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TMI Blog2025 (4) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent. 4. Having regard to the controversy in narrow compass, with consent of learned advocates appearing for the respective parties, the matter is taken up for hearing. 5. The brief facts of the case are as under: 5.1. The petitioner filed return of income on 25/07/2018 offering total income at Rs. 85,72,770/- for Assessment Year 2018-2019. 5.2. Return of income was scrutinized and assessment order under Section 143 (3) of the Act was passed on 23/03/2021 accepting the total income as per the return income. 5.3. Impugned show cause notice under Section 148A (b) of the Act was issued on 10/03/2022 along with the details of information stipulating the income chargeable to tax escaped assessment for the year under consideration which reads as under: "The assessee has filed its original return of income for A.Y. 2018-19 on 25.07.2018 declaring total income of Rs. 85,72,770/-. The return has been processed by the CPC assessing the total income at Rs. 90,72,770/-. The case was selected for scrutiny and order u/s. 143 (3) was passed on 23.03.2021 by the Faceless unit assessing the total income at Rs. 1,13,76,540/-. Brief of the information is as under: In this case, informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner on 26/03/2022. Thereafter the respondent passed impugned order dated 06/04/2022 under Section 148A (d) of the Act along with the notice under Section 148 of the Act. 6. Being aggrieved, the petitioner has preferred this petition. 7. Learned advocate Mr. B. S. Soparkar for the petitioner submitted that no income has escaped assessment in case of the petitioner as the reasons are factually incorrect. It was submitted that the information received in relation to JM Balanced Fund does not pertain to the petitioner as the short-term capital loss suffered by the petitioner is not from the said JM Balanced Fund. Reference was made to page-29 of the paper-book being part of the computation of total income showing the statement of short-term capital gains which was suffered by the petitioner during the year under consideration as well as the statement at page-31 and page-32 of the paper-book to point out that none of the statements in name of JM Balanced Fund is found. It was therefore submitted that there is no question of dis-allowance of short-term capital loss arising from the JM Balanced Fund in the hands of the petitioner in the Assessment Year 2018-2019. 8. It was further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Section 148A (d) of the Act and the notice for reopening are passed after taking into consideration the reply and the submissions made by the petitioner, inasmuch as, the petitioner was provided sufficient opportunity by the respondent and thereafter the impugned orders was passed along with the notice for re-opening. 10. It was submitted that the petitioner shall have an ample opportunity to make submissions during the course of the assessment proceedings and therefore, no interference be made at this stage while exercising extra ordinary jurisdiction by the Court under Articles 226 and 227 of the Constitution of India. 11. Considering the submissions made by learned advocates appearing for the respective parties as well as the record, it appears that the petitioner has disclosed the short term capital loss suffered during the year under consideration in the computation of the income as well as return of income. On perusal of the statement placed on record pertaining to the short term capital loss from the mutual fund at page-31 and 32 of the paper-book, there is no reference to JM Balanced Fund-Dividend as stated in the reasons forming part of the notice under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim exempt dividend income under Section 10 (35) of the Act and also not eligible to adjust the fictitious, short-term capital loss against the long-term capital gains, being generated on account of sham transactions by JM Financial. The thrust of Mr. Singh's argument revolves around the sham transactions and illegalities allegedly committed by JM Financial. Mr. Singh draws our attention to paragraph 7.4 of the impugned order which contains statements of Mr. Chhabria, the Fund Manager, Mr. Suvendra Rakshit, the Head of Sales Team, Mr. Deepan Doshi, the Institutional Sales Head, and Mrs. Diana D'sa, the Compliance Head of JM Financial. All these persons, according to Mr. Singh, have admitted that the due process mandated by SEBI has not been followed by JM Financial. Mr. Singh urged to dismiss the petition. 13. It is necessary to observe that the officer has conveniently not mentioned the date on which he received the information because the earlier notice for reopening on the basis of dividend earned by petitioner was issued on 2nd June 2021 and closed on 26th July 2022. We should note that the notice now issued also does not indicate when the information was uploaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. V/s. Commercial Tax Officer. Paragraphs 18 and 20 of the judgment of the Apex Court in Commissioner of Income Tax, Mumbai V/s. Walfort Share & Stock Brokers (P). Ltd. read as under : 18. The next point which arises for determination is whether the "loss" pertaining to exempted income was deductible against the chargeable income. In other words, whether the loss in the sale of units could be disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2002, such losses to the extent of dividend received by the assessee could be ignored by the AO in view of Section 94 (7). The object of Section 94 (7) is to curb the short term losses. Applying Section 94 (7) in a case for the assessment year(s) falling after 1.4.2002, the loss to be ignored would be only to the extent of the dividend received and not the entire loss. In other words, 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 1.4.2002, losses over and above the dividend received will not be ignored under Section 94 (7). If the argument of the Department is to be accepted, it would mean that before 1.4.2002 the entire loss would be disallowed as not genuine but, after 1.4.2002, a part of it would be allowable under Section 94 (7) which cannot be the object of Section 94 (7) which is inserted to curb tax avoidance by certain types of transactions in securities. There is one more way of answering this point. Sections 14A and 94 (7) were simultaneously inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Income-tax Officer 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 Income-tax Officer 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 fact that the words "definite information" which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under Section 148 of the Act. If there is no rational or intelligible nexus between the reasons and the belief, the exercise undertaken by the Income Tax Officer can be interfered with. 19. In the notice issued under Section 148A (b) of the Act, the Assessing Officer 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. Infact 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 distributable surplus ........". In the next paragraph, it says "....... investors, in order to reduce their tax liability, enter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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