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TMI Blog2019 (9) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer had rightly accepted the assessee s LTCG keeping in making the overwhelming evidence forming part of records. In case of CIT vs. Lakshmargarh Estate Trading Co. Ltd. [ 2013 (2) TMI 825 - CALCUTTA HIGH COURT] and CIT vs. Bhagwati Prasad Agarwal [ 2009 (4) TMI 138 - CALCUTTA HIGH COURT] have accepted genuineness of similar LTCG. Since the issue is covered by all the foregoing decisions of hon'ble jurisdictional high court, we observe that the Assessing Officer had rightly treated the assessee s foregoing LTCG derived from sale of shares to be genuine - We therefore reverse the PCIT s order under challenge and restore the impugned assessment framed by the Assessing Officer - decided in favour of assessee. - ITA No.01-04/Kol/2019, ITA No.05/Kol/2019, ITA No.13-15/Kol/2019 - - - Dated:- 20-9-2019 - Shri S.S.Godara, Judicial Member And Dr. A.L. Saini, Accountant Member For the Assessee : Shri S.M.Surana, Advocate For the Revenue : Dr. P.K. Sriharai, CIT-DR ORDER PER S.S.GODARA, JUDICIAL MEMBER:- These eight assessee(s) have filed their instant as many appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k exchange system to generate bogus L TCG to aid and help beneficiaries to convert their unaccounted income into accounted one with no payment of taxes. The modus operandi, as emanating from the rep.ort of the Director General of Income Tax (Investigation),WB, Sikkim and NER, is reproduced ahead: The Scheme Entities involved in the transactions There are three categories of individuals who are involved in the transactions i) Syndicate Members. They are the promoters of the Penny Stock companies who own the initial share holding mostly in the name of paper companies either in afresh IPO or purchased from the shareholders of a dormant company. They are usually a group of 4-5 individuals who a/so referred to as Syndicate Members and are sometimes also referred to as Operators. Their nominees are directors of the Penny Stock companies which are indirectly controlled by them through such dummy directors. The whole operation is managed by them. They get the net commission income from the transactions. Their name, however. seldom appears in the actual transactions. ii) The Brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the initial booking was done. The beneficiary provides the required amount of cash which is routed through some of the paper companies of the entry operator and is finally parked in one company which will buy the share from the beneficiary. When everything is ready a specific date and time as well as price is fixed by the operator on which the transaction is made. The paper company issues cheque to the beneficiary. The beneficiary claims the receipt as exempt income U/S 10(38) of the I. T.Act, 1961. The above modus operandi has been confirmed by all entry operators in their statements at the time of proceedings U/S 132/133A/131 on various dates. 5.3 AII such penny stock companies were identified from the financial accounts of the companies, trading patterns of the scrips, statement of share brokers, statement of entry operators, statement of promoters of the companies and the post search/survey inquiries. The list contains the name of the scrip Unno Industries Ltd. having scrip code 519273which is the traded scrip in the instant case. Some common features of these companies, as specified in the said report, are: (1) Initial allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dummy paper entities. (13) The shares of these companies are not available for buy/sell to any person outside the syndicate. This is generally ensured by way of synchronized trading by the operators amongst themselves and/or by utilizing the mechanism of upper/lower circuit of the Exchange. 5.4 From the material available on record, it is proved beyond doubt that the alleged transactions and the scheme of colourable device mentioned in Para 5.lto 5.3 supra, is bogus and the entire sale consideration being bogus cash credit should have been added back U/S 68 of the Act and taxed at Maximum Marginal Rate. The benefit of (indexed) cost of acquisition should also not have been allowed to the assessee. In this regard, reference is made to the provisions of Sec 68 of the Act as reproduced below : Cash credits . 41. 68.42Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion 'of the [ Assessing ] Officer, satisfactory, the sum so credited may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pturing gains. In this market; out of nearly 8,000 listed companies, several scrips are not traded regularly. With the collusion of promoters, some brokers arrange for price(s) with purchase of such scrips at nominal costs, and sales at exorbitant prices, with a view to receiving money on sale as ' capital gain ' when the long term gain is subjected to a ' nil ' or nominal rate of tax. The advantage for manipulative taxpayer is that he can launder such sale receipts through payment of no tax. SEBI has recently barred more than 250 entities, including individuals and companies, from the securities market for suspected tar: evasion and laundering of black money through stock market platforms. In one such instance price of a scrip rose from ₹ 10.20 to ₹ 489 in 150 trading days - a rise of 4694%. The SIT obtained the background details of these cases and studied them. A typical pattern is observed to be followed in such cases. A company with very poor financial fundaments in terms of past income or turnover is able to raise huge capital by allotment of Preferential allotment of shares is made to various entities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad increased insignificantly. However, the share price and market capitalization of the scrip was shooting up almost vertically. The catapult rise of its shares defied logic as even the blue chip companies which have bulk market share in terms of market capitalization and business did not even manage to double their price in the market during the same period. Statistically, UNNO INDUSTRIES LTD having almost zero fundamental strength had shot up more than 28 times in a short span of time. Apparently it is 28 times on an average however it is taken to 28 times under the disguise of splitting of shares. This is because the parallel forces of accommodation entry providers were actively participating with their pre-settled game plan. This scrip was suspended by SEBI for Price rigging and insider trading . 5.6.3 Assessee had apparently sold the shares of UNNO INDUSTRIES LTD at pre-determined price, at pre-determined time to pre-determined parties who were seeking loss for setting off genuine capital gain with the help of different operators, members of BSE, share brokers and sub-brokers. The details of shares of UNNO Industries sold by the assessee, as available from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 As seen from the records, the assessee apparently sold these scrips at a pre-determined price, at a pre-determined time and to pre-determined buyers with the help of accommodation entry providers under the shell of director, share broker etc. to bring his unaccounted income into the regular books of accounts in the form of claim of exemption u/s 10(38) of the Action LTCG . 5.6.6 A microscopic view of all such data suggests that there is a common pattern in the trading of all such scrips and the pattern is that they represent a bell shape in their trading. It means first, their prices start from a low range, then it rises rapidly, stays there for a while and then it decreases more rapidly. Thus the trading pattern represents a Bell Shape[ Annexure A and made part of the order] 5.6.7 Ultimately SEBI vide its order dated 29.03.2016 has restrained some persons/entities from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further direction. The list includes the name of Unno Industries Ltd besides various other companies. 5.7 Further, in lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be justified to conclude the payment of commission to entry operators, brokers, etc. @ 5% of such accommodation entry. Considering the above, it is concluded that the assessee must have incurred expenditure of ₹ 2,68,176/- [ 5% of ₹ 53,63,518 -] to obtain the above said accommodation entry. In view of the above, the unexplained expenditure of ₹ 2,68,1761- also needs to be added back U/S 69C of the Act (taxable at the rate 0[30% as provided U/S 115BBE). 5.9 Reference is also drawn to the judicial pronouncement of the Apex Court in the case of N.K.Proteins Ltd. v. Deputy, Commissioner of Income-tax SPECIAL LEAVE TO APPEAL(C) NO.769 OF 2017 JANUARY 16, 2017, as reported in [2017] 84 taxmann.com 195 (SC), wherein the High Court's decision to add back the entire bogus purchase as per the fictitious invoices debited to trading account holding that percentage disallowance of bogus purchases goes against principle of Sec 68 and 69C of the Act, was upheld by the Apex Court. 5.10 It is imperative on the part of the Assessing Officer to examine each and every transaction and finally to assess correct income of the assessee. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment takes effect from 1-6-2015. 5.12.2 The spirit of this ratio is squarely applicable in a recent judgment, wherein the order u/s 263 passed by the PCIT was upheld in the case of M/s. Vama Sundari Investment (Delhi)(P) Ltd vs. Pr. CLT. - 9, New Delhi (ITA No: 22521De1l2018) by the Hon'ble ITAT, Delhi F Bench, New Delhi. In doing so, the Hon'ble ITAT had placed reliance on the following orders : Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/20171 dated 29.11.2017. In this group of cases, Hon'ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case as stated above, and also respectfully following the judgments cited above, particularly that in the cases of Sanjay Bimalchand Jain (supra), M/s. VamaSundari Investment (Delhi)(P) Ltd (supra) and that of N. K. Proteins (supra), I am of the considered view that it is deemed fit and appropriate in the interest of justice to add back the entire sale consideration of the bogus penny stock shares, amounting to ₹ 53,63,518/- unexplained cash credit u/s 68 of the Act. Further, the quantum of unexplained expenditure on account of commission payment to the tune of 2,68,176/- is also liable to be added back u/s 69C of the Act. Accordingly, I direct the AO to reassess. the income of the assessee for the relevant AY 2014-15 on the issue as discussed above. This leaves the assessee aggrieved. 4. We have given our thoughtful consideration to rival contentions. The assessee s detailed paper book running into 98 pages containing PCIT s sec. 263 show-cause notice dated 12.11.2018, assessee s reply, Assessing Officer s notice u/s 142(1), its response thereto dated 16.06.2016 and 24.01.2016, income-tax return, computation, profit and loss account, ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Learned CIT-DR strongly supports the PCIT s exercise of revision jurisdiction in facts of the instant case. Dr. Srihari vehemently contends that the Assessing Officer has not carried out the require due enquiry with regard to assessee s above stated LTCG which prompted the PCIT to invoke his revision jurisdiction. He refer to the PCIT s detailed discussion to this effect that such kind of LTCG are offshoot of collusion amount of entry operators, promoters and investors concerned deriving bogus LTCG by taking recourse to artificial price of the scrips. He next highlights the CBDT s standard operating procedural (SOP) issue recently to the field authorities for handling cases of bogus LTCG / losses derive mainly of penny stock. 7. Dr. Srihari s next reliance is on various decisions i.e. ITA No.4057/Del/2018 Pooja Gupta vs. Pr. CIT,New Delhi decided on 31.01.2019, ITA No.5714/Del/2018 Pooja Ajmani vs. ITO Ward-20(4), New Delhi decided on 25.04.2019, ITA No.1723/Bang/2018 Smt. M.K. Rajeshwari vs. Income-tax Officer, Ward-3, Raipur decided on 12.10.2018 and those referred in the PCIT s order under challenge (supra) to pray for upholding the impugned revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyaridevi Saraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC) . 25. In Max India Ltd. (3 Supra), reiterated the view in Malabar Industrial Co.Ltd. (2 Supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 27. In Sunbeam Auto Ltd.( 5 Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue recourse cannot be had to Sec.263 (1) of the Act. b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation even those events which arose subsequent to the order of assessment. We now examine the following judgments on this issue:- DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court) It was held that revisionary power u/s 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142(1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also well-settled principle that provisions of s. 263 would not be invoked merely to correct a mistake or error committed by the AO unless it has caused prejudice to the interest of the Revenue. If an order is based on incorrect assumption of facts or on incorrect application of law or without applying the principles of natural justice and without application of mind, it would be treated as erroneous. Likewise, the expression prejudicial to the interest of the Revenue is of wide import and is not confined to loss of tax. If due to an erroneous order of the AO the Revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of the Revenue. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation without describing as to how the order of the AO is erroneous. From this it also follows that where the assessment order has been passed by the AO after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the CIT which showed that there was any discrepancy or falsity in evidences furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was ₹ 6.13 crores, the AO should have satisfied himself by calling for more details as to how there was closing stock of such a magnitude of ₹ 5.28 crores. Thus, the CIT has not doubted the statement of finished goods in the closing stock furnished by the assessee. He has only remarked that there should have been a deeper probe by calling for more details. This is neither here nor there, when one keeps in view the ingredients of s. 263. (Para 15) Insofar as the insurance claim is concerned, the CIT observed that the assessee had shown receivable on this account to the tune of ₹ 1.21 crores but no details had been furnished. The AO had also not made any inquiries. In the detailed discussion on this aspect, the Tribunal has observed that insurance claim was lodged for the goods lost in transit. The assessee at that time had merely filed a claim with the insurance company. This claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore, no income had accrued which could be taxed. The Tribunal rightly held that ordinarily the income is said to have accrued to a person w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The AO will have to indicate cogent reasons for the same and Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessee s method. In the case in hand the AO has not made any such recording of satisfaction and has accepted the disallowance made u/s 14A by the assessee. In such circumstances it is not open for the ld. CIT to come to a conclusion that the AO should have invoked Rule 8D, without himself recording the satisfaction that the calculation given by the assessee in its disallowance made suo moto u/s 14A is not correct. Coming to the other expenses claimed, the ld. CIT has simply collected information after raising queries and has not given any finding whatsoever that there is an error made by the AO or that the circumstances was such that would require and warrant further inquiry or investigation. No error in the assessment order has been pointed out and it is not stated as to how prejudice was caused to the revenue. The finding that the AO had failed to properly scrutinise the above aspects does not give powers to the ld. CIT to revise the assessment u/s 263 of the Act. Making rowing enquiries is not a finding of an error. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from sale of shares to be genuine. That being the case, we hold that PCIT s exercise of revision jurisdiction merely on suspicious circumstances by invoking in sec. 263 Explanation (supra) with effect from 01.06.2015 is not sustaining. We therefore reverse the PCIT s order under challenge and restore the impugned assessment framed by the Assessing Officer on 29.07.2016. It is made clear that we have dealt with an instance of Assessing Officer himself having accepted assessee s LTCG after examining all the relevant facts of the case. We therefore do not deem it appropriate to restore the very issue back to him for yet another round of assessment. The assesse s sole substantive grievance as well as this lead appeal ITA No.01/Kol/2019 is accepted therefore. 9. Same order to follow in all remaining cases ITA No.02-05/Kol/2019 and 13-15/Kol/2019 in case of seven other assessees since it has come on record that they had also filed all the relevant evidence in support of their respective LTCG during the course of assessment / which stood accepted by the Assessing Officer. 10. All these eight assessees as many appeals are allowed in above terms. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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