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TMI Blog2024 (3) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... he considered opinion that at best it is an adverse information against director of assessee company [Shri Nikil Jalan]; and AO after receiving the same, ought to have conducted preliminary enquiry [since at that stage there was only Reason to suspect escapement of income in his hands and collected material and if it was found that it is not the director of assessee company who has misused the stock exchange, instead it was the assessee company which actually misused the stock exchange, in such an event, the AO should have recorded his own reason warrant holding the belief that income chargeable to tax has escaped assessment, which essential requirement of law has not been met in the reasons recorded by AO in the instant case to successfully re-open the assessment of assessee company - Decided in favour of assessee. - Shri Aby T. Varkey, JM And Shri S Rifaur Rahman, AM For the Assessee : Shri Mani Jain For the Revenue : Shri H. M. Bhatt (Sr. DR) ORDER PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi, dated 28.08.2023 for AY. 2015-16. 2. The assessee has challenged the validity of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Priyasha Meven Finance Ltd) is not figuring in it. But he fairly accepted the fact that at item No. 26, the name of the director of the assessee company Shri Nikhil Jalan is figuring in the list of fifty four (54) names. However, the main contention of assessee is that without even the name of assessee company figuring in the fifty four names who all are restrained by the ex-parte interim order of SEBI, Ld. AR wondered as to how the AO based on such a SEBI order dated 20.08.2015 could have issued notice u/s 148 of the Act conveying his desire to re-open the assessment of the assessee company. According to the Ld. AR, it is settled position of law that adverse information against an assessee (in the present case as noted in the ex-parte interim SEBI order against the director of assessee company) at best could have triggered Reason to Suspect and not the essential condition precedent viz Reasons to believe, escapement of income . According to the Ld. AR, when the AO got information (in this case ex-parte SEBI interim order) against director of the assessee company, it could have triggered the AO to suspect escapement of income either in the hands of the director of the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -assessment order it can be seen that the AO has made an addition of only Rs. 6 cr, which fact itself shows that AO failed to meet in the Reasons recorded the essential condition precedents to re-open the assessment i.e. Reasons to believe, escapement of income . Further according to Ld. AR a perusal of Reasons recorded would show that AO re-opened the assessment on the basis of borrowed satisfaction of SEBI (interim ex-parte order) and therefore it is bad in law; and recorded reasons suffers from non-application of mind of AO while he recorded the reasons for re-opening the assessment, which vitiates the reopening of assessment. For the foregoing reasons, the impugned action of the AO to re-open the assessment is bad in law and therefore the notice issued u/s 148 of the Act is ab initio void and therefore urged that it may be quashed. 5. Per contra, the Ld. DR submitted that SEBI had restrained fifty four (54) persons/entities including the director of the assessee company Shri Nikhil Jalan from trading in security market/stock exchange which fact is discernable from the SEBI order dated 20.08.2015. Since there was such a material in the hands of the AO, he has rightly re-opened t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anything be deleted from the reasons so recorded by AO. No inference can be allowed to be drawn on the basis of reasons not recorded by him. AO has to speak through the reasons so recorded by him. The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide the link between conclusion and evidence. So the reasons recorded by the AO before re-opening as it is, it should be examined to see whether AO had met in the reasons recorded , the essential condition precedent to do so i.e. Reason to believe, escapement of income (Refer decision of Hon ble Bombay High Court in the case of Hindustan Lever Ltd. (268 ITR 332). So in this backdrop let us look at the reasons recorded in this case by AO to re-open the assessee s assessment for AY 2008-09, which is reproduced as under [and please note that since no paragraph numbers were given by AO, for convenience Para number (I) to (v) are given] :- Reasons for Re-opening u/s 147. (I). The assessee had filed its original return of income for A.Y. 2015-16 on 29.09.2015 declaring total income of Rs 57,65,270/. The return was processed u/s 143(1) of the IT Acts 1961, Information was received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of writing the option would be equivalent to the intrinsic value of the option, but here the loss-making entities were selling options much below their intrinsic value. e) In the second leg of the reversal trades, the options once sold by an entity at unreasonably low prices were subsequently bought back on the same day or on the next trading day at substantially higher prices when compared to the first leg sell price. (f) in certain instances, variations to the above pattern were seen which inter-alia included loss-making entities incurring loss by buying the options first instead of selling them. g) Further, during the period when stock options@ position was kept open, there was no significant change in the price of the underlying scrip to justify the difference between the prices of the two legs of the reversal trade. h) The trading done by loss-making entities in stock options in the above manner. accounted for significant proportion of their overall trading on that segment. i) The loss-making entities as well as the profit-making entities were seen trading repeatedly in deep in-the-money options and deep out-of-the-money options on individual stocks, which were thinly traded. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of tax evasion/facilitating tax evasion. According to the AO, as per this information, the assessee company also is one of the suspected entity which indulged in availing fictitious profit/loss amounting to Rs. 12,50,00,000/- by executing reversal trades in illiquid stock options on the BSE for the purpose of facilitating tax evasion. And thereafter, at Para II, the AO has taken note of the general observations of SEBI made in the ex-parte interim order dated 20.08.2015. Then, at Para no III, AO took note of the SEBI s conclusion that entities named in the SEBI order have prima-facie, used and employed a pre-meditated manipulative device or contrivance while dealing into securities market and indulged into non-genuine and deceptive transactions which amounts to fraudulent activity prohibited under the provisions of the SEBI Act. And thereafter, at para no. IV, AO held that assessee failed to disclose fully and truly all material facts necessary for assessment for relevant assessment year. And hence according to AO he has reasons to believe that income chargeable to tax of the assessee company to the tune of Rs. 12.50 cr has escaped assessment. And thereafter, he says at Para n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AR, the interim ex-parte order of the SEBI named Shri Nikhil Jalan, which could have triggered Reasons to Suspect and not Reasons to believe escapement of income which doesn t satisfy the requirement of law to successfully usurp the jurisdiction to re-open the assessment of the assessee-company, which is a separate legal entity. Therefore, having carefully perused the material on the basis of which AO re-opened the assessment i.e, SEBI ex-parte interim order, we are of the considered opinion that at best it is an adverse information against director of assessee company [Shri Nikil Jalan]; and AO after receiving the same, ought to have conducted preliminary enquiry [since at that stage there was only Reason to suspect escapement of income in his hands]; and collected material; and if it was found that it is not the director of assessee company who has misused the stock exchange, instead it was the assessee company which actually misused the stock exchange, in such an event, the AO should have recorded his own reason warrant holding the belief that income chargeable to tax has escaped assessment, which essential requirement of law has not been met in the reasons recorded by AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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