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TMI Blog2024 (7) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss claimed by the assessee as fictitious loss from share transaction in equity derivatives without considering the submission of the assessee. 3.1 It is noted that the ld. AR of the assessee has filed an application dated 21- 05-2024 under Rule 11 of the Income Tax Rules, 1963 for admission of following additional grounds. ''1 On the facts and in the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in issuing notice u/s 148 on incorrect facts, hence, the issuance of the same is ab initio void. ''2. On the facts and in the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in making addition on a different ground despite that the ground on which notice u/s 148 was issued did not subsist.'' 3.2 In the application, the assessee has submitted that due to inadvertence, these additional grounds could not be taken up as these are purely of legal in nature and arise out of the order of the AO/ ld. CIT(A). These additional grounds do not require any additional evidence and the same deserves to be admitted for which the ld. AR of the assessee has quoted the following decisions in his support. 1. NTPC Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs 10,15,600/- and fictitious profits as well as losses through Maverick Share Brokers Ltd. The AO has given the details of the transactions of such fictitious profits/loss earned/incurred by the appellant on page no. 6 to 19 of the assessment order. Accordingly, the AO issued notice u/s 148 of the Act to the appellant after recording reasons to believe and after seeking necessary approval of the competent authority. In completing the Gent, the AD made addition of Rs. 41,34,571/- being fictitious profit earned. Aggrieved by the said addition, the appellant is in appeal and has raised 03 grounds which are adjudicated as under- 7. Ground no.1 is relating to reopening of assessment u/s. 147 of the Act During the impugned AY, AO received information from the office of Deputy Director of Income Tax, Unit-1(1), Mumbai, according to which the appellant had ma de fictitious profits in equities and derivative trading in illiquid derivative on BSE/NSE amounting to Rs. 51,47,700/-. This information came to the knowledge of Income Tax Department on the basis of Search Operation carried on by the Investigation Wing. Mumbai. The information received from the DDIT. (Inv.), Unit1(1), Mumbai a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils of such fictitious transactions and the information in the possession of the AO was that appellant had received profits/incurred losses through fictitious transactions, the AO had reason to believe that the appellant's income had escaped assessment. 7.3 Hon'ble Gujarat High Court in the case of Purviben Snehalbani Panchhigar v. Asstt. CIT [2019] 101 taxmanın.com 393/(2018) 409 ITR 124 (Guj.) had an occasion to examine an identical case of that of the appellant, the Court has observed in paras 6 and 8 as under:- ''6. The return filed by the assessee were accepted without scrutiny, Since there was no scrutiny assessment, the Assessing Officer had to occasion to firm any opinion on any of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application it is equally well settled that at the stage of re-opening of the assessment, the court would not minutely examine the possible additions which Assessing Officer wishes to make. The scrutiny at that stage would be limited to examine whether the Assessing Officer had formed a valid belief on the basis of the material available with him that income chargeable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the department, and after referring to the several judgments, made following observations in para 9 which read thus:- "It con thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show-cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the les manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final ender. At this stage the Assessing officer was not required to hold conclusively that additions variably be made. He truly had to form a bona fide b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot say that they either had no reason to beleve or that their reasons to believe were based on some non-extend material or extraneous and irrelevant material 7.8 In view of the above, I am satisfied, that the AO had sufficient information in his possession to form a reasonable belief that the appellant income had escaped assessment by virtue of the fact that the appellant had not shown any details of fictitious transactions in the return filed. Accordingly, notice issued u/s. 148 of by the AO is upheld. Ground No.1 is dismissed 8. Ground No.2 is relating to the addition of Rs 41,34,751/- as profit-from business. The AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight portal in which it was informed that the appellant had made fictitious profits in equities and derivative trading in illiquid derivative on BSE/NSE amounting to Rs. 51,47,700/-. This information came to the knowledge of Income Tax Department on the basis of Search Operation carried en by the Investigation Wing, Mumbai, The information received from the DDIT, (inv.), Unit-1(1), Mumbai also enclosed the statements recorded u/s. 133A of the Act of Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons using expiry trade and it was pleaded that the appellant is not the part of the said manipulated transactions. However, the information gathered by the Investigation Wing, Mumbai showed that the appellant was part of the manipulative transactions through its brokers. The appellant has not produced any evidence to prove that the loss was borne by respective brokers through banking channels. In view of the same, the ratio of the decisions referred by the appellant are not found applicable to the facts of the appellant's case. Accordingly, Ground No.2 is found to be without merit and accordingly dismissed.'' 4.2 During the course of hearing, the ld.AR of the assessee submitted that the ld. CIT(A) is not justified in confirming the action of the AO in passing order u/s 147 of the Act and also erred in confirming the addition of Rs. 41,34,571/- for which the ld.AR of the assessee submitted as under:- ''In this case the learned AO has made the addition on the basis of Project Falcon from DDIT(Investigation), Unit-6(3), Mumbai regarding coordinated and premediated trading on the Bombay Stock Exchange by engaging in reversal trades in illiquid stock options that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted by the Learned Assessing Officer. Thus, the reasons on which proceedings u/s 147 were taken have not subsisted at the stage of concluding the assessment proceedings. In view of this, there was no scope available to the Learned Assessing Officer to make addition by disallowing the loss. Further, the Investigation Wing had not passed any information in respect of the assessee regarding fictitious loss, therefore also, the Learned Assessing Officer was not justified in disallowing the loss. The same has wrongly been disallowed. The Hon'ble ITAT is requested to delete the addition made by the Learned Assessing Officer and sustained by the Learned CIT(A).'' 4.3 On the other hand, the ld. DR vehemently argued the case and strongly refuted the submissions of the assessee by relying upon the orders of the lower authorities. 4.4 The Bench has heard both the parties and perused the materials available on record including the submissions as well as case laws cited by the respective parties. Brief facts of the case are that assessee is a private limited company engaged in the business of share trading and broking business. Return for income A.Y. 2013-14 was filed on 23/09/2013 decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit from trading through Hem Securities Ltd (Broker) Rs. 10,13,973/- 2. Profit from trading through CM Goenka Stock Brokers P Ltd Rs. 40,99,184/- Total Rs. 51,13,157/- It is noted from the records that the above profits have been accepted as it is by the AO without terming the same as fictitious. The assessee had also disclosed these profits in the computation of income. In view of this, it is felt that the reasons recorded by the AO were incorrect in terming the profits earned on BSE by the assessee by trading. However, on the other hand, the assessee also suffered loss of Rs. 41,34,571/- on BSE trading from transactions conducted through M/s Maverick Share Brokers P. Ltd. The Bench observed from the assessment order that the AO disallowed the loss on the ground that the same is fictitious. It is noted that in the reasons recorded for initiating proceedings u/s 148, the ground taken by the AO was that assessee earned fictitious profits, but this ground has not subsisted at the stage of completion of assessment and no addition has been made on this ground. In view of this, AO was precluded in making any other addition when addition was not made on the ground on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The relevant para of reasons recorded is quoted below :- "As all the inquiries have already made by the SEBI, hence no further investigation is needed. Hence, I have reasons to believe that the income to the extent of Rs. 51,47,700/- is escaped assessment for the provisions of sec. 147." The Bench noted that it is settled position of law that before issuing notice u/s 148, the AO is under obligation to cause inquiries and to have reasons for issuing notice u/s 148. No notice u/s 148 can be issued on borrowed satisfaction. The following case-laws in this regard are quoted :- (a) CIT Vs. Shree Rajasthan Syntex Ltd. (2008) 217 CTR 209 (Raj) Reopening of assessment on borrowed satisfaction by Assessing Officer of lesser on the basis of opinion arrived at by the Assessing Officer of lessee on the same set of documents was invalid. (b) SIGNATURE HOTELS (P) LTD. vs. INCOME TAX OFFICER (2011) 338 ITR 51 (Delhi) Reassessment-Reason to believe-Information received from Director of IT (Inv.) vis-a-vis accommodation entry-For reopening an assessment the AO must have "reason to believe" that certain income chargeable to tax has escaped assessment and such reasons are required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued notices u/s 148 of the Act, on the basis of information allegedly received by him from the CIT, New Delhi 2. From the proforma for approval of notice, which is extracted above, it is clear that the AO was also not aware that the assessee had filed a return of income for the said AY. The ACIT has also not applied his mind. No satisfaction has been recorded by the Ld.ACIT. Only an approval is given. Thus in our view the reopening is bad in law (Signature Hotels (P) Ltd. Vs. ITO 338 ITR 51 (Delhi) followed). (e) ACIT vs. Devesh Kumar (ITAT Delhi)dt. 31.10.2014 Reopening solely on the basis of information received from the investigation wing & without independent application of mind is void. (f) Unique Metal Industries vs Income Tax Officer (ITAT Delhi) dated 28.10.2015 Reopening solely on the basis of information received from another AO that the assessee has booked bogus bills but without independent application of mind to the information renders the reopening void. (g) CIT Vs. SFIL Stock Broking Ltd. (2010) 41 DTR 98 (Del) Reassessment-Reason to believe-Reopening on directions of superior officers-50-called reasons recorded by the AO for reopening assessee's ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid in the eye of law. The following cases are quoted in support :- 1. SHAMSHAD KHAN vs. ASSISTANT COMMISSIONER OF INCOME TAX - (2017) 395 ITR 0265 (Delhi), (2017) 248 TAXMAN 0152 (Delhi) 2. MUMTAZ HAJI MOHMAD MEMON vs. INCOME TAX OFFICER (2018) 408 ITR 0268 (Guj), Re-assessment-Validity of reasons-Applicability of correct provision-Assessee had filed return of income disclosing a sale consideration and after adjusting cost of improvement and indexed cost of acquisition, offered a sum by way of capital gain-AO noted that as per an information available with office, assessee had sold an immovable property for a consideration of Rs. 1,18,95,000/- for AY 2010-11, jointly with two other persons-Hence, assessee's share would come to 1/3rd of total sale consideration-On verification from ITD system, it was found that no return of income for AY 2010-11 was filed by assessee and thus, capital gain earned on sale of immovable property was not offered for taxation- Consequently, property sale transactions made by her during FY 2009-10 were unexplained/undisclosed-Subsequently, AO issued a re-opening notice after recording his satisfaction-AO did not made any comment on assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading of shares. The submission of the assessee is that when the AO failed to make any addition of fictitious profits, which is the ground on which notice u/s 148 was issued, then, the AO was precluded in making addition on any other ground. The Courts have held in various decisions that in completing assessment proceedings u/s 148, the AO can make addition on other grounds if additions are made on the ground on which notice u/s 148 was issued, failing this, no addition on any other ground can be made. In view of this in the case of the assessee, the AO was not justified in making addition by rejecting the claim of loss of the assessee of Rs. 41,34,571/- suffered in share trading. The addition made deserves to be deleted. Hence, taking into consideration above deliberations in the facts and circumstances case as detailed hereinabove, the Bench does not concur with the findings of the ld. CIT(A) and thus the appeal of the assessee is allowed. 5.1 Now, we take up the appeal of the assessee in ITA No.466/JP/2024 for adjudication wherein the assessee has raised following grounds of appeal. ''1. Under the facts and circumstances of the case, the Assessing Officer has erred in passin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Harshvardhan Kayan of Kayan Securitiies (P) Ltd. during the course of survey u/s. 131 of the Act of Mr. Sanjay Periwal, showed that appellant had involved itself in such fictitious transactions on BSE and NSE. It was further stated through the information that the appellant earned fictitious profit from Bahubal Forex (P) Ltd. and CM Goenka Stock Brokers Ltd. towards trading in equity derivatives on NSE amounting to Rs 44,836/- and fictitious profits as well as losses through CM Goenka Stock Brokers Ltd. of Rs. 5,01,923/-. The AO has given the details of the transactions of such fictitious profits/loss earned/incurred by the appellant on page no. 6 to 8 of the assessment order. Accordingly, the AO issued notice u/s 148 of the Act to the appellant after recording reasons to believe and after seeking necessary approval of the competent authority. In completing the assessment, the AO made addition of Rs. 16,08,223/- being fictitious profit earned. Aggrieved by the said addition, the appellant is in appeal and has raised 03 grounds which are adjudicated as under:- 7. Ground no.1 is relating to reopening of assessment u/s. 147 of the Act. During the impugned AY, AO received infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given any information about the fictitious transactions in the return filed, the only option available with the AO on receipt of credible information from the Investigation Directorate was to reopen the assessment as provided in Section 147 of the Act and make the verification. As the appellant had not shown any details of such fictitious transactions and the information in the possession of the AO was that appellant had received profits/incurred losses through fictitious transactions, the AO had reason to believe that the appellant's income had escaped assessment. 7.3 Hon'ble Gujarat High Court in the case of Purviben Snehalbani Panchhigar v. Asstt. CIT [2019] 101 taxmanın.com 393/(2018) 409 ITR 124 (Guj.) had an occasion to examine an identical case of that of the appellant, the Court has observed in paras 6 and 8 as under:- ''6. The return filed by the assessee were accepted without scrutiny, Since there was no scrutiny assessment, the Assessing Officer had to occasion to firm any opinion on any of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application it is equally well setlied that at the stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits on fictitious transactions which were not reflected in appellant's return filed. The judgment in the case of Pr. CIT v. Gokul Ceramics [2016] 71 taxmann.com 341/241 taxman 1 (Guj.), the Division Bench had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made following observations in para 9 which read thus:- "It con thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show-cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the les manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the re-opening could not and should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced below:- 15. The Petitioner has not explained the amount of Rs 2,15,107 The Petitioner may have its own version about the receipt of the amount of Rs. 6.74 crores. However, these are matters which can be locked into of the stage of reassessment. Based on the material available with the respondents, we cannot say that they either had no reason to believe or that their reasons to believe were based on some non-extend material or extraneous and irrelevant material 7.8 In view of the above, I am satisfied, that the AO had sufficient information in his possession to form a reasonable belief that the appellant income had escaped assessment by virtue of the fact that the appellant had not shown any details of fictitious transactions in the return filed. Accordingly, notice issued u/s. 148 of by the AO is upheld. Ground No.1 is dismissed 8. Ground No.2 is relating to the addition of Rs 16,08,223/- the AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight portal in which it was informed that the appellant had made fictitious profits in equities and derivative trading in illiquid derivative on BSE amounting to Rs. 16,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions as the same was subjected to tax as the appellant had offered the same in the return of income. 8.2 Further, it was pleaded that the Project Falcon 2, the details of which were made available showed the modus operandi of various manipulated transactions using expiry trade and it was pleaded that the appellant is not the part of the said manipulated transactions. However, the information gathered by the Investigation Wing, Mumbai showed that the appellant was part of the manipulative transactions through its brokers. The appellant has not produced any evidence to prove that the loss was borne by respective brokers through banking channels. In view of the same, the ratio of the decisions referred by the appellant are not found applicable to the facts of the appellant's case. Accordingly, Ground No.2 is found to be without merit and accordingly dismissed.'' 6.2 The Bench has heard both the parties and perused the materials available on record including the written submissions of the assessee alongwith case laws cited by respective parties. The Bench in the appeal of the assessee in ITA No. 466/JP/2024 for the assessment year 2016-17 noted that the order passed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for issuing notice u/s 148 again on 27-07-2022 on the ground that notice issued earlier on 31-03-2021 was not served by 31-03-2021. The ld. CIT(A) erred in confirming the action of the AO.'' 8.2 The Bench has admitted the additional grounds of appeal as raised by the assessee in view of the findings given in the case of the assessee in ITA No. 465/JP/2024 for the assessment year 2013-14 9.1 Apropos Ground No. 1 & 2 of the assessee and additional grounds (supra), the facts as emerges from the order of the ld. CIT(A) wherein the ld. CIT(A) has dismissed the appeal of the assessee by observing at para 6 to 8.2 of his order as under:- Decision :- ''6. I have gone through the assessment order and submissions made by the appellant. The basic contention of the Assessing Officer (AO) in this case is that the AO received information from the office of Director General of Income Tax, Investigation, Mumbai through Insight portal in which it was informed that the appellant had made fictitious profits in equities and derivative trading in illiquid. derivative on BSE amounting to Rs. 27,67,800/-. This information came to the knowledge of Income Tax Department on the basis of Search Operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the order. 7.1 The amount of profit earned or loss incurred by the appellant was through Bahubali Forex Pvt. Ltd. and CM Goenka Stock Brokers Ltd. Both these companies were managed and controlled/operated by Mr. Harshvardhan Kayan, whose statements were recorded u/s. 133A of the Act. The activity carried on by these companies was to indulge in rigging of share prices and thereby earning profits or losses as per the requirements of their clients. This was confessed by Mr. Harshvardhan Kayan during the course of Survey before the Investigation Wing, Mumbai. On the basis of the said information, the AD issued the notice u/s. 148 of the Act after recording reasons to believe that appellant's income had escaped assessment as provided in section 147 of the Act and after obtaining approval of the competent authority. Thus, the notice issued is valid as the same is issued after recording reasons on the basis of credible information from the Investigation Wing of the Department. Accordingly, the notice u/s 148 of the Act is upheld. The submissions made by the appellant that there was no escaped income of the appellant and there was no failure to disclose fully and truly al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd ν. ΠΟ (1991 (191) ITR 662), for initiation of action under section 147ja) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see 170 v. Selected Dalurabadn Coal Pvt. Ltd (1996 (217) ITR 597 (SC) Raymond Woollen Alls Ltd. v ITO (1999 (236) ITR 34 (SC) 7.4 In the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of a re-opening of assessment appears to us to be, to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude" 7.6 It is settled law that sufficiency or adequacy of the reasons for the issuance of the notice for reopening of the assessment is not required to be gone into at this stage of the reopening. It can never be said that the final outcome of the proceedings has been derived at by the authority by issuing a notice for reopening. On the basis of material before it as highlighted above, if the Assessing Officer was satisfied to harbour reasons to believe that there was escapement of income and if on such basis, he has exercised his powers under sections 147, 148 of the Income-tax Act, 1961, no fault can be found. 7.7 Similarly, Hon'ble Bombay High Court in the case of Hede Ferrominas Pvt. Ltd. reported in 147 taxmann.com 215 (Bombay) had occasion to examine whether there was sufficient material to form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant in its submission merely stated that it has undertaken the transactions on BSE and NSE through banking channels and Security Transaction Tax (STT) has been paid on all the transactions. However, the appellant has not been able to give any other information beyond these facts it was submitted that profit from transactions with Hem Securities Ltd. is already reflected in the P&L A/c Similarly, profits from CM Geonka Stock Brokers Ltd. is also included in the P&L A/c. The AO has made the addition of only Rs. 27.67,800/- because the profit offered already has not been again brought to tax. However, the loss claimed of Rs. 27,67,800/- which is out of fictitious transactions was disallowed and added to the total income. The contention of the appellant is that all the transactions are of similar nature and how the AO can give different treated to profit and different treatment for loss. However, as seen from the assessment order the AO has not taxed the profits earned again as it would amount to double taxation. However, the fictitious loss claimed by the appellant has been disallowed and added to the total income. Merely because profit has not been added it cannot be said that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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