9911796707
TMI Blog2022 (2) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... nother vs. Zuari Estate Development and Investment Company Limited [ 2015 (8) TMI 480 - SUPREME COURT ] Reasons recorded by AO are not reflecting the live link or connection for formation of the belief that the income chargeable to tax has escaped assessment - If we peruse the detailed reasons recorded by the assessing officer, we find that he was having information indicating that certain operators, syndicate members and brokers were indulging in providing accommodation entries, often times creating penny stock companies and using them as conduit for converting untaxed income by bringing them on record by paying no tax claiming it to be long term capital gain, tax on sale of shares which was at the relevant time exempted. One such company found to be indulging in such activities was Life Line Drugs and Pharma Limited. The assessee, during the period relevant to the assessment year 2015-2016, had purchased shares in the said company at the very low price. After that, the price of these shares had risen phenomenally and they were sold at high price. AO had sufficient material at his command to form a belief that the income chargeable to tax has escaped assessment. There is a clear l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harma Limited (Scrip Code - 506113) which is a listed penny stock company. It has very small capital base but its market capitalization is multifold to its capital base. As per information available in the case of said assessee, it is noticed total that the assessee has sold 1,08,000 shares of Life Line Drugs & Pharma Limited (Scrip Code 506113) for a total sale consideration of ₹ 2,54,47,000/- during F.Y. 2014-15. It is also observed that the assessee has claimed an exempt income of ₹ 3,43,94,500/- u/s 10(38) of the Income Tax Act, 1961 in his return of income for A.Y. 2015-16. Out of the said exempt income, amount of ₹ 2,47,99,000/- was earned only from trading in shares of Life Line Drugs & Pharma Limited. The details of share sold by the assessee, which is as under: 2. Analysis of information collected/received The scrip "Life Line Drugs & Pharma Limited" has been identified as one of the penny stocks that were the part of the "Penny Stock Manipulation Scam" based on a series of detailed investigation carried out by the department by which it was proved that a scheme was hatched by various players to obtain/provide accommodation entry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T using the loophole in Section 10(38) of the IT Act which places restriction of trading by payment of STT on sale of shares and not on purchase. ii) Price rigging: After the shares have been purchased by the beneficiaries, the syndicate members starts rigging the price gradually through the brokers. In these transactions the volume is almost negligible. Two fixed brokers who are in league with the Syndicate buy shares at a fixed time and at a fixed price. These low volume transactions are managed through paper companies of entry operators. iii) Final sale by the beneficiary: This is done after the beneficiary has already held the share for one year. The period of holding may be a little more to match the amount of booking with the final rate. The beneficiary is contacted either by the Syndicate member or the Broker (Middle man) through whom 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. In fact this modus operandi can be well understood through pictorial. Depiction of the scheme (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between January 2014 to january 2015. Normally, the SENSEX is a benchmark of the average price movement in any share. Most of the stocks which have good market capitalization and are majorly held by public tend to follow the price movement of the SENSEX. The deviation in price movement vis-a-vis SENSEX is usually guided by the fundamentals of the company and the behaviour of individual investors. When the price increase in the shares of the scrip was compared with the movement in the SENSEX it was seen that there was no correlation. It is also noticed that the statements of exit providers in the case controlled by sh. Devesh upadhyaya and sh. Bikash surekha was also recorded and they have also stated that their accounts have been utilized by the others to give entries 4. Findings of the AO The information received has been carefully examined. As per the information reserved, scheme of providing entries by various scrips listed in NSE/BSE is being managed and operated by various entry operators. Evidences found during the search clearly manifest those accommodation entries against receipt of cash. The assessee [Jawari Lal Lunia] has traded in Lifeline Drugs and Pharma Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the department by which it was proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG/STCG or bogus Long/Short Term Capital Loss through manipulation of stock market. Thus, it is clear that the said assessee is one of the beneficiaries of the "Penny Stock Manipulation Scam". In view of the aforesaid facts, I am satisfied that income to the tune of ₹ 2,47,99,000/- in the case of said assessee Shri Jawari Lal Lunia for A.Y. 2015-16 has escaped assessment as per Explanation 2(b) given under section 147 of the Income Tax Act, 1961. 8. Basis of forming reason to believe and details of escapement of income The assessee has sold 1,08,000 shares of Life Line Drugs & Pharma Limited (Scrip Code 506113) for total sale consideration of a ₹ 2,54,47,000/- during F.Y. 2014-15. It is also observed that the assessee has claimed an exempt income of ₹ 3,43,94,500/- u/s 10(38) of the Income Tax Act, 1961 in his return of income for A.Y. 2015-16. Out of the said exempt income, amount of ₹ 2,47,99,000/- was earned only from trading in shares of Life Line Drugs & Pharma Limited. The scrip "Life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 147 is reason to believe which has been recorded (refer paragraph). It is pertinent to mention here that this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 of section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. This case is within four years from the end of the assessment year under consideration. Hence necessary sanction to issue the notice u/s 148 has been obtained separately from Joint Commissioner of Income Tax as per provisions of section 151 of the Act." 3. Learned counsel for the petitioner submitted that the reasons lack validity. There is no live link between the material available with the assessing officer to believe that the income chargeable to tax has escaped assessment. Under the circumstances, even though the original assessment was not accepted after scrutiny, notice for re-assessment should be quashed. In this con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 147(a)(as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)]. 17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income which is escaped from assessment will be brought to tax. As long as the assessing officer has sufficient material demonstrating that he had bona fide formed the belief that the income chargeable to tax has escaped assessment, requirement of the law would be satisfied. 7. In this context, if we peruse the detailed reasons recorded by the assessing officer, we find that he was having information indicating that certain operators, syndicate members and brokers were indulging in providing accommodation entries, often times creating penny stock companies and using them as conduit for converting untaxed income by bringing them on record by paying no tax claiming it to be long term capital gain, tax on sale of shares which was at the relevant time exempted. One such company found to be indulging in such activities was Life Line Drugs and Pharma Limited. The assessee, during the period relevant to the assessment year 2015-2016, had purchased shares in the said company at the very low price. After that, the price of these shares had risen phenomenally and they were sold at high price. In the process, the assessee had claimed a long term capital gain of ₹ 2,47,99,000/-. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
