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TMI Blog2024 (10) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... n the reopened proceedings is liable to be quashed. Assessee appeal allowed. - Ms Padmavathy S, AM And Shri Sunil Kumar Singh, JM For the Appellant : Shri Ravikant Pathak, AR For the Revenue : Shri Anil Sant, Addl. CIT-DR ORDER PER PADMAVATHY S, AM: This appeal by the assessee is against the final order of assessment passed by the Income Tax Officer (International Tax), Ward-2(1)(1), Mumbai [in short 'the AO'] passed under section 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) dated 01.03.2024 for Assessment Year (AY) 2016-17. The assessee raised the following grounds of appeals: 1.1 The assessment order dated 01/03/2024 passed u/s 147 r.w.s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (Act) by the Income Tax Officer, International Tax Ward-2(1)(1). Mumbai (hereinafter referred as AO] is barred by the limitation provided u/s 153 r.w.s. 144C of the Act; hence, the same deserves to be quashed. 1.2 The AO and the Hon'ble Dispute Resolution Panel (hereinafter referred as DRP) erred in reopening the assessment of the Appellant by issuing notice u/s 148 of the Income Tax Act, 1961 (Act) and passing the order u/s 144B r.w.s. 147 of the Act without appreciating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat ground no. 1.1 with regard to limitation is not pressed and therefore, same is dismissed as not pressed. 3. The assessee is a non-resident individual and filed the return of income for AY 2016-17 on 28.07.2016 declaring a total income of Rs. 10,18,16,270/-. The assessee during the year under consideration has received dividend of Rs. 5,47,81,701/- from JM Financial Asset Management Ltd towards JM Balanced Fund. The assessee also declared Short Term Capital Loss (STCL) of Rs. 5,73,87,212/- from the transfer of JM Balanced Fund. The Assessing Officer (AO) received information of DIT (System) based on a survey conducted at the JM Financial Asset Management Ltd. that distributable surplus available for distribution of dividend of JM Balanced Fund is artificially inflated by manipulating the accounting methodology and fictitious loss is being booked towards the transfer of the said fund. It is alleged by the AO that assessee is one of the beneficiaries of creating that fictitious loss since the assessee is receipt of dividend income from the said mutual fund. Therefore, the AO reopened the assessee's case by issue of notice under section 148 of the Act. Subsequently, pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the whole addition is based on survey proceeding in the case of JM Financial Asset Management Ltd. and that the AO did not bring anything on record to show that the assessee is in any way involved in the alleged sham transaction. The ld. AR further submitted that the assessee is a non-resident and is regular investor in mutual funds which is evidence from the statement of income (page 136 of PB) wherein the assessee has declared only capital gains and income from other sources. The ld. AR also submitted that mere receipt of dividend from JM Financial Asset Management Ltd. and sale of mutual fund as a regular investor cannot be held against the assessee for the reason that those were fictitious transactions carried out by JM Financial Asset Management Ltd. The ld. AR relied on the decision of the Hon'ble Bombay High Court where under identical circumstances involving transactions with JM Financial Asset Management Ltd in the case of Karan Maheshwari Vs. ACIT (Writ Petition No. 37211 of 2022 dated 08.03.2024) the Hon'ble High Court has quashed the notice issued under section 148A. Therefore, the ld. AR argued that the AO is not correct in disallowing the dividend i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant documents and bank statements in support of the mutual fund transactions in response notice under section 148A. The assessee also submitted that he being an investor cannot be held liable for any manipulated transactions carried out by JM Financial Asset Management Ltd. These objections of the assessee have been dismissed by the AO without giving any specific finding with regard to the objections and by stating that the assessee is a beneficiary of the bogus transactions. The assessee has raised similar contentions before the DRP which were dismissed. The main contention of the assessee before us is that the notice under section 148A is not valid for the reason that the AO has re-opened the assessment without any material connecting the assessee to the alleged sham transaction and that the assessee was not provided with the documents relied on by the AO for the purpose of reopening the assessment. In this regard, we notice that the Hon'ble Bombay High Court in the case of Karan Maheshwari (supra) has considered the similar issue involving the alleged fictitious transaction with JM Financial Asset Management Ltd. and held that 13. It is necessary to observe that the officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend distribution, much in advance, to lure the prospective clients. Admittedly petitioner was not a distributor and was only a client. 17. In the notice issued under a. 148A(b) of the Act. it is alleged that petitioner was one of the persons who claimed fictitious short-term capital loss. There is nothing in the notice to indicate on what basis it is alleged that the short-term capital loss claimed was fictitious. Petitioner had, based on public announcement. Invested in the mutual fund. The fact that petitioner received tax free dividend fund cannot be held against petitioner. The fact that petitioner had suffered a loss also cannot be held against petitioner. Even assuming that the transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. Petitioner was free to carry on his business which he did within the four corners of law. Mere tax planning without any motive to evade taxes through colourable devices is not frowned upon even by the judgment of the apex Court in McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC). Paragrapha 18 and 20 of the Judgment of the apex Court in CIT vs. Walfort Share Stock Brukers (P) Ltd. (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even by the judgment of this Court in McDowell Co. Ltd. case (supral. Hence. in the cases arising before 1st April, 2002, losses pertaining to exempted income cannot be disallowed. However, after 1st April, 2002, such losses to the extent of dividend received by the assessee could be ignored by the AO in view of a. 94/7). The object of s. 94(7) is to curb the short-term losses. Applying s. 94(7) in a case for the assessment year is) falling after 1st April, 2002, the loss to be ignored would be only to the extent of the dividend received and not the entire loss. In other worda, losses over and above the amount of the dividend received would still be allowed from which it follows that the Parliament has not treated the dividend stripping transaction as sham or bogus. It has not treated the entire loss as fictitious or only a fiscal loss. After 1st April, 2002, losses over and above the dividend received will not be ignored under s. 94(7). If the argument of the Department is to be accepted, it would mean that before 1st April, 2002 the entire loss would be disallowed as not genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief which he has to prima facie form an opinion regarding the escapement of the income of the assessee. The relevant paragraphs of ITO vs Lakhmani Mewal Das 1976 CTR (SC) 220: (1976) 103 ITR 437 (SC) read as under: As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an certainly examine whether the reasons are relevant and have a bearing on the matter in regard to which the AO is required to entertain the belief before he can issue notice under s. 148 of the Act. If there is no rational or intelligible nexus between the reasons and the belief, the exercise undertaken by the ITO can be interfered with. 19. In the notice issued under s. 148A(b) of the Act, the AO alleges that JM Financial had manipulated accounting methodology so as to artificially inflate the distributable surplus and the investors, in order to reduce their tax liability, entered into these sham transactions and received dividend and short-term capital loss. These are allegations against JM Financial and do not implicate petitioner in any manner. There is nothing to indicate that petitioner had participated knowingly in a sham transaction to reduce his tax liability or to earn dividend or book short-term capital loss. In fact in the notice, in the first paragraph. it says In the course of survey, it was found that JM Balanced Fund-Annual Dividend Option Regular Scheme (the Plan) of JM Financial had manipulated accounting methodology so as to artificially inflate the distributab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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