TMI Blog2022 (12) TMI 1506X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Addition u/s 68 - We note that findings of the Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai ( 2023 (1) TMI 44 - GUJARAT HIGH COURT] is squarely applicable to the assessee`s facts under consideration. The genuineness of investment in the shares by the assessee was substantiated by him by producing contract note, Transaction was through recognised Broker, transaction was done through banking channel on which STT was paid. The shares were held by assessee, as an Investor for a period of seven/ eight years. The investment was made in the year 2003 and sold in 2010-11. The shares were retained for more than seven years and were sold after such long time. These circumstances suggest that the investment was not bogus. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short time. We note that Judgment of Hon`ble Calcutta High Court in the case of Swati Bajaj and others [ 2022 (6) TMI 670 - CALCUTTA HIGH COURT] should not be applicable to the assessee as it is outside the territorial jurisdiction of Gujarat. However, the Judgment of Hon`ble Jurisdictional High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by CIT(A) of Rs. 3,57,990/- may please be deleted. 6. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 4. The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is an individual and had filed return of income for assessment year 2011-12, declaring total income at Rs. 7,14,500/- on 04.02.2012. During the year under consideration, the assessee earned income from house property, Income from capital gain and income from other sources. During the scrutiny assessment, the assessing officer noted that Kolkata Investigation Directorate had undertaken investigation into 84 penny stocks and given detailed findings indication bogus LTCG/STCL and bogus loss entries claimed by large number of beneficiaries. The same has been received by assessing officer through departmental channel from CBDT vide Circular No. F. No. 287/30/2014-IT(Inv. II)Vol-II dated 16.03.2016.45. As per the information communicated, it was observed by the assessing officer that assessee has made transaction in Penny Stock in the script GLOBAL CAPITAL MARKETS LTD. The total transaction [Sale-Trade Val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs do not have creditworthiness. During the year under consideration, the assessee has made transactions in the scrip, Global Capital Markets Ltd, and the total sale value of the of the transactions in the scrip was to the tune of Rs. 3,85,006/-. 7. During the assessment proceedings, the assessee submitted written submission before the assessing officer, vide assessee`s letter dated 22.12.2018, to prove the genuineness of the transaction. The assessee stated before the assessing officer that transaction was done through Broker. The valid contract note was issued by the Broker. The STT was paid on the transaction and moreover the said transaction was through banking channel. However, assessing officer rejected these contentions of the assessee and made addition under section 68 of the Act, to the tune of Rs. 3,47,564/- . 8. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer observing as follows: CONCLUSION: In view of the above, I have no hesitation in confirming the order of the Ld. Assessing Officer since in this case sham transactions have been undertaken by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the power conferred under section 147 of the Act. In the reasons supplied to the assessee, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment in the return of income. The ld Counsel took us through the reasons recorded by the assessing officer and pointed out that assessing officer was not having any material information to form a reason to believe that there was an escapement of income. The assessing officer was not having sufficient material to form the reason to believe at the time of re-opening of the assessment, he has not applied his mind and the reopening of the assessee`s case is based on borrowed satisfaction, therefore, the reassessment proceedings initiated against the assessee is itself bad in law, hence the same may be quashed. 12. On merits, ld Counsel argued that transaction was done through Broker. The valid contract note was issued by the Broker. The STT was paid on the transaction and moreover the said transaction was through banking channel. The assessee merely acted on the basis of market information and happened to get phenomenal gain, and therefore it do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter getting such information, assessing officer has applied his mind and then framed the reasons for reopening the assessment. It is not a borrowed satisfaction, the assessing officer has mentioned the quantity of shares sold, name of the scrip, and amount received on sale of such shares etc, this clearly shows that assessing officer has applied his mind and it is not a borrowed satisfaction. Therefore, ld DR contended that reasons were recorded as per the scheme of the Act, hence reopening is valid. 15. So far merit of the case is concerned, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 16. We have heard the rival parties and have gone through the material placed on record. We have considered the request of the assessee for admission of additional ground, which is purely of legal nature. On the basis of material available on record it is certain that additional ground raised by the assessee is challenging the very jurisdiction of the AO to pass reassessment order under section 147 of the Act. It is well settled that an assessee can rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind and recorded the conclusion that the assessee is engaged in penny stock transaction. (clearly meaning that what was disclosed in the return of income by the assessee was false and untruthful). 20. The Hon'ble Supreme Court in the case of Phul Chand Bajrang Lal and another vs. ITO 203 ITR 456, was considering the question of reassessment beyond the period of four years in the case of an assessee firm; and had held that in case of acquiring fresh information specific in nature and reliable, relating to the concluded assessment, which went to falsify the statement made by the assessee at the time of original assessment and, therefore, he would be permitted under the law to draw fresh inference from such facts and material. The Court also went to an extent of saying that there are two distinct and different situations where the transaction itself on the basis of subsequent information is found to be bogus transaction and in such event, mere disclosure of the transaction cannot be said to be true and full disclosure and the Income-tax Officer would have jurisdiction to reopen the concluded assessment The Apex Court in the case of Phul Ghand Bajrang Lal (supra), observed as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments which are: Yogendrakumar Gupta vs. ITO 366 ITR 186 (Guj) Peass Industrial Engineers (P) Ltd. 73 taxmann.com 185 (2016) Order dated March 25, 2014 in the case of Lalita Ashwin Jain vs. ITO, Special Civil Application No. 1626 and 1627 of 2014. 24. As observed earlier not only there existed new information with the AO from the credible sources, but also he had applied his mind and recorded the conclusion that assessee entered into penny stock transaction. (Clearly meaning that what was disclosed was false and untruthful). The requirements of section 147 r.w.s. 148 have clearly been met; and the reopening is held justified and legal. 25. From the above reasons recorded by the assessing officer, it is vivid that there is merit in the arguments advanced by ld DR for the Revenue. We note that assessing officer had received the information from the DDIT (Investigation) unit3(2) Kolkata in respect of the BSE listed Penny stock companies. After getting such information, assessing officer has applied his mind and then framed the reasons for reopening the assessment, therefore it is not a borrowed satisfaction. The assessing officer has also mentioned in the reasons recorded the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of Purchase i.e Year 2003. The payment was cleared within less than 3 days from the date of purchase ie. Date of purchase- 31.03.2003 and Date of payment- 02.04.2003. Copy of the same is attached at Page No. 7 and 8 of the Paper Book. Further the assessee had sold shares of M/s Global Capital Markets Limited during FY 2010-11 on 29.07.2010 after holding the shares for more than 7 years and claimed just INR 3,47,564/- as LTCG. The sale contract note is filed at Page No. 1 to 3 of Paper Book. The assessee sold the shares through SHCIL SERVICES LIMITED (Broker: Bombay Stock Exchange: SEBI Reg No. INB011253839) not only through proper banking channels but also the trading was conducted through recognized stock exchange through approved brokers in the normal course of share investment on which the STT was duly paid. 29. The above narrated facts prove that assessee is just an investor and chose to invest in Year 2003 and had taken a calculated risk and had received a nominal gained when he sold 5000 shares out of 12000 shares in Year 2010 and that he is not party to any alleged scam or illegal trades etc. It is important to note that the inflation rate rose from 3.81% in Year 2003 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons done on stock exchange platform. These documents have been accepted by the assessing officer. The transactions are done through proper banking channel and the sale is done at prevailing price quoted on the BSE. Hence, by submitting these documents, the assessee has proved identity, creditworthiness and genuineness of the transactions. 33. Thus, it is submitted by ld Counsel that with the purchase and sale transactions of shares of GLOBAL CAPITAL MARKET LIMITED are proved genuine by third party evidences - bank, broker; DP-demat account, and in the absence of any material to prove cash changing hands in the transaction, the addition made by the assessing officer under section 68 of the Act, by treating the sale consideration as unexplained, sham, non-genuine is without any corroborative evidences. The addition under section 68 of the Act made merely on the basis of suspicion, presumptions and probability of preponderance without any direct evidence to prove the transactions as non-genuine or sham or demonstrating assessee's involvement in any kind of manipulation, cannot be made. Thus, the assessee has explained and submitted evidences to prove identity, nature and source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of a Division Bench of this Court:- It is well know that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by step in order to plug loopholes and in order to place certain situations beyond doubt even through there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of s. 68 in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the ITO, not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of a relevant previous year. Section 68 was inserted in the I.T. Act 1961 only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions . Section 68 thus only codified the law as it existed before 1.4.1962 and did not introduce any new principle or rule. Therefore, the ratio laid down in the three Supreme Court Judgments is equally applicable to the interpretation of Section 68 of the 1961 Act. We may al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem was misused to generate bogus LTCG. On going through the order, we agree with Mr. Roy Chowdhury that the order of the said assessing officer is a well- reasoned order. Further we note that there is also discussion on the various decisions by the assessing officer after recordings findings on facts which in our opinion is an appropriate method of referring to and relying upon the legal precedence. 97. The revenue relied upon the order passed by the Hon ble Supreme Court in Daniel Merchant Private Limited Versus ITO and others Special Leave to Appeal No. 23976 of 2017 dated 10.04.2017 wherein the judgment of this Court was confirmed wherein the CIT had passed orders under Section 263 of the Act. It is submitted that in cases where the order impugned before the tribunal where orders passed by the Commissioner under Section 263, independent reasons have been given by the Commissioner as to how the order passed by the assessing officer was erroneous in so far as it is prejudicial to the interest of revenue. In this regard, Mr. Prithu Dhudhoria learned standing counsel has taken us through the order passed by the Commissioner which are subject matter of ITAT No. 122 of 2021 and ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income tax department were fully aware of the investigation which was done and the report been circulated and therefore at that stage that the officer had to take note of such report to put the assessee on notice and commenced an enquiry by calling upon the assessee to justify the genuineness of the claim of LTCG/STCL. The assessing officer turned a blind eye to the project investigation which was carried out by the department. The assessing officer lost sight of the fact that the enquiry did not commence from that of the assessee and more particularly the name of the assessee did not feature in the investigation report. Therefore the assessing officer was bound to cause an enquiry by calling upon the assessee to explain and justify the genuineness of the claim for exemption made by them. If the assesses has not established the genuinity at the other end the assessing officer would have no other operation except making the addition under Section 68 of the Act. We find that in these cases the assessing officers missed an important point as to what is the nature of enquiry which he is required to do. The assessing officer merely went by the submission that the stock broker is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate that merely because an expert had issued a buy call or there was news in the media that a particular shares shows an upwards trend and it is good time for buying those shares. They jumped into the fray the assessees are to be reminded of the doctrine of caveat emptor . The assessees cannot take shelter under the opinion given by the experts as it is not the expert who has indulged in the transaction but it is the assessee. Therefore by following such experts advice if the assessee gets into an web it is for him to extricate himself from the tangle and he cannot reach out to the expert to bail him out. The assessees cannot be heard to say that they had blindly followed advice of a third party and made the investment. Selection of shares to be purchased is a very complex issue, it requires personal knowledge and expertise as the investment is not in a mutual fund. None of the assessees before us have shown to have to made any risk analysis before making their investment in a penny stock . If according to them they have blindly taken a decision to invest in insignificant companies they having done so at their own peril have to face the consequences. Thus, the conduct of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which in our opinion is a proper conclusion and in the absence of any satisfactory explanation by the assessee, the Assessing Officers were bound to make addition under Section 68 of the Act. It was argued by the learned Advocates for the assessees that their clients are ordinary people who have made meagre investments and they cannot be branded as scamsters when big players in the market have been left scot free and in certain other cases, the big players who were also branded as scammers were allowed to avail the benefit of the Vivad Se Viswas Scheme. In fact, similar argument was advanced when we heard the applications filed by the revenue to condone the delay in filing in some of the present appeals. The argument on behalf of the assessee was that on account of not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted by Mr. S.N. Surana, learned Senior Counsel, the brokers are required to comply with very stringent KYC norms before registering any entity as their client. The SEBI Regulations cast very onerous responsibilities on the share brokers. However, the trend appears that the penny stock companies have no business or very little business got involved with the stock brokers and it is stated that the share brokers receive commission for allowing the paper entities to trade through their terminal and some of the brokers have also stated to be performing the trading activity themselves on behalf of the paper companies. The report states as to why the department has taken an investigation as a project, largely due to huge syndicate of the entry operators, share brokers and money launderers. The report states that Kolkata is a very distinctive place among the cities of India, so far as the accommodation entry is concerned and action has been initiated against more than thirty share broking entities and more than twenty entry operators working in Kolkata. The report states that almost everyone has accepted its activity, participation in providing accommodation entry of LTCG. The inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITAT No. 44 of 2020 may not be relatable to the assessee- Gupta Agarwal. Therefore, though the grounds are not relatable to the assessee, this will not vitiate the appeal in its entirety as the core is the substantial questions of law which is required to be decided. 101. For all the above reasons, we hold that the Tribunal committed a serious error in setting aside the orders of the CIT(A) who had affirmed the orders of the Assessing Officer and equally the Tribunal committed a serious error both on law and fact in interfering with the assumption of jurisdiction by the Commissioner under Section 263 of the Act. In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A) as well as the orders passed by the CIT under Section 263 of the Act. No costs. 35. We have gone through the above findings of Hon`ble Calcutta High Court in the case of Swati Bajaj and others (supra) and noted that assessee`s facts are different, therefore, above judgment is distinguishable on the basis of following facts: (i) O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee before us Our analysis in respect of assessee`s facts: In the assessee`s case under consideration, the assessee had not involved in manipulative practices. Neither the assessing officer nor ld CIT(A) have pointed out with cogent evidence that assessee was involved in manipulative practices. The assessee under consideration kept the shares for a period of seven years and within this period of seven years, the lower authorities did not point out any instance that assessee was involved in manipulative practices. After a period of seven years the assessee has sold the shares in the open market on which STT has been paid. The assessing officer failed to point out that assessee had deposited cash in his bank account before the date of purchase of such shares. (iii) Observation of Hon`ble Calcutta High Court: .The Assessing Officers and the CIT(A) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai, [2022] 142 taxmann.com 247, held that where Assessing Officer noted that assessee had indulged in scrip of shell company and had claimed long term capital gain on sale of shares and made addition under section 68 holding that entire transaction was bogus and in the nature of penny stock, however, since genuineness of investment in shares by assessee was substantiated by him by producing copy of transaction statement for period from 16- 2001 to 1-10-2010 and shares were retained for more than ten years and were sold after such long time, hence investment was not bogus therefore it cannot be treated that investment was made in penny stock. The findings of the Hon`ble Court is reproduced below: 2. As submitted by learned senior advocate Mr. M.R. Bhatt for M.R.Bhatt and Co., the appellant revenue proposes the following substantial questions of law, which according to the submission requires examination. Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex facie perverse because the Appellate tribunal deleted the addition of Rs. 2,10,474/- made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. 6.1 On the facts of case, no question of law much less substantial question of law arises. 7. Resultantly, appeal is dismissed . 37. We note that findings of the Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai(supra) is squarely applicable to the assessee`s facts under consideration. The genuineness of investment in the shares by the assessee was substantiated by him by producing contract note, Transaction was through recognised Broker, transaction was done through banking channel on which STT was paid. The shares were held by assessee, as an Investor for a period of seven/ eight years. The investment was made in the year 2003 and sold in 2010-11. The shares were retained for more than seven years and were sold after such long time. These circumstances suggest that the investment was not bogus. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short time. 38. We note that above judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly known as stare decisis. At the outset, it may be appropriate to point out the well-settled legal position that what is binding on the Courts is the ratio of a decision. There is a clear distinction between ratio of a decision, obiter dicta and observations from the point of view of precedent value or their binding effect. It will be necessary in this case to explain this distinction. But before we do so, we may discuss the principle of binding precedent. This will take us to the question whose decision binds whom. 8. For deciding whose decision is binding on whom, it is necessary to know the hierarchy of the Courts. In India, the Supreme Court is the highest Court of the country. That being so, so far as the decisions of the Supreme Court are concerned, it has been stated in Art. 141 of the Constitution itself that : The law declared by the Supreme Court shall be binding on all Courts within the territory of India. In that view of the matter, all Courts in India are bound to follow the decisions of the Supreme Court. 9. Though there is no provision like Art. 141 which specifically lays down the binding nature of the decision of the High Courts, it is well accepted legal positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another's decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view the result would be utter confusion. The position would be equally bad where a Judge sitting singly in the High Court is of opinion that the previous decision of another Single Judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench. 13. The above decision was followed by the Supreme Court in Baradakanta Mishra vs. B. Dixit AIR 1972 SC 2466 wherein the legal position was reiterated in the following words (at 2469) : It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that Court and start proceedings in direct violation of it. If a Tribunal can do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , opinions on questions which are not necessary for determining or resolving the actual controversy arising in the case partakes the character of obiter. Obiter observations, as said by Bhagwati, J. (as his Lordship then was) in A.D.M. Jabalpur vs. Shiv Kant Shukla AIR 1976 SC 1207, would undoubtedly be entitled to great weight, but `an obiter cannot take the place of the ratio. Judges are not oracles'. Such observations do not have any binding effect and they cannot be regarded as conclusive. As observed by the Privy Council in Baker vs. R. (1975) 3 All ER 55 (at 64), the Courts authoritative opinion must be distinguished from propositions assumed by the Court to be correct for the purpose of disposing of the particular case. This position has been made further clear by the Supreme Court in a recent decision in CIT vs. Sun Engineering Works Pvt Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) at 320 where it was observed : It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete law declared by this Court. The judgment must be rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question [see Food Corporation of India vs. Yadav Engineer Contractor AIR 1982 SC 1302]. (ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs with another Division Bench of the same High Court, it should refer the case to a larger Bench. Where there are conflicting decisions of Courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions. (d) The decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its own territorial jurisdiction. It is well settled that the decision of a High Court will have the force of binding precedent only in the State or territories in which the Court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only a persuasive effect. By no amount of stretching of the do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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