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TMI Blog2019 (4) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... struck down as being without jurisdiction. Thus the conditions precedent for the assumption of jurisdiction u/s. 144 were not present and therefore, the assessment order passed by the AO u/s. 144 of IT Act deserves to be struck down and we struck down the same in all these four years. Validity of reopening of assessment - combined reasons recorded for several years - HELD THAT:- issue of combined notice u/s 148 for several years to the assessee cannot be equated with recording of combined reasons 148 for several years because, in reply to notice u/s 148, the assessee is required to make compliance within a prescribed time by filing return of income but by recording of reasons for reassessment, the action is to be taken by the AO only by issuing notice u/s 148 and no action is to be taken by the assessee at this stage. Once the notice is issued by the AO u/s 148 and the return is filed by the assessee, the assessee may obtain the copy of reasons recorded by the AO and thereafter, the assessee may raise objection against the reopening. At that stage, if the reasons for several years are identical and therefore recorded together, it has no impact on the action to be taken by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Assessment Year 2012-13 in ITA No. 2373/Bang/2018 are as under. 1. That the order of the authorities below in so far as it is against the assessee is against the law, facts, circumstances, natural justice, equity all other known principles of law. 2. That the total income and total tax computed is hereby disputed. 3. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 4. That the notice, initiation and all subsequent proceedings u/s 148 is bad in law, is without jurisdiction, barred by law and requires to be cancelled. 5. The notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled. 6. The conditions precedent to justify the reopening of the assessment u/s 147 of the Act being absent, the reopening of the assessment is bad in law and the reassessment requires to be cancelled. 7. That the authorities below erred in framing order under section 144 of the Act without following the prescribed procedure under law. 8. That the order u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of shares in M/s. Fact Enterprises Ltd of ₹ 5,l09/-. 21. That the authorities below erred in making addition of ₹ 48,66,222/- u/s 69C of the Act. 22. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 23. The appellant denies the liabilities for interest u/s 234B of the Act. Further prays that the interest if any should be levied only on returned income. 24. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express provisions of law. 25. No opportunity has been given before levy of interest u/s 234B and 234D of the Act. 26. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234Band 234D of the Act. 27. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 3. The grounds raised by the assessee for Assessment Year 2013-14 in ITA No. 2374/Bang/2018 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant material while ignoring the relevant material and further erred in making addition solely on third party statement without any corroboration. 15. That the authorities below erred in making addition of ₹ 7,86,38,101/-u/s 68 of the Act. 16. That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s. Blue Circle Services Ltd of ₹ 7,86,38,101/-u/s 68 of the IT Act. 17. That the authorities below erred in resorting to section 68 of the Act. 18. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Blue Circle Services Ltd of ₹ 7,86,38,101/-. 19. That the authorities below erred in making addition of ₹ 23,59,143/- u/s 69C of the Act. 20. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 21. The appellant denies the liabilities for interest u/s 234B of the Act. Further prays that the interest if any should be levied only on returned income. 22. The appellant denies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing which is in conflict with regular proceeding is against law. 12.The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted under law. 13.The reasons / findings of the authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record. 14.That the authorities below erred in relying on sworn statements provided along with show cause notice dt.13.01.2017 of persons namely Shri Amit Saraogi, Shri AmarchandRatanlalRander, Shri Sajjan Kedia, Shri Soumen Sen, Shri Jagdish Prasad Purohit and Shri Dhruv Narayan Jha without providing opportunity of cross examination in spite of request by the assessee. 15. That the authorities below erred in not providing complete details before calling for objections from the assessee. 16. That the authorities below erred in relying on irrelevant material while ignoring the relevant material and further erred in making addition solely on third party statement without any corroboration. 17.That the authorities below erred in making addition of ₹ 2,85,58,035/-u/s 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther known principles of law. 2. That the total income and total tax computed is hereby disputed. 3. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 4. That the notice, initiation and all subsequent proceedings u/s 148 is bad in law, is without jurisdiction, barred by law and requires to be cancelled. 5. The notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled. 6. The conditions precedent to justify the reopening of the assessment u/s 147 of the Act being absent, the reopening of the assessment is bad in law and the reassessment requires to be cancelled. 7. That the authorities below erred in framing order under section 144 of the Act without following the prescribed procedure under law. 8. That the order u/s 144 r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies for interest u/s 234B 234C of the Act. Further prays that the interest if any should be levied only on returned income. 24. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express provisions of law. 25. No opportunity has been given before levy of interest u/s 234B, 234C and 234D of the Act. 26. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234B,234C and 234D of the Act. 27. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 6. It was submitted by ld. AR of assessee that ground nos. 1 to 3 are general and ground nos. 4 to 6 and 9 to 10 are against validity of reopening of assessment and ground nos. 7 and 8 are on this aspect that the assessment order passed by the AO u/s. 144 is bad in law because the preconditions of section 144 are not complied with. Thereafter, he submitted that the remaining grounds are in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue has filed written submissions which are reproduced herein below along with the copy of various judicial pronouncements. But it is seen that, no argument is advanced by ld. DR of revenue in respect of validity of AO s jurisdiction u/s. 144 and he has simply stated that this issue has been elaborately dealt with in the assessment order and it is further elaborated in the order of CIT(A). Hence, we reproduce the written submissions of ld. DR of revenue as well as the observations of the AO in the assessment order in paras 9 and 10 of the assessment order in respect of assumption of jurisdiction u/s. 144:- a) Relevant Portion of the written Submissions of Learned DR:- 1. Credentials of Penny Stock Companies: Statements of Operators During the course of argument, the AR of the appellant had argued that in the statement of Shri Jagadish Prasad Purohit , the name of the Penny Stock Companies i.e., Blue Circle Services Ltd (BCSL) and PS IT Infrastructure Services Ltd (formerly known as Parag Shilpa Investments Ltd) (PSIL) do not appear. On this, it is submitted that, the Learned AR has tactfully omitted to refer the complete modus operandi of Shri Jagadish Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tals. These companies are often illiquid, have low market capitalisations and poor fundamentals. The regulator may suspect that shares of these companies are being bid up and used for money laundering. M/s. Blue Circle Services Ltd., is one of the Shell companies identified by SEBI. It is appearing at S.No..28 of the list put up by BSE on its website. Copy of the BSE notice and relevant copy of the list is enclosed herewith. (Page XI XII) Name of PS IT Infrastructure Services Ltd., also appears in the broader list of shell companies identified by Ministry of Corporate Affairs. As on date, trading has been restricted in the script of Blue Circle Services Ltd (INE 526K01031) on BSE and it is not freely tradeable of any stock exchange. Screen shot of the status available on BSE is enclosed herewith at Page XIII. 4. Cross Examination: On the issue of cross examination, the learned AR was pointing out that the opportunity for cross examination was not granted by the Assessing Officer. The statements recorded of the penny stock operators and their cronies in providing accommodation entries for commission are more in the nature of explaining the modus operandi and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law . The above ratio laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati Dayal V CIT 214 ITR 801 (SC). It is essential on the part of the AO to look into the real nature of transaction and what happens in the real word and contextualize the same to such transactions in the real market situation. It is pertinent to state here, the wisdom of Hon'ble Supreme Court in CIT v Arvinda Raju (TN)(1979) 120 ITR 46 (SC) wherein it was held that - One day, in our welfare state geared to social justice, this clever concept of 'avoidance' as against 'evasion' may have to be exposed. Hon'ble Supreme Court in the case of Mcdowell Co. Ltd (1985) 154 ITR 148(SC), wherein the Hon'ble Supreme Court has denounced tax avoidance, if not Bonafide. The relevant part of the observation of the Hon'ble Supreme Court is reproduced hereunder: Tax planning may be legitimate provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rue and it should be rejected and assessment should be completed u/s 144 of the IT Act on the basis of information available with the undersigned received from various sources. 10. We find that in Para 5 of the order of CIT(A), ld. CIT(A) has reproduced the submissions filed by the assessee before him on 23.07.2018 and this Para is reproduced herein below for ready reference. 5. In support of the statements of facts and grounds of appeals, the appellant has filed written submission in this office on 23-07-2018. It has been submitted as under: With reference to the above appeal, in addition to statement of facts and ground of appeal already filed, the assessee is furnishing the submissions as below: The assessee for the above assessment year filed its return of income on 18.09.2012 declaring total income of ₹ 66,95,890/- consisting of Income from House property of Rs.l,48,246/-, Income from Profession of ₹ 12,88,972/-, Income from Capital gains of ₹ 3,14,480/- and Income from Other sources of ₹ 50,27,201/-. The assessee also earned exempt Long term capital gains of ₹ 16,27,57,903/-. During the regular assessment proceedings the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order). Subsequently, the AO disposed of the objections vide letter dt.10.03.2017 (copy of the objections is reproduced in Para 4 of the assessment order). Without appropriately considering the objections and the clarifications the AO completed the assessment u/s 144 rws 147 of the Act making additions as proposed in the show cause notice. Firstly, the AO erred in completing the assessment u/s 144 of the Act without following the prescribed procedure under law. The assessee has participated in the proceedings by way of appearances and filing details and replies. As mentioned by the AO in Para 5 of the order, the assessee appeared from time to lime and filed details. The AO also at various places has made reference to the replies filed by the assessee and reproduced them. Hence it is erroneous on the part of the AO to frame the assessment u/s 144 of the Act when there is compliance by the assessee in the proceedings. The AO has also not adduced proper reasons in the order for having completed the assessment u/s 144 Act. The strange reason adduced by the AO that the books of accounts are not reliable and true cannot be the basis for completing assessment u/s 144 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant had disclosed the material facts fully and truly necessary for assessment during regular assessment proceedings regarding capital gains and there is no tangible information or evidence warranting reopening of the assessment. The reassessment proceedings is on a change of opinion on the same facts without there being any new tangible evidence or information which is not permitted under law. Thus the notice issued u/s 148 are bad in law, without jurisdiction, barred by law and requires to be cancelled. In this regard the assessee relies on the decision of Delhi High Court in the case of Oracle System Corporation vs DCIT- 94 CCH 45 (Annexure 4) wherein the court has held as under: Reassessment-Issue of notice of reassessment-Reasons for reopening-AO had held one 'O' has as the PE of the assessee in India-Assessee had paid royalty at 15percent- AO had held that since assessee company was earning royalties in India linked to the PE, the royalty income must be taxed at 20 percent gross instead of 15percent- Notice u/s 148 was issued and proceedings were initiated pursuant thereto-Assesses objection was also rejected-Assessee had claimed that reopening of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used as conduits-Assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel-Identity of companies was not disputed-It would not be appropriate to require the assessee to go through the entire gamut of reassessment proceedings-Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind by AO-Notice under s. 148 quashed On merits, the assessee submits that the AO in support of the allegations made in the notice dt.13.01.2017 relied on statements purportedly recorded on oath of certain persons namely Shri Amit Saraogi - 5 pages - 30.12.2014, Shri Amarcharid Ratanlal Rander - 5 pages -13.06.2014, Shri Sajjan Kedia - 8 pages 13.06.2014, Shri Soumen Sen - 11 pages - 10.02.2015, Shri Dhruv Narayan Jha-14 pages - 21.01.2015, Shri Dhruv Narayan Jha - 13 pages -21.01.2015, Shri. Jagdish Prasad Purohit - 19 pages - 21.01.2015, Shri. Jagdish Prasad Purohit - 9 pages - 19.10.2011, Shri. Jagdish Prasad Purohit - 11 pages - 12.02.2013, Shri. Jagdish Prasad Purohit - 9 pages - 17.12.2013 and the financial statements of three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him-Despite several requests by the assessee, M was not made available for cross-examination- Though statement of M had evidentiary value, weight could not be given to it in proceedings against the assessee without testing it under cross examination- Therefore, in the absence of M being made available for cross-examination, his statement could not be relied upon to the detriment of the assessee- Tribunal was justified in setting aside block assessment-No substantial question of law arises The AO is in error in not objectively considering the objections filed by the assessee dt.06.03.2017. The entire order is based on surmise and suspicion without any evidence against the assessee which is even admitted by the AO as evident from the assessment order. The assessee submits that it is a regular investor in the equity market and the resultant losses/profits from the transactions are declared in the return of income filed. All the share transactions including the impugned transactions by the assessee are through recognized stock exchanges and banking channels and both receipts and payments are done through account payee cheques/RTGS. The underlying shares of the company are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 8) 2) Sunil Prakash vs ACIT - ITA 6494/Mum/2014 - ITAT Mumbai (Annexure 9) In view of the above, it is requested that the additions made by the AO be deleted. The assessee is also aggrieved by the levy of interest u/s 234B 234D and it is prayed that consequential relief may be granted in the interest of justice and oblige. 11. From this Para 5 reproduced from the order of CIT(A), it is seen that this was the contention raised by assessee before CIT(A) that the AO has erred in completing the assessment u/s. 144 without following the prescribed procedure under law. It is also stated by assessee before CIT(A) that the assessee has participated in the proceedings by way of appearances and by filing details and replies. He also submitted before CIT(A) that AO has also stated in Para 5 of the assessment order that the assessee appeared from time to time and filed details. It was also submitted that the AO has also at various places has made reference to the replies filed by the assessee and reproduced them and therefore, it was the claim of the assessee that it is erroneous on the part of the AO to frame the assessment u/s. 144 of the Act when there is compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax authorities. Based on this observation on Para 9 of the assessment order, the AO concluded in Para 10 that he is satisfied that the books of accounts maintained by the assessee are not reliable and true and it should be rejected and assessment should be completed u/s. 144 of the IT Act on the basis of information available with the AO. In the light of these observations by AO in the assessment order, now we examine the applicability of the judgment of Hon ble Calcutta High Court rendered in the case of ITO Vs. Luxmi Prasad Goenka (supra). This was the conclusion of Hon ble Calcutta High Court in this case that if an assessee is not relying on any evidence or document in support of the return and as such fails to produce any such document or evidence, it cannot be said that there was a failure on the part of the assessee to produce evidence in support of the return on which he relies. It was also concluded that in such cases, section 23(4) ofIndian Income-tax Act, 1922 did not authorize for best judgment. Para 5 of this judgment is relevant and therefore, the same is reproduced herein below for ready reference:- 5. In the aforesaid three circumstances the ITO is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec. 37 of the Act empowers an ITO to call upon the assessee to give evidence and to produce documents but failure to comply with s. 37 does not authorise, under sub-s. (4) of s. 23, the ITO to make a best judgment assessment. In the aforesaid view of the matter it must, therefore, be held that the assessment order was wrong and in violation of the provisions of sub-s. (4) of s. 23. 13. Since this judgment is under the provisions of section 23(4) of Indian Income-tax Act, 1922, now we examine the applicability of judgment cited by ld. AR of assessee rendered in the case of Mohini Debi Malpani vs. ITO Anr. (supra). Para nos. 8 to 10 of this judgment are relevant and therefore, reproduced herein below for ready reference. 8. I am unable to accept this contention of Mr. Gupta. A notice under Section 143(2) of the Act can only be issued where a return has been made by the assessee under Section 139 of the Act, but the Income-tax Officer is not satisfied that the return is correct and complete without requiring the presence of the assessee or the production of books of account or other evidence on which the assessee may rely in support of his return. It is to be noted that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarding compliance of notice issued by the AO u/s. 143(2) of IT Act. Under these facts, it was held by the Hon ble Calcutta High Court that the conditions precedent for the assumption of jurisdiction u/s. 144 of the Act were not present in that case and therefore, on this basis, Hon ble Calcutta High Court struck down the assessment order passed by the AO u/s. 144. In the present case, as per Para nos. 9 and 10 of the assessment order, the AO has narrated the various reasons for which he is invoking the provisions of section 144 of IT Act, these paras are already reproduced above. From these two paras of assessment order, it is seen that this is not the allegation of the AO that there is failure on the part of the assessee to file return of income under the provisions of section 139 of IT Act. Otherwise also, it is seen that in the assessment order for Assessment Year 2012-13, it is noted by the AO that return of income was filed by the assessee on 18.09.2012 and in reply to notice issued by the AO u/s. 148 on 03.11.2016, the assessee has submitted letter dated 09.12.2016 stating that the return filed on 18.09.2012 may be considered as return in response to notice issued u/s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming Long Term Capital Gain on sale of shares of M/s Blue Circle Services Ltd, M/s Fact Enterprises Ltd M/s PS IT Infrastructure Services Ltd ( formerly known as Parag Shilpa Investments Ltd). A.Y. Name of the Scrip Amount of LTCG Claimed (Rs) 2012-13 Blue Circle Services Ltd (BCSL) 16,22,06,666 Fact Enterprises Ltd (FEL) 5,109 2013-14 Blue Circle Services Ltd (BCSL) 7,86,38,101 2014-15 Blue Circle Services Ltd (BCSL) 47,82,937 PS IT Infrastructure Services Ltd (formerly known as Parag Shilpa Investments Ltd). (PSIL) 2, 37,75,098 2015-16 PS IT Infrastructure Services Ltd (formerly known as Parag Shilpa Investments Ltd). (PSIL) 20,25,08,735 This Long Term Capital Gain is shown as received in your return of income. During the course of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manages many paper/bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies, although listed on exchange, are always closely held and are controlled by the promoter of the Penny Stock Company and the Operator who is arranging for the bogus LTCG/Loss. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. 4.3. If the beneficiary say, 'B' bought 10,000 shares of company P @ Rs. of 1/- per share and sold it @ ₹ 1000/- per share, he would make on paper capital gain of ₹ 49,90,000/-. In his hank account there would be a cheque deposit of ₹ 50,00,000/- paid by the paper company that buys the shares. The receipt is prima facie exempt from tax under section 10(38) of the Income Tax Act, 1961. The Directorate of Investigation, Kolkata investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from those investment is in the range of 4.89 % to 55.82%. As such your move to acquire the shares of M/s Blue Circle Services Ltd, M/s Fact Enterprises. Ltd M/s PS IT Infrastructure Services Ltd (formerly known as Parag Shilpa Investments Ltd) is a predetermined move which had sole aim to bring back unaccounted money. The purchase of shares @ 1.00 or 1.50 or 10.00/- that too in such a huge quantity was made when the company had no proven financial results is an indicator to the events to be occurring in the future. The data received from BSE/NSE website or any other third party suggests that, all these three companies are having dubious financial track record. The copies of such reports are reproduced in the show-cause. You have purchased shares when companies does not having any substantial profit. In spite of novice in share market no substantial share transactions in the earlier years subsequent years when financial results of these three companies are not splendid no chance of lucrative gains at the stage of purchase of its shares is a predetermined action on your part leading to subsequent path to acquire LTCG by way of dubious methods. This predetermined ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In his statement dated 13/06/2014 Shri. SajanKedia has admitted that all the directors of PS IT Infrastructure Services Ltd( formerly known as Parag Shilpa Investments Ltd)are dummy directors. It can be seen that they are not having capacity to run a company, but are dummy directors. A copy of statement is enclosed for reference. From the statement it is clear that he is only a dummy director. He has also admitted that PS IT Infrastructure Services Ltd( formerly known as Parag Shilpa Investments Ltd). (PSIL) is penny stock company. His income is very meager in spite of being a director and Chairman in a listed public limited company. In his statement dated 21/01/2015 Shri. Dhruv Narayan Jha has admitted that all the directors of Blue Circle Services Ltd are dummy directors. It can be seen that they are not having capacity to run a company, but are dummy directors. A copy of statement is enclosed for reference. From the statement it is clear that he is only a dummy director. He has also admitted that BCSL is penny stock company. His income is very meager in spite of being a director and Chairman in a listed public limited company. All these are indications that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d then it gets transferred to client companies, who exist in paper only. From the Jamakharchi client company account, money gets transferred to Beneficiaries of Long Term Capital Gain via Share Broker's Account. On a sample basis, just to illustrate the modus operandi Investigation Wing, Kolkata has prepared cash tail of more than 1500 Crore Rupees. To elaborate it more, when a person needs entry of LTCG, he approaches a share broker or entry operator. Entry operator gets him registered with some share broker as a client. Then shares of a listed penny stock are provided to beneficiaries. After a year, beneficiary provides cash to entry operator for having equaling amount of entry of LTCG. Then entry operator or share broker gets such cash deposited to the various accounts and routes it to bogus client. Bogus client purchases the penny stock shares from beneficiary on abnormally higher rate. Thus a beneficiary gets back his unaccounted cash as cheques/rtgs for receipt against sale of shares. Almost all the proprietorship accounts, where cash is getting deposited never files Income Tax Returns. Moreover, they tend to close such accounts very often, so that they can evade an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res THE CALCUTTA STOCK EXCHANGE LTD. 9 AMIT SARAOGI 663 Crores THE CALCUTTA STOCK EXCHANGE LTD. 10 Sankalp Vincom Pvt Ltd 95 Crores THE CALCUTTA STOCK EXCHANGE LTD. 11 GALLANT COMMOSALES PVT LTD 46 CRORES THE CALCUTTA STOCK EXCHANGE LTD. 12 Ashok Kumar Kayan Kayan Securities pvt ltd 51 Crores THE CALCUTTA STOCK EXCHANGE LTD. 13 PRAN JEEVAN DISTRIBUTORS PVT. LTD. 6.14 Crores EUREKA STOCK AND SHARE BROKING SERVICES LTD 14 Dristi Suppliers Pvt Ltd 7.40 Crores EUREKA STOCK AND SHARE BROKING SERVICES LTD 15 PRAN JEEVAN DISTRIBUTORS PVT. LTD. 1.16 Crores Guiness Securities Ltd 16 PWAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of persons working in tandem to provide arranged capital gain by receiving cash in lieu of it. It is seen that some exit providers / cross purchasers have helped you for sale of your shares. M/s Divya Drishti Traders Pvt Ltd is one of such party. A sample cash trial of this concern with other party is also mentioned above. It is seen that other exit providers / concerns who have purchased your shares have traded through The Calcutta Stock Exchange Ltd. (Source: Trade data). Statement of Sri Amit Saraogi, who is sub broker of The Calcutta Stock Exchange Ltd. was recorded on 30.12.2014. He has confessed that as a broker they were actively engaged in providing entries in the form of LTCG in collusion with other operators. The confession by brokers is also a circumstantial evidence against you that our LTCG is arranged one. 6. Considering the above circumstantial and direct evidences it is proven that the Long Term Capital Gain shown by you is not genuine one and it is cash credit u/s 68 of IT Act, 1961 representing undisclosed income. For this reason I propose to make addition u/s 68 of IT Act, 1961, in respective A.Yrs as follows: A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous Assessment Years i.e. 2012-13 to 2015-16 and amounts thereof and name of the companies for which shares were sold and Long Term Capital Gain was earned by the assessee. Thereafter in Para 3 of this notice, the AO is making allegation that the Long Term Capital Gain shown by assessee is not natural but is arranged one. As per this Para also, there was no requirement of AO which was required to be complied with by the assessee. In Para 4 of this notice, the AO himself says that these are general preface and in this Para, the AO is noting about background of investigation carried out by the investigation wing of the department and hence, in this Para also, there is no requirement of AO which was required to be complied with by the assessee. In Para 5 of this notice, the AO has jotted down certain circumstantial / direct evidences which are against the assessee s claim of LTCG. In Para 6 of this notice, the AO says that in view of the circumstantial and direct evidences noted by him in Para 5 of this notice, it is proven that the Long Term Capital Gain shown by assessee is not genuine one and it is cash credit u/s. 68 of IT Act, 1961 representing undisclosed income and hence, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 142(1) of IT Act. We have seen as discussed above that the only requirement of notice issued by the AO u/s. 142(1) on 13.01.2017 was this that assessee should attend along with the books of accounts on 24.01.2017 and this is not the case of the AO that the assessee has not appeared before him along with the books of accounts. In our considered opinion, in the facts of present case as discussed above, this judgment of Hon ble Calcutta High Court is squarely applicable in which it was held that if the conditions precedent for the assumption of jurisdiction under Section 144 of the Act are not present, the order of assessment u/s. 144 must be struck down as being without jurisdiction. Respectfully following this judgment, we hold that in the present case also, the conditions precedent for the assumption of jurisdiction u/s. 144 were not present and therefore, the assessment order passed by the AO u/s. 144 of IT Act deserves to be struck down and we struck down the same in all these four years. 19. In view of above decision, the other grounds in respect of validity of reassessment proceedings and in respect of merit of various additions have become academic but sill, we feel it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction has no merit. 22. Now we examine the applicability of the tribunal order rendered in the case of Ritu Sanjay Mantry vs. ITO (Supra) cited by the Learned DR of the revenue. We find that in Para 3 of this tribunal order it is noted in that case that information was received by the AO from o/o DGIT (C IB), New Delhi that the assessee in that case has taken accommodation entry from M/s Mahasagar Securities Pvt. Ltd., (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of ₹ 10,32,289/- and based on this concrete information, the AO issued notice u/s 148 after recording the reason for the same. Under these facts, validity of reopening was upheld by the tribunal in that case. In the present case, as per the reasons recorded by the AO for reopening as available on pages 147 to 149 of the paper book, the AO has noted the year wise company wise LTCG as per return of income filed by the assessee for these four years and thereafter, the AO has noted fact about carrying out of a countrywide investigation by Directorate of Investigation, Kolkata to unearth the organized racket of generating bogus entries of LTCG which is exempt and then he has noted the modus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a predetermined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company of the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. 23. From the above Para containing modus operandi of the racket of bogus entry operators, it is noted that as per the same, shares in question are held for one year. In the present case, the shares of the first company i.e. M/s Blue Circle Services Ltd. were purchased on 14.09.2010 and were sold during 15.11.2011 to 21.06.2013, which means that these shares were held by the assessee for 2.75 years approx. The shares of the second company i.e. M/s PS IT Infrastructure Services Ltd. (Formerly known as Parag Shilpa Investment Ltd. PSIL). were purchased on 20.07.2012 and were sold during 04.03.2014 to27.03.2015. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words definite information which were there in s. 34 of the Act of 1922, at one time before its amendment in 1948, are not there in s. 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. 26. In the light of this judgment, we now examine the facts of the present case to find out as to whether, in the present case, it can be accepted that reasons for the formation of the belief of the AO had rational connection with or relevant bearing on the formation of belief of the AO. Hence, we reproduce the reasons recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. 4. Further, it may be mentioned here that the price of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the Operator of the scrip. An Operator is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to take entry of bogus LICG/STCL in their books and arranges the same through the scrips of penny stock companies. The Operator manages many paper/bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies, although listed on exchange, are always closely held and are controlled by the promoter of the Penny Stock Company and the Operator who is arranging for the bogus LTCG/Loss. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. If the beneficiary sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in case of the suspect scrips. These actions include passing interim direction, suspending the trade, reducing the price band etc. 6. Based on the above information received from different sources, a survey action u/s 133A of the IT Act was carried out in his case on 12/05/2015 by the DDIT(Inv.), Bangalore and on 20/09/2016 by the undersigned. 7. Based on the evidences gathered during the survey proceedings and statements of various persons in connection with M/s Blue Circle Services Ltd M/s PS IT Infrastructure Services Ltd (formerly known as Parag Shilpa Investments Ltd) recorded by various authorities of Income Tax Department, I am satisfied that, assessee has claimed LTCG from M/s Blue Circle Services Ltd M/s PS IT Infrastructure Services Ltd (formerly known as Parag Shilpa Investments Ltd) Fact Enterprises Ltd as exempt income which is prima-facie bogus claim and it requires to be taxed. Issue notice u/s 148 of the IT Act,1961. 27. From the reasons reproduced above, it comes out that the AO has noted year wise company wise details of LTCG shown by the assessee and thereafter, the AO has noted about the investigation carried out by Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. were purchased on same date i.e. 14.09.2010 and sold during 16.05.2013 to 21.06.2013. In A. Y. 2015 16 as details of LTCG available on page 349 of the paper book, there is no LTCG on account of sale of shares of this company i.e. M/s Blue Circle Services Ltd. In fact, as per the reasons recorded by the AO also, sale of shares of this company has taken place in three years i.e. A. Y. 2012 13 2014 15. 29. In A. Y. A. Y. 2012 13 details of LTCG available is available on page 241 of the paper book and as per the same, there is LTCG on sale of 4 companies in addition to sale of shares of M/s Blue Circle Services Ltd. but these four companies do not include the name of the second company in dispute i.e. M/s PS IT Infrastructure Services Ltd. (Formerly known as Parag Shilpa Investment Ltd. PSIL). In fact, as per the reasons recorded by the AO also, sale of shares of this second company has taken place in two years i.e. A. Y. 2014 15 2015 16. Hence, we examine the details of LTCG for A. Y. 2014 15 as available on page 310 of the paper book and we find that the shares of this company were acquired on 20.07.2012 and sold during 04.03.2014 to 28.03.2014. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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