries were conducted by the Investigation Wing about the sale of shares by the assessee and the assessee was required to give copies of bills before the Investigation Wing. The assessee filed written letter dated 09.03.2005, before the Investigation Wing that the assessee had lost the papers or no paper of brokers are traceable because it was difficult to keep lots of papers safely for about seven years from the date of sale. An affidavit dated 09.03.2005 was also filed by the assessee before the Investigation Wing to support the above contention. In the course of reassessment proceedings, the assessee was asked to adduce evidence with regard to the sale and purchase of the shares. The assessee filed a copy of bill of M/s. Rakesh Nagar and Co., a member of Jaipur Stock Exchange, for the purchase of 1200 shares of M/s. Baba Business Services Ltd. @ Rs.18.20 per share aggregating to Rs.21,840/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. in the month of July 2006. The assessee also expressed her inability to produce the other brokers i.e. M/s. CMS Securities Ltd. through whom shares were sold, by giving a reason that she was not a regular client of that broker. The assessee had also taken a plea that under the Income Tax Act and Rules, books of accounts for a period of six year only were required to be kept and, therefore, it would futile to produce the broker as the transaction of sale/purchase of shares were made more than six years ago. 8. In the light of the aforesaid facts, the AO had taken a view that sale and purchase of shares by the assessee, as alleged by her, has not been proved. The AO, therefore, treated the whole of the receipts on account of the alleged sale of shares as income of the assessee from undisclosed sources, and while doing so, the AO has also held that receipt of money by way of bank draft by the assessee in pursuance to the alleged sale of shares has also not been proved. The AO, therefore, has drawn the inferences that assessee has introduced her undisclosed income in the garb of sale of receipt of shares. Therefore, the sum of Rs.7,04,340/-claimed by the assessee as sale proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to the initiation of proceedings u/s.147 of the Act by contending that the proceedings are bad in law in as much the report of the ADIT was vague. In support of this, several decisions were also relied upon. 11. After considering the assessee's submission and the AO's order, the CIT(A) deleted the addition by giving the following reasons:- (i) That reopening has been made merely on the basis of information received from DDIT (Inv.) and it is not the case of the AO that he had reached the conclusion based on independent enquiry carried on by him against any person including broker etc., which resulted into conclusion that income of the assessee had escaped assessment. (ii) The DIT formed his opinion purely on the basis that the assessee could not produce necessary documents though the assessee filed an affidavit giving all the particulars about the purchase and sale of shares. (iii) The CIT(A), therefore, taken a view that DDIT formed his opinion purely on suspicion and surmises and he had no reasonable basis to came to such a finding that the income had escaped assessment. (iv) Consequently, the AO had reopened the assessment purely on the information provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO to suggest that purchase and sale carried out by the assessee was bogus. 12. Hence, the department is in appeal before us. 13. The Ld. Sr. DR, Shri H.K. Lal has submitted that alongwith the original return of income, the assessee neither filed any balance sheet nor details of alleged capital gain earned by the assessee. There was no regular original assessment came to be made u/s.143(3) of the Act. The AO had received information from the investigation wing of the department that one demand draft of Rs.3 lacs was issued by one M/s. Kusum and Co. to the assessee towards sale consideration of the shares though no actual sale of shares had taken place. He further submitted that the fact that assessee had received Rs.3 lacs from Kusum and Co. against the sale of shares has not been proved and established. The assessee has failed to file any document before the Investigation Wing by taking a plea that all the papers were lost and as it was very difficult to keep lots of papers safely for a period of about seven years from the date of sale. Since a draft of Rs.3 lacs was issued by M/s. Kusum and Co, and that transaction was not appearing in the details filed alongwith the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income vis-a-vis information received from the Investigation Wing. The ld. DR, therefore, contended that the CIT(A) has mechanically taken a view that the AO has initiated reassessment proceedings purely on suspicion and conjectures. In this connection, the ld. DR relied upon the following decisions:- I. ITO vs. Purshottam Das Bangus and Another (1997) 224 ITR 362 (SC) II. Commissioner of Income-tax v. N. Kishore Settlement (1999) 236 ITR 35 (SC) III. Assistant Commissioner of Income-tax v Rajesh Jhaveri Stock Brokers (P.) Ltd. (2007) 291 ITR 500 (SC) IV. Hanuman Trading Co. v. Commissioner of Income-tax (2001) 250 ITR 365 (Del.) 14. Coming to the merit of the addition, the ld. DR submitted that the assessee has not produced any reliable evidence or material to prove the genuineness of the transaction of purchase and sale of shares. The assessee has also failed to prove the nature of receipt of money by way of bank draft from M/s. Kusum and Co. though in fact no shares alleged to have been sold to M/s. Kusum and Co. The AO has categorically pointed out in the assessment order that receipt of money by way of bank draft by the assessee in pursuance of alleged sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt payee cheque, merely because a broker failed to appear even after issuing summons, the assessee could not be punished for the default of broker, the assessee has relied upon the following decisions:- I. Commissioner of Income-tax v. Carbo Industrial Holdings Ltd. (2001) 244 ITR 422 (Cal.) II. Commissioner of Income-tax v. Emerald Commercial Ltd. (2002) 250 ITR 539 (Cal.) 17. Rival contention of both the parties have been considered and the order of the authorities below have been perused. We have carefully gone through the various documents and papers placed in the paper book filed by the assessee. We have deliberated upon the relevant provisions of law contained in that behalf and the various decision cited at the bar. 18. We shall first deal with the question as to whether reassessment proceedings initiated u/s.147 of the Act by the AO is valid? 19. Section 147 as substituted w.e.f. April 1, 1989 confers jurisdiction u/s.147 of the Act upon the AO to initiate proceedings u/s.147 of the Act if he has reason to believe that income has escaped assessment. The words "reason to believe" has been analyzed and interpreted by the Hon'ble Supreme Court in the case of Asst. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .148 of the Act, only aspect to be examined is whether there was relevant material before AO, based on which a reasonable person could have formed a requisite belief that the assessee's income chargeable to tax had escaped assessment and one is not concerned at that stage whether material would conclusively prove escapement. 22. In the said case, it was also held that proceedings u/s.147 cannot impinge upon items which have no connection to or relation with items of income and/or expenditure, which form basis of notice u/s.148 of the Act. 23. In the present case, the reasons recorded by the AO are as under:- "Vide letter dated 11.03.05, the Addl. DIT (Inv.), Lucknow has informed that the assessee has purchased and sold shares during the F.Y. 1997-98. The sale consideration of the shares amounting to Rs.3.00 lakh received through the broker Kusum and Co. The assessee has not been able to substantiate the transaction instead she said to have lost the relevant documents. As per the report, all the transaction in this respect appears to be fake. In view of the above, I have reasons to believe that an income of Rs.3.00 lakh have been escaped to assessment for A.Y. 1998-99." 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons recorded by the AO were with regard to the payment of Rs.3 lacs received from M/s. Kusum and Co. but the AO has made the addition in respect of the amount of Rs.7,04,340/-, being the sale proceeds of 1200 numbers of shares sold by the assessee through broker, namely, CMS Securities Ltd. He, therefore, contended that the addition was not at all connected to or related to an item of income in respect of which reasons were recorded u/s.148 of the Act. At this stage, it is pertinent to note that Explanation 3 to section 147 has since been inserted by the Finance Act (No.2) Act, 2009 with retrospective effect from 01.04.1989, where it has been, provided that for the purpose of assessment or reassessment u/s.147 of the Act, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings u/s.147, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of section 148. Therefore, in the light of the aforesaid insertion of the Explanation 3 by the Finance (No.2) Act, 2009 with retrospective effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice u/s.148 of the Act, the details of purchase and sale of shares were not available as the same have not been furnished by the assessee either with the return of income or before the investigation agency. It is well settled that at the stage of issuing notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether materials would conclusively prove the escapement of income is not the concern at the stage of issuing notice u/s.148 of the Act. This is so because the formation of belief by the AO is within the realm of subjective satisfaction. This is so observed and held by the Hon'ble Supreme Court in the case of Asst. Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra). In this view of the matter, the CIT(A)'s view that before issuing the notice u/s.148 of the Act, the AO should have arrived at a final conclusion that the income had escaped assessment in the hands of the assessee, is not in consonance with the decision of Hon'ble Supreme Court. The CIT(A)'s further view that on his own the AO has no material to reach any conclusion about income being escaped assessment in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not confronted to the reasons recorded by the AO for issuing notice u/s.148 of the Act, we are of the considered view that this contention of the assessee must fail in as much as the assessee was given full opportunity to file objection against the reasons recorded, and the assessee in her reply dated 21.01.2005 filed before the AO has even reproduced the reasons recorded by the AO for issuing notice u/s.148 of the Act and has filed her objection by contending that the reopening of the assessment by the AO was not justified as the AO had merely acted upon the letter of the Addl. DIT (Inv.), Lucknow, ignoring all the material facts placed on record, which were duly been annexed or attached with the return of income u/s.139 for the A.Y. 1998-99. In other words, from the assessee's aforesaid letter it is established and proved that she was apprised with reasons and the copy of reason recorded by the AO u/s.148 of the Act was given to the assessee, and after receiving the copy of reasons, she filed her reply vide letter dated 21.01.2005. Thus, this contention of the assessee fails. 29. Now, we come to the question whether the addition of Rs.7,03,340/- being undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CE: 14, Hotel Continental Annexe, Regal Building Cannaught Place New Delhi. 110001 Phone:3747396, 3363244, 3364567, 3348902, 3362043, 3362044, 45, 46, 47" 32. The assessee has also produced purchase bill no. R-42/9771/46 dated 24.03.1998 entered into between the assessee and CMS Securities Ltd. The assessee has also produced one contract note dated 19.03.1998 by M/s. CMS Securities Ltd. 33. In the course of assessment proceedings, the AO issued a notice to M/s. CMS Securities Ltd. to furnish necessary evidences and books of accounts to prove the genuineness of the alleged sale of shares allegedly sold by the present assessee through said party i.e. CMS Securities Ltd. However, M/s. CMS Securities Ltd. vide letter dated 25.05.2006 intimated the AO that computer floppy, hard discs which comprise of the accounts and other useful papers were stolen from the car on 24.09.2002, and, in support of which a copy of FIR was also furnished. The assessee has placed copy of FIR at page 7 in the paper book filed by the assessee. We have gone though the FIR and find that no details about the nature of the documents and records have been mentioned in the FIR except stating that on 05.02.2008 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er purchased the shares for and on behalf of the assessee without receiving the payment at the time the deal was finalized. The deal of purchase of shares was not routed through Stock Exchange but was off the market. The payment has also been made in cash, which is not verifiable from the any record of stock-broker. Further, it is the assessee's case that these shares purchased through Rakesh Nagar and Co. has subsequently been sold @ Rs.588/- per share through M/s. CMS Securities Ltd. Shares are not quoted in the Stock Exchange. No evidence has been produced in support of the prevailing market price on the date when the shares were sold at the alleged rate of Rs.588/-. The assessee has also not furnished the name and address of the person whom the shares were sold off the market. Though the assessee has produced copy of share certificate indicating that shares were registered in the assessee's name on 24.06.1996, the assessee has not produced any iota of evidence that after the shares were sold by the assessee, these shares were transferred in the name of the purchaser. In other words, the assessee has not produced any evidence about transfer of shares from assessee's name to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been given as to why the payment has been made by Kusum and Co., and where no documents or evidences have been produced that the shares were ultimately transferred from assessee's name to the ultimate buyer after the same were sold in the month of March 1998, we are unable to accept the transaction of sale of shares on its face value without the same being proved and established by cogent and adequate evidences. Therefore, on this count also, the transaction of sale as claimed by the assessee is not believable. Further, the assessee has failed to explain and establish the nature and character of receipts received from Kusum and Co. 36. Even if we assume that failure on the part of the broker to appear before the AO and to submit the details cannot be a reason or basis to reject the assessee's case, and that shares might have sold through CMS Securities Ltd., we find that on the basis of documents produced by the assessee it has not been proved and established that the amount of Rs.3 lacs received by the assessee during the year under consideration and the balance amount of Rs.4,04,340/- received in next year, has been received on account of sale consideration of the 1200 numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h M/s. CMS Securities Ltd. The assessee has failed to establish and prove the nature of receipt received from M/s. Kusum and Co. Since the receipt has been credited in the books of accounts of the assessee, the assessee was supposed to prove and explain the nature of the receipt and as well as the genuineness of the transaction. The nature of the receipt from M/s. Kusum and Co. has not been explained nor it is supported by any document issued by CMS Securities Ltd. The CMS Securities Ltd. in the statement of accounts has just given a vague averment mentioning only date and amount of "draft" without stating further anything about the name of the bank and branch and the account number from which the drafts were purchased. Therefore, in the light of the very evidences produced by the assessee, the assessee has not been able to prove and explain the nature and genuineness of the receipt credited in the assessee's bank account and the books of accounts. It is well settled that the receipt of amount by the assessee is itself a prima-facie evidence against the assessee and the receipt can be treated to be the assessee's undisclosed income when the assessee is unable to prove and establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal that there was no evidence that the amount did not come from the sale of shares, though, in the present case, the assessee has failed to prove and establish that the amount received from Kusum and Co. represented sale proceeds of shares sold through another concern viz., CMS Securities Ltd. 38. Having said so we, therefore, hold that the amount credited by the assessee in its books of accounts against the alleged sale of shares being received from M/s. Kusum and Co. is to be held as assessee's undisclosed income. However, it is an admitted position that in the year under consideration, the assessee had credited only the sum of Rs.3 lacs and not the total amount of Rs.7,04,340/-. We, therefore, uphold the addition only to the extent of Rs.3 lacs being credited in the assessee's bank account u/s.68/69 of the Act being unexplained money introduced in the bank account, in the present assessment year and the rest amount of Rs.4,04,340/- is deleted from the assessment pertaining to the A.Y. 1998-99. The balance amount of Rs.4,04,340/- has been introduced by the assessee in its bank account in the next financial year relevant to the A.Y. 1999-2000, which has also been rem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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