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TMI Blog2025 (4) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... y namely, CCL International Ltd. ("CCL") after payment of the Security Transaction Tax ("STT"). The return filed by the assessee was selected for compulsory scrutiny. Consequently, assessment was completed under s. 143(3) vide order dated 31.03.2016 wherein the income returned was assessed without any modification. Subsequently, a notice dated 09.05.2017 was issued under s.148(1) of the Act to initiate re-assessment proceedings under s. 147 of the Act, premised on information purportedly received from DDIT (Investigation)-II, Gurugram that the assessee has allegedly earned spurious LTCG and claimed wrongful exemption under s. 10(38) of the Act. The notices under s. 143(2) and 142(1) were issued in consequence of assumption of jurisdiction under s. 147 of the Act. In the course of re-assessment proceedings, the assessee filed documentary evidences in support of LTCG declared as exempt and filed 'objections' to question the legality of re-opening of the assessment. The AO however disposed off such objections against the assessee and proceeded to continue with the re-assessment proceedings. The particulars of the transactions of LTCG carried out were obtained by the AO from the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f jurisdiction under s. 147 of the Act. 3. The CIT(A) also did not provide any relief to the assessee in the first appeal. 4. Further aggrieved, the assessee preferred appeal before the Tribunal. 4.1. As per grounds of appeal, the challenge raised by the assessee are twofold:- * Wrongful assumption of jurisdiction under s. 147 r.w.s 148 r.w.s. 151 of the Act; * Maintainability of additions under s. 68 of the Act on merits. 4.2. When the matter was called for hearing, the Ld. Counsel for the assessee adverted to the grievances and strongly assailed the assumption of jurisdiction under s. 147 of the Act and claimed that such assumption of jurisdiction is completely devoid of any legal foundation. The Ld. Counsel contended that the assumption of jurisdiction by the AO in the instant case is without meeting the pre-requisites ordained in s.147 & 151 of the Act. The Ld. Counsel made wide ranging objections towards lack of jurisdiction which are dealt with appropriate place in the succeeding paragraphs. The Ld. Counsel next assailed the action of the AO & CIT(A) on aspects of merits of the impugned additions and contended that the additions made are totally devoid of merits. We s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been routed through the sales of these shares. Therefore, I have a reason to believe that the assessee has taken accommodation entries of Rs. 22,54,85,633/- through above mentioned shares and the same is liable to be treated as income of the assessee. Hence, I proceed to initiate the proceeding under section 147 of the income tax act 1961 for the assessment year 2013-14. Deputy Commissioner of Income Tax Circle 2, Gurgaon 5.2. In response to reassessment notice issued under s. 148(1) seeking to reopen the assessment, the assessee denied escapement of any chargeable income and filed a formal objection dated 27.09.2018 before the AO seeking cancellation of reassessment proceedings. The assessee also called upon the AO to supply the basis or material in possession of AO if any, to support the formation of belief towards alleged escapement. The assessee alleged that the AO has not brought any material or evidence on record to falsify the claim of assessee and to provide any rational connection with formation of belief that share transactions were bogus as alleged. It was further contended that the completed assessment has been re-opened solely on the basis of so-called Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either nor was such report annexed to the copy of reasons. The approval of the Competent Authority under s. 151 of the Act does not emerge from record. Even otherwise, it is not possible for an authority instructed under law to grant an approval based on such general, vague and opaque reasons. The inherent purpose of reasons recorded is to unfold the process of formation of belief and to shun arbitrariness and to bring probative value to the action under s. 147 of the Act. A report of Investigation Wing is neither a gospel truth nor can it provide any rational basis to re-open a completed assessment unless the link between such information and the transactions recorded by the assessee are manifest. The transactions in the instant case have been carried out through banking channel and the shares have been kept in the DMAT account for nearly 20 months prior to sale. The transactions have been carried out through SEBI registered broker namely, HDFC Securities Ltd. at the platform of the stock exchange as per the quoted price at the relevant time. In such penny stock companies listed on the stock exchange, it is equally likely that some gullible and unsuspecting investors may also part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, evidences of alleged 'nexus' between such entry providers and assessee, do not feature in the reasons recorded. No material particular of alleged information has been provided in the reasons except some vague reference to so-called Investigation Report; (vi) the assessment in the instant case was already carried out under s. 143(3) of the Act and in the absence of any tangible information showing any dubious 'nexus' between the assessee and the broker/entry operators etc, the bald allegation to suspect propriety of LTCG claimed being in the nature of accommodation entries is a mere 'change of opinion' on the income assessed which is not permissible; (vii) The legal sanctity of assumption of jurisdiction is being examined with reference to reasons recorded and thus confined to the assertions made therein. The material not referred in the reasons cannot be taken into account for ascertainment of validity of jurisdiction. By omitting to make reference of existence of any tangible material and contents thereof in the reasons recorded, the AO has forfeited its right to expand the reasons recorded and to rely on any material which is not referred in the reasons. The AO cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on some objective material/reasons and cannot be a mere pre-tense nor it can be based on mere doubt or suspicion. The Hon'ble Supreme Court in the case of ITO vs LakhmaniMewal Das 103 ITR 437 (SC) also under-scored the fact that words of statute are 'reason to believe' and no 'reason to suspect'. A vague feeling or suspicion of the AO towards possible escapement would not permit him to re-open and completed assessment in defiance of statutory requirement of substantial nature. Pertinently, in the reasons recorded, an allegation has been made towards existence of 'nexus' of broker, entry operator and the beneficiaries (including assessee herein) to use penny stock namely, CCL scrip to provide accommodation entries to enable the beneficiaries to claim exempt income. Such substantial allegation of existence of 'nexus' which is the foundation for formation of adverse inference is without reference to any material whatsoever. The assessee can possibly be implicated for escapement of income only where the circumstances suggest some involvement of assessee in any manner giving rise to exempt income. Such involvement of assessee or an action in concert cannot however be figment of imag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and the evidence/material available with the Assessing Officer. * The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lakhs during F.Y. 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. * Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitiou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits, notwithstanding issuance of notice under s. 148(1) held to be illegal and incapable of being acted upon. 14.1. The facts relevant to the adjudication of the issue on merits are as follows:- (a) the assessee received gift of 15 lakh equity shares of CCL International Ltd. from his father, Shri Sunil Satija during Financial Year 2012-13 and supported by appropriate declaration and DMAT statement of the father showing transfer of shares of DEMAT account of the assessee which, in turn, shows receipt of shares from his father; (b) Shri Sunil Satija earlier applied for allotment of 10 lakh equity shares having face value of INR 10/- each of AAR Infrastructure Ltd. at INR 10/- per share for a total consideration of INR 1 crore. The payment of purchase consideration was made by Shri Sunil Satija (father) through account payee cheque dated 16.02.2011 drawn on Corporation Bank, Gurgaon. These shares were allotted on 28.02.2011 and also got credited to the DMAT account of Shri Sunil Satija on 27.04.2011. Thereafter, 'AAR infrastructure Ltd.' stood merged with 'CCL International Ltd.' by virtue of Order passed by Hon'ble Delhi High Court on 09.02.2012. As a result of merger, Shri S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nature of information collected by the AO was never revealed to the assessee either by reasons recorded or in the course of re-assessment proceedings. No material has been referred to establish any kind of proximity or nexus between the assessee and the broker/entry operators etc. It is the case of the assessee that the documentary evidences such as contract notes, transaction through banking channel, entries shown in the DMAT statement ostensibly vouches for the execution of the LTCG transactions in CCL International Ltd. through the platform of Stock Exchange. The father of the assessee had purchased shares by way of allotment of AAR Infrastructure Ltd. which, in turn, stood amalgamated with CCL Infrastructure Ltd. as a consequence of the order from the Hon'ble High Court. The assessee together his father held the share for more than 20 months to be eligible for exemption under s. 10(38) of the Act. Besides, as contended, CCL International Ltd. is not a penny stock per se but rather a company which regularly pays dividend and have strong financials and fixed assets base as observed in the decisions rendered by the Co-ordinate Bench in the cases of Dharmendra Bhandari HUF vs CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue towards such allegation of accommodation entries. 15. Besides, the action of the Revenue without providing the copy of the statement of so-called intermediaries and without showing any material to support the allegation of nexus between the assessee and the entry providers is apparently far-fetched and unsustainable. The modus operandi spelt by AO by itself, is not an adequate ground to impeach all transactions in the scrip carried on the platform of exchange and reflected in the DMAT statement unless a concerted action involving assessee is established. 16. In the absence of any worthwhile cogent material to the contrary, the capital gains arising on sale of shares cannot be labeled as sham profit and consequently the additions under s. 68 of the Act is without authority of law. The additions made by the AO are thus liable to be struck down even on merits. 17. Hence, the challenge raised by the assessee both towards unlawful assumption of jurisdiction under s. 147 and lack of justification towards additions on merits deserves to be allowed. The assessee thus succeeds on both counts. 18. In the result, the appeal of the assessee is allowed. Order pronounced in the open Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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