2019 (10) TMI 1387 - AT - Income Tax

Reopening of assessment u/s 147 - bogus LTCG - Addition u/s 68 - as argued AO has not disposed off the objections filed in response to notice u/s.148 - addition u/s 69C on the ground that cash commission must have been paid @ 1% on the alleged bogus Long Term Capital Gain - HELD THAT - The assessee here in this case was denied remedy to challenge the action u/s 147/148 had the objections been disposed off adversely to the assessee. The Hon ble Jurisdictional High Court in the case of PCIT vs. Tupperware India 2015 (8) TMI 517 - DELHI HIGH COURT as noted above has clearly opined that such a failure to comply the law laid down by the Hon ble Supreme Court should have resulted in quashing of the reassessment. Accordingly on this ground alone the impugned reassessment order is liable to be quashed and at this stage we are not inclined to set aside this issue to Assessing Officer for deciding this matter when substantial time has lapsed and two stages have been crossed. Be that as may be we are proceeding to decide the issue on merits as argued by the parties. Addition u/s 68 - As pointed out that the rise was beyond the cap laid down by the SEBI because the price of the scrip cannot rise beyond the cap prescribed by the SEBI. If the shares have been purchased and sold from the stock exchange on a quoted price with proper contract number trade time and after paying STT then it is very difficult to assume that the sale proceeds received from sale of such shares is bogus especially when purchase of shares are not in dispute. This inter alia means assessee was in possession of shares which were also dematerialised. To prove that such a transaction was in the nature of bogus or colourable transaction there has to be some inquiry or material to nail the assessee that she was some kind of a beneficiary in some accommodation entry operation. No defect has been pointed out in the documents submitted by the assessee nor has the broker of the assessee been inquired upon. Simply relying upon the general modus operandi and statement of some brokers recorded by the Kolkata Investigation Wing does not mean that all the transactions undertaken of the scrip M/s. CCL International Ltd. through the country by millions of subscribers are bogus. Thus in absence of any material or evidence against the assessee we do not find any reason as to why the claim of Long Term Capital Gain from sale of such share should be denied. Consequently the addition on account of commission is also deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening under Section 148.
2. Addition of Rs. 1,77,24,158 as undisclosed income under Section 68.
3. Addition of Rs. 1,77,251 under Section 69C for alleged cash commission.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 148:
The assessee challenged the reopening under Section 148 on the grounds that the Assessing Officer (AO) did not dispose of the objections raised against the notice issued under Section 148. The objections were filed on 23.05.2017, but the AO neither addressed them in a separate order nor mentioned them in the assessment order. The CIT (A) dismissed the issue, erroneously stating that no such objections were raised. The assessee provided evidence, including an RTI response confirming the objections were filed. The Tribunal noted that the AO's failure to dispose of the objections violated the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO, which mandates the AO to pass a speaking order on the objections before proceeding with reassessment. Citing various judgments, including those from the Gujarat and Bombay High Courts, the Tribunal emphasized that non-disposal of objections could lead to the quashing of the entire reassessment proceedings. The Tribunal concluded that the AO's failure to comply with the mandatory procedure warranted quashing the reassessment order.

2. Addition of Rs. 1,77,24,158 as Undisclosed Income under Section 68:
The AO added Rs. 1,77,24,158 as undisclosed income, treating the Long Term Capital Gain (LTCG) from the sale of shares of M/s. CCL International Ltd. as a sham transaction. The AO's reasoning included the financial instability of M/s. CCL International Ltd., the abnormal rise in share prices, and the general modus operandi of brokers providing accommodation entries. The AO relied on an investigation report from the Kolkata Director of Investigation, which indicated that brokers facilitated bogus entries. However, the Tribunal found no direct or indirect evidence linking the assessee or her broker to such activities. The assessee provided comprehensive documentation, including allotment letters, bank statements, dematerialization records, broker statements, and contract notes, proving the genuineness of the transactions. The Tribunal observed that the shares were purchased and sold through recognized stock exchanges, with all necessary compliances, including payment of Securities Transaction Tax (STT). The Tribunal held that in the absence of any material evidence against the assessee, the addition under Section 68 was unwarranted.

3. Addition of Rs. 1,77,251 under Section 69C for Alleged Cash Commission:
The AO made an addition of Rs. 1,77,251 under Section 69C, assuming that cash commission must have been paid at 1% on the alleged bogus LTCG. The Tribunal, having found the LTCG to be genuine, consequently deleted the addition under Section 69C, as it was based on the presumption of a bogus transaction.

Conclusion:
The Tribunal quashed the reassessment proceedings due to the AO's failure to dispose of the objections raised by the assessee, as mandated by the Supreme Court. Additionally, the Tribunal found the LTCG from the sale of shares to be genuine and deleted the additions under Sections 68 and 69C. The appeal of the assessee was allowed in full.