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TMI Blog2024 (7) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... which trading was done. In the absence of these details, the assessee was bereft of giving any defence. It is settled position of law that initiation of proceedings u/s 148 on the basis of wrong/incorrect facts is invalid in the eye of law. AO was not justified in making addition by rejecting the claim of loss of the assessee suffered in share trading. The addition made deserves to be deleted. Hence, taking into consideration above deliberations in the facts and circumstances case as detailed hereinabove, the Bench does not concur with the findings of the ld. CIT(A) and thus the appeal of the assessee is allowed. - Hon ble Shri Sandeep Gosain, Judicial Member For the Assessee : Shri S.L. Poddar, Advocate For the Revenue : Shri Rajesh Kumar Meena, Addl. CIT-DR ORDER PER: SANDEEP GOSAIN, JM These three appeals have been filed by the assessee against three different orders of the ld. CIT(A) all dated 03-04-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment years 2013-14, 2016-17 and 2016-17 respectively. 2.1 First of all, the Bench takes up the appeal of the assessee in ITA No. 465/JP/2024 for the assessment year 2013-14 wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g both the parties and perusing the materials available on record, the Bench observed that with a view to providing justice to the assessee, the Bench has no constrain to allow the additional grounds. Hence, the additional grounds raised by the assessee are allowed. 4.1 Apropos ground No. 1 2 of the assessee and additional grounds (supra), it is noted that the ld. CIT(A) has dismissed the appeal of the assessee by observing at para 6 to 8.2 of his order as under:- Decision 6. I have gone through the assessment order and submissions made by the appellant. The basic contention of the assessing officer in this care is that the AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight por at in which it was informed that the appellant had made fictitious profits in equities and derivative, trading in illiquid derivative on BSE amounting to Rs. 51,47,700/- This information came to the knowledge of Income Tax Department on the basis of Search Operation carried on by the Investigation Wing, Mumbai. The information received from the DDIT, (Inv.), Unit-1(1), Mumbai also enclosed the statements recorded u/s 133A of the Act of Mr. Harshva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. All these three companies were managed and controlled operated whose statements were recorded u/s. 133A of the Act of Mr. Harshvardhan Kayan and u/s 131 of the Act of Mr. Sanjay Periwal. The activity carried on by those companies was to indulge in rigging of share prices and thereby earning profits or losses as per the requirements of their clients. This was confessed by Mr. Harshvardhan Kayan and Mr. Sanjay Periwal during the course of search before the Investigation Wing, Mumbai. On the basis of the said information, the AO issued the notice u/s. 148 of the Act after recording reasons to believe that appellant's income had escaped assessment as provided in section 147 of the Act and after obtaining approval of the competent authority. Thus, the notice issued is valid as the same is issued after recording reasons on the basis of credible information from the Investigation Wing of the Department. Accordingly, the notice u/s. 148 of the Act is upheld. The submissions made by the appellant that there was no escaped income of the appellant and there was no failure to disclose fully and truly all material facts in the return are without any merit and hence, cannot be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd v. 170 (1991 (191) ITR 662), for initiation of action 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 that statement is not the concern at that stage. This is so because the formation of belief the Assessing Officer is within the realm of subjective satisfaction (sce ITO v. Selected Daluarband Coal Pvt Ltd. (1996 (217) ITR 597 (SC)] Raymond Woollen Mills Ltd. v. ITO (1999 (236) ITR 34 (SC) 7.4 In the present case the, AO has received the material on record which would prima facie suggest that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say you accepted my lie , now your hands are tied and you can do nothing . It would be travesty of justice to allow the assessee that latitude 7.6 It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at the stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under sections 147, 148 of the Income-tax Act, 1961, no fault can be found, 7.7 Similarly, Hon'ble Bombay High Court in the case of Hede Ferrominas Pvt. Lt reported in 147 taxmann.com 215 (Bombay) had occasion to examine whether there was sufficient material to form a reasonable belief that appellant's income had escaped assessment. The relevant para of the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BSE and NSE through banking channels and security transaction tax (STT) has been paid on all the transactions. However, the appellant has not been able to give any other information beyond these facts. It was submitted that profit from transactions with Hem Securities Ltd. is already reflected in the P L A/c. Similarly, profits from CM Geonka Stock Brokers Ltd. is also included in the P L A/c The AO has made the addition of only Rs. 41,34,571/- because the profit offered already has not been again brought to tax. However, the loss claimed of Rs. 41,34,571/- which is out of fictitious transactions was disallowed and added to the total income. The contention of the appellant is that all the transactions are of similar nature and how the AO can give different treatment to profit and different treatment for loss. However, as seen from the assessment order the AO has not taxed the profits earned on fictitious transactions again as it would amount to double taxation. However, the fictitious loss claimed by the appellant has been disallowed and added to the total income. Merely because profit has not been added it cannot be said that AO has accepted the transactions in questions. The AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices P. Ltd, Swarn Financial P. Ltd, Mentor Capital Ltd. All these groups are mainly in the business of finance whereas the assessee has got no connection with all these groups. The Learned Assessing Officer was, therefore, not justified in making addition in the case of the assessee following the findings and conclusions of this Project Falcon Report. It is further submitted that assessee has earned profits as under :- 1. Profit from trading through Hem Securities Ltd (Broker) Rs. 10,13,973/- 2. Profit from trading through CM Goenka Stock Brokers P Ltd Rs. 40,99,184/- Total Rs. 51,13,157/- These profits have been accepted by the Learned Assessing Officer without a murmur. The nature of transactions which have resulted in profits is same as those transactions conducted through M/s Maverick Share Brokers P. Ltd, which have resulted in loss. It is common knowledge that it is not easy to earn profits in the share market. In the case of the assessee, he has truthfully disclosed profits earned as above and has claiming losses incurred through M/s Maverick Share Brokers P. Ltd. It is further submitted in this proceedings u/s 147 were initiated on the basis of information from the Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiation of proceedings u/s 147, vide letter dated 06/07/2021. Copy of the same is available on Paper Book Page No. 29-34. The assessee during the course of assessment proceedings also filed replies along with contract notes and other details in support of the income/loss earned from share trading. The AO completed the assessment u/s 147/144B, vide order dated 23/3/2022, determining the total income at Rs. 46,81,114/-, inter-alia, making addition of Rs. 41,34,571/- by disallowing the loss from share transaction in equity derivatives conducted through M/s Maverick Share Brokers, treating the same as fictitious loss. In this case, it is noted that AO has initiated action u/s 148 on the basis of information received from Investigation Wing. A copy of the reasons recorded on 31/3/2021 is available on Paper Book Page No.35-37. It has been mentioned in the reasons by the AO that assessee earned fictitious profits in equity and derivatives trading on BSE of Rs. 51,47,700/-. The AO has further mentioned that no inquiry was required at his level as complete inquiry stood made by the Investigation Wing, Bombay. In this regard, it is observed that the AO has erred in law in issuing notice u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Project Falcon 2 . It is on the basis of this report which has been prepared by the Investigation Wing Bombay mainly dealing with cases of reversal trades that the AO has treated the claim of loss of the assessee as fictitious. However, the AO failed to notice that the name of the assessee does not figure in the Falcon report. The AO also failed to bring material on record to establish the trading of the assessee as reversal trades. Therefore, the loss disallowed by the AO is not justified. In first appeal, the ld. CIT(A) vide appeal order dated 03/04/2024 dismissed the appeal of the assessee. We also take into consideration the additional ground No. 1 raised by the assessee. In this ground it is noted that notice u/s 148 has been issued on 31/3/2021. The AO also furnished the copy of reasons recorded for issuing notice u/s 148 which is available at (Page 32-24). The perusal of the aforesaid reasons reveals that the main ground on which the AO issued notice is information received from Investigation Wing, Mumbai that the assessee had derived fictitious profits of Rs. 51,47,700/- in trading of BSE in equity and derivatives. The AO has further mentioned that there was no need to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommodation entry Aforesaid information and the reasons are extremely scanty and vague and do not satisfy the requirements of s. 147 There is no reference to any document or statement, except the Annexure Said Annexure cannot be regarded as a material or evidence that prima facie shows or establishes escapement of income Further, it is apparent that the AO did not apply his own mind to the information and examine the basis of the information He accepted the information in a mechanical manner CIT also acted on the same basis by mechanically giving his approval Company SS Ltd. had applied for and was allotted shares in the assessee company on payment of Rs. 5 lacs by cheque SS Ltd. is an incorporated company and it has been allotted PAN Facts on record do not show that SS Ltd. is a non-existing and a fictitious entity Proceeding under s. 147 quashed. (c) Pr. CIT vs. G G Pharma India Ltd (Delhi High Court) dated 08.10.2015 Reopening only on the basis of information received that the assessee has introduced unaccounted money in the form of accommodation entries without showing in what manner the AO applied independent mind to the information renders the reopening void (d)ITO vs. M. B. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under s. 148 was liable to be quashed. (g) CIT V/s Shree Rajasthan syntax Ltd. (2008) 217 CTR 209 (Raj) S.L.P. Of The Department Dismissed S.L.P. (c) No 8167 Of 2009 Decision All 30/3/09 Reopening of assessment on borrowed satisfaction by Assessing Officer of lesser on the basis of opinion arrived at by the Assessing Officer of lessee on the same set of documents was invalid. In view of the ratio of the aforesaid decisions, the issuance of notice u/s 148 by the AO simply on the basis of information of the Investigation Wing is unjustified. The same requires to be quashed. Further, it is also noted that the reasons recorded were factually wrong. The AO has simply adopted the figures of Rs. 51,47,700/- alleged to be fictitious profits in the business of shares on BSE on the basis of report of the Investigation Wing of the department. The AO did not make efforts to verify as to how the figure of Rs. 51,47,700/- was arrived. There is absolutely no such profit of Rs. 51,47,700/- in the share business conducted by the assessee. Even in the assessment order, the AO has not given the working of this alleged fictitious profit of Rs. 51,47,700/- with reference to the scrips in which tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Revenue simply cannot hope to salvage impugned notice Reasons recorded ignored a fact that sale consideration as per sale deed was Rs. 50 lakhs and that assessee had by filing return offered his share of such proceeds by way of capital gain Hence, impugned notice was quashed Assessee s appeal allowed. Further, the Bench also take into consideration the additional Ground No. 2 of the assessee, it is noted that in this case, notice u/s 148 was issued on 31/3/2021 on the basis of reasons recorded that there was information from the Investigation Wing that the assessee had derived fictitious profits of Rs. 51,47,700/- in the trading on BSE in equities and derivatives. However, the assessment has been completed without there being any addition on the grounds of fictitious profits. The basis on which notice u/s 148 was issued did not survive. The reasons recorded by the AO that the assessee had earned fictitious profits of Rs. 51,47,700/- on BSE in trading of equity and derivatives did not figure in the assessment order and there is no addition of this amount and also there is no addition with reference to fictitious profits. The issue of fictitious profits did not subsist, as such it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab initio void. 3. On the facts and in the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in making addition on a different ground despite that the ground on which notice u/s 148 was issued did not subsist. 5.3 The Bench has admitted the additional grounds of appeal as raised by the assessee in view of the findings given in the case of the assessee in ITA No. 465/JP/2024 for the assessment year 2013-14 6.1 Apropos ground No. 1 2 of the assessee and additional grounds (supra), it is noted that the ld. CIT(A) has dismissed the appeal of the assessee by observing at para 6 to 8.2 of his order as under:- Decision 6. I have gone through the assessment order and submissions made by the appellant. The basic contention of the assessing officer in this care is that the AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight porat in which it was informed that the appellant had made fictitious profits in equities and derivative, trading in illiquid derivative on BSE amounting to Rs. 16,08,223/-. This information came to the knowledge of Income Tax Department on the basis of Search Operation car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /incurred by the appellant on page no. 6 to 8 of the assessment order. 7.1 The amount of profit earned or loss incurred by the appellant was through Bahubali Forex (P) Ltd. and CM Goenka Stock Brokers Ltd. Both these companies were managed and controlled/ operated by Mr. Harshvardhan Kayan whose statements were recorded u/s 133A of the Act. The activity carried on by these companies was to indulge in rigging of share prices and thereby earning profits or losses as per the requirements of their clients. This was confessed by Mr. Harshvardhan Kayan during the course of survey before the Investigation Wing, Mumbai. On the basis of the said information, the AO issued the notice u/s. 148 of the Act after recording reasons to believe that appellant's income had escaped assessment as provided in section 147 of the Act and after obtaining approval of the competent authority. Thus, the notice issued is valid as the same is issued after recording reasons on the basis of credible information from the Investigation Wing of the Department. Accordingly, the notice u/s. 148 of the Act is upheld. The submissions made by the appellant that there was no escaped income of the appellant and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer should have finally ascertained the fast by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd v. 170 (1991 (191) ITR 662), for initiation of action 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 that statement is not the concern at that stage. This is so because the formation of belief the Assessing Officer is within the realm of subjective satisfaction (sce ITO v. Selected Dalunbend Coal Pvt Ltd. (1996 (217) ITR 597 (SC)] Raymond Woollen Mills Ltd. v. ITO (1999 (23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded or false, con always be the basis of a re-opening of assessment appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say you accepted my lie , now your hands are tied and you can do nothing . It would be travesty of justice to allow the assessee that latitude 7.6 It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at the stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under sections 147, 148 of the Income-tax Act, 1961, no fault can be found, 7.7 Similarly, Hon'ble Bombay High Court in the case of Hede Ferrominas Pvt. Lt reported in 147 taxmann.com 215 (Bombay) had occasion to examine whether there was suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts submission merely stated that it has undertaken the Transactions on BSE and NSE through banking channels and security transaction tax (STT) has been paid on all the transactions. However, the appellant has not been able to give any other information beyond these facts. It was submitted that profit from transactions with Hem Securities Ltd. is already reflected in the P L A/c. Similarly, profits from CM Geonka Stock Brokers Ltd. is also included in the P L A/c. The AO has made the addition of only Rs. 16,08,223/- because the profit offered already has not been again brought to tax. However, the loss claimed of Rs. 16,08,223/- which is out of fictitious transactions was disallowed and added to the total income. The contention of the appellant is that all the transactions are of similar nature and how the AO can give different treatment to profit and different treatment for loss. However, as seen from the assessment order the AO has not taxed the profits earned on fictitious transactions again as it would amount to double taxation. However, the fictitious loss claimed by the appellant has been disallowed and added to the total income. Merely because profit has not been added it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case, the learned CIT(A) has erred in confirming the action of the learned Assessing Officer in making the addition of Rs. 27,67,800/- by assuming business profit for the fictitious transaction in equity derivatives which is loss suffered by the assessee and the same amount was also disallowed in separate proceedings u/s 148 in simultaneous proceedings. 8.1 It is noted that the ld. AR of the assessee has prayed for admission of following additional grounds. 1. On the facts and in the facts and circumstances of the case and in law the AO erred in issuing notice u/s 148 on 27-07-2022 the issue and facts which already stood considered in scrutiny assessment completed u/s 143(3) on 19-11-2018 and again completed u/s 148 on 22-02-2022. There is more than duplicity in the completion on assessment, hence, the same requires to be quashed. The ld. CIT(A) erred in confirming the action of the AO. 2. . On the facts and in the facts and circumstances of the case and in law the AO erred in issuing notice u/s 148 on incorrect facts, hence the issuance of the same is ab initio void. The ld. CIT(A) erred in confirming the action of the AO. 3. . On the facts and in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said addition, the appellant is in appeal and has raised 03 grounds which are adjudicated as under- 7. Ground no.1 is relating to reopening of assessment u/s. 147 of the Act. During the impugned AY AO received information from the office of Deputy Director of Income Tax, Unit-1(1), Mumbai, according to which the appellant had made fictitious profits in equities and derivative trading in illiquid derivative on BSE amounting to Rs. 27,67,800/- This information came to the knowledge of Income Tax Department on the basis of Search Operation carried on by the Investigation Wing, Mumbai. The information received from the DDIT, (Inv.), Unit1(1), Mumbai also enclosed the statements recorded u/s. 133A of the Act of Mr. Harshvardhan Kayan and u/s. 133A of the Act revealed that appellant had involved itself in such fictitious transactions on BSE and NSE. It was further stated through the information that the appellant earned fictitious profit from Bahuballi Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs. 27,67,800/-and fictitious profits as well as losses through Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application. It is equally well settler hat at the stage of reopening of the assessment, the court would not minutely examine the possible additions which Assessing Officer wishes to make The scrutiny at that stage would be limited to examine whether the Assessing Officer had formed a valid belief on the basis of the material available with him that income chargeable to tax ad escaped assessment Both these aspects have been examined by the Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd, [2007] 161 Taxman 316/291 ITR 500 of which following observations may be noted 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The wont reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that Income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erused, considered, applied his mind and recorded the finding of belief that income chargeable to tax hat escaped assessment, the reopening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue 7.5 In the decision of Pushpa Uttamchand Mehta v. ITO (supra) Paragraph No. 14 of the said judgment is relevant which is reproduced hereunder- 14. In Phool Chand Bajrang Lal v. ITO [1993 ] 69 Taxman 627/203 ITR 456 (SC), after reviewing the previous case low, and concluding that a valid re-opening is one, preceded by specific, reliable and relevant information, and that the sufficiency of such reasons is not subject to judicial review the only caveat being that the court can examine the record, if such material existed, it was held that the facts disclosed in the return, if found later to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insight portal in which it was informed that the appellant had made fictitious profits in equities and derivative trading in illiquid derivative on BSE amounting to Rs. 27,67,800/- This information came to the knowledge of Income Tax Department on the basis of Search Operation carried on by the Investigation Wing, Mumbai. The information received from the DDIT, (Inv.), Unit1(1), Mumbai also enclosed the statements recorded u/s. 133A of the Act of Mr. Harshvardhan Kayan which revealed that appellant had involved itself in such fictitious transactions on BSE and NSE. It was further stated through the information that the appellant earned fictitious profit from Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs. 27,67,800/- and fictitious profits as well as losses through Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. The AO has given the details of the transactions of such fictitious profits/toss earned/incurred by the appellant in the assessment order. Accordingly, the AO issued notice u/s 148 of the Act to the appellant after recording reasons to believe and after seeking necessary approval of the compe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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