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TMI Blog2022 (12) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... Y HIGH COURT] AO is not permitted to reopen assessment based on the reason to suspicion. The reassessment proceedings completed in the case of the assessee are held to be invalid and accordingly same are quashed. The additional ground raised by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. Since, these transactions are not treated as genuine and not resulting in a genuine capital gains, hence, the sale proceeds received by the assessee of Rs. 1,67,70,454/- on shares of M/s. MKEL is treated as unexplained taxable income earned during the year and accordingly, added under section 68 of the IT. Act, 1961 to the total income of the assessee during the relevant Year under consideration. Further, an amount of ₹3,35,409/- i.e. 2% of ₹1,67,70,454/- (commission paid to the entry provider/operator) is being added to the total income of the assessee us 69C of IT Act, 1961 on account of unexplained expenditure. Penalty proceeding u/s. 271(1)(c) are separately initiated for furnishing inaccurate particulars of income leading to evasion of tax." 4. The Ld. CIT(A) also upheld the addition observing as under: "5.7 CONCLUSION To reiterate, the facts of the case, as at para 5.4 and 5.5 supra, 30,000 shares of Matra Kaushalya Enterprise Ltd were acquired from Pranjal Trading Co P Ltd; purchase invoice of Kaushalya Global was furnished for 30000 shares for Rs 3,00,000/- on 26.11.2012 for face value of Rs 10/- per share. Appellant has furnished a copy of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of MKEL and had also not filed return of income (regular) for the year under consideration, whereas the assessee not only filed original return of income on 28/03/2016 but also duly shown the income on sale of shares of MKEL under the head 'income from long-term capital gain'. Therefore, the Assessing Officer did not apply his mind while recording reasons and thus, notice issued under section 148 of the Act and consequent assessment is bad in law and deserve to be quashed. (b) There is no live link of the material relied upon and belief formed thereupon: (i) The Assessing Officer recorded that information was received that 'SEBI' has suspended trading in shares of several penny stock companies consequent to its investigation, but, nowhere stated that trading in shares of 'MKEL' were suspended by the SEBI. The trading suspended in other shares is not relevant material for forming belief in the case of the assessee. During the course of the reassessment proceeding also no such material indicating suspension of trading in shares of 'MKEL' by 'SEBI' has been provided to the assessee. (ii) In the reasons recorded it is mentioned that information was received from directorate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on record. The assessee has assailed the validity of reassessment proceeding in view of defects in reasons recorded. Therefore, it is relevant to reproduce the reasons recorded by the Assessing Officer, which are available on page 10 and 11 of the paperbook -2, as under: 1. An information was received in this case from the Directorate Income-tax (Investigation), Kolkata, stating that the investigation comes out by the department had proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates had arranged accommodation entry of bogus long term capital gain, bogus short term capital gain and bogus short term capital loss/bogus business loss through trading of shares of various penny stock companies. 2. The investigation conducted by the Kolkata Investigation Directorate revealed that the trading in shares of penny stock companies was a manipulated affair to generate entries of bogus LTCG to convert undisclosed income into tax free income as LTCG earned against sale of shares is an exempt income. Further, the Kolkata Investigation Directorate informed that all such brokers throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer in the assessment order has also recorded the fact of filing of regular return of income by the assessee on 23/03/2016. In the said return of income, the assessee has declared the receipt on sale of the shares amounting to ₹1,67,45,253/- under the head long-term capital gain and claimed the same as exempt. Therefore, the Assessing Officer has recorded reasons to believe based on incorrect facts merely on the basis of the information received and without verifying the same from the record available with him. It makes clear that there is a total non-application of mind on the part of the AO while recording the reasons for reopening of the assessment. In the case of CIT v. G & G Pharma (2015) 384 ITR 147 (Del), the Hon'ble Delhi High Court held that the AO should apply his mind in order to form reasons to believe that income has escaped assessment, is one of the basic requirement of section 147 of the Act. 8.2 Secondly, we find that the Assessing Officer has referred to suspension of trading in some shares by the Security and Exchange Board of India (SEBI), but nowhere pointed out whether any trading in the shares of the MKEL was ever suspended. Suspension of trading in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and/ or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee's broker but there is no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. 5. In the above view, prima facie, we are of the view that the impugned notice is without jurisdiction as it lacks reason to believe that income chargeable to tax has escaped assessment." 8.6 Similarly the Tribunal Delhi bench in decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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