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TMI Blog2024 (11) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... tworth Capital Ltd.. The Assessee during the AY under consideration from Dec. 2010 to March in various lots sold 315875 shares out of 5 lakh shares through online trading account/recognized stock exchange on an average price of Rs. 173 and total consideration of Rs. 5,49,37,847/- and paid the Security Transaction Tax (STT) and earned Long Term Capital Gains (LTCG) of Rs. 5,17,79,097/- and claimed the said claimed LTCG as exempt u/s 10(38) of the Act, by filling his return of income on 30.09.2011 declaring total income at Rs. 21,07,410/-. The return filed by the Assessee was processed u/s 143(1) of the Act. 3.1 Subsequently, the AO received that information vide letter dated 23.03.2018 from the Dy. Director of Income Tax (Investigation Wing-8(3)], Mumbai, that M/s. Nivyah Infrastructure and Telecom Services Ltd. (in short "M/s. Nivyah") is a penny stock listed on BSE with scrip code (531588) and has been used to facilitate introduction of unaccounted income of beneficiaries in the form of exempt LTCG or Short-Term Capital Loss (STCL) in their books of account. The prices of M/s. Nivyah rose from Rs. 39 on 21.07.2009 to Rs. 205 on 05.01.2011 and dipped to Rs. 47.20/- on 18.07.2012. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other side without, which no adverse view could be taken. The Assessee further claimed that no cash trail was found, which could substantiate that the cash has been flown back to the Assessee or otherwise. The payments and receipts have been made through banking channel, the transactions are supported by documents appear to be genuine. The shares were also sold through online stock exchange and further there is no specific information against the Assessee to implicate him showing any particular documents or otherwise and therefore it is clear that proceedings in the Assessee's case have been conducted on mechanical ground without any specific information available thereto. The Assessee would also like your good attention to provide the requisite details to show that it was assessee's money which has come back to him. In the absence of any such documents, action merely on the third-party statement is not only bad in law but also untenable. The Assessee further claimed and requested to provide all the requisite details including statement of third parties on whose statement the AO had relied upon, so that the Assessee would be able to cross examine the parties and any or all the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for selection of the case under section 147/148 of the Act are undated and unsigned and therefore in view of the judgments passed by the Co-ordinate Bench of the Tribunal in the cases Shri Prahalad Singh vs ITO-3(2) [ITA No.3375/DEL/2017 & SA No.436/DEL/2017, Date. 11.05.2018] (Del-Tribunal); Sri Pinnamaraju Venkatapathi Raju vs JCIT-3(1) [ITA No. I.T.A. No.132/Vizag/2016, Date 28.02.2018] (Visakhapatnam-Tribunal) & Charanjiv Lal Aggarwal v. Income-tax Officer [2017] 88 taxmann.com 845 (Amritsar - Trib.) the assessment based on the unsigned and undated reasons is liable to be quashed being void ab-initio. 5.1 Further, the AO for reopening the case by recording reasons u/s 147 of the Act has relied on the information received from the Dy. Director of Income Tax (Inv.), Mumbai with regard to the share of a company namely M/s. Nivyah in which the Assessee allegedly traded during the F.Y. 2010-11 relevant to A.Y. 2012-13, whereas infact the Assessee has traded in the shares of "M/s. S.V. Electricals Ltd." and not with "M/s. Nivyah" as alleged in the reasons recorded, which goes to show the AO has neither examined the information received in the context of the Assessee's case nor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worthwhile to justify the sharp rise in market price of shares. The sharp rise in the market price of this entity is not supported by financial fundamentals of the company. Both purchase and sale of shares are concentrated within few persons/entities. The exit providers do not have creditworthiness. They are either non-filers or have filed nominal return of income. Subsequently, trade data of M/s. Nivyah Infrastructure & Telecom Ltd was called for from BSE and analysed. As per information, the assessee has traded in penny stock scrip namely M/s. Nivyah Infrastructure & Telecom Ltd during the year under consideration. The total trade value of the scrip by the assessee during F.Y. 2010-11 by the assessee was of Rs. 5,51,67,088/-. 4. I have perused the information received from Dy. Director of Income Tax (Inv.), Unit-8(3), Mumbai and on perusal of information, it is clear that the assessee has traded for total value of Rs. 5,51,67,088 / during the F.Y. 2011- 12 relevant to A.Y. 2012-13. 5. As per information available, the assessee has traded penny stock of M/s. Nivyah Infrastructure & Telecom Ltd for total value of Rs. 5,51,67,088/-. - The investigations carried out clearly refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary for that assessment year, i.e. for A.Y. 2011-12, within the meaning of section 147 of the Income-tax Act, 1961. Therefore, I have reason to believe that this is a fit case for issue of notice u/s. 148 of the I. T. Act 1961. 9. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s. 148 has been sought from Principal Commissioner of Income Tax-31, Mumbai as per the provisions of section 151 of the Act." 7.1 In the reasons recorded, the AO has mentioned the shares of scrip namely M/s. Nivyah and alleged that the Assessee during the year under consideration has traded in the said scrip, whereas it is a fact that the Assessee traded in the scrip of M/s. S.V. Electricals Ltd.. The AO nowhere mentioned the scrip name as M/s. S.V. Electricals Ltd. which goes to show that before forming the reasons of belief and recording the reasons for reopening and/or reopening of the case and/or issuing the notice u/s 148 of the Act the AO, did not examine the relevant facts and material of the Assessee's case in the context of the information received from the Investigation Wing and therefore the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation, the least that is expected of the Assessing Officer is to examine the same in the context of the facts of this case and satisfy himself whether the information received does prima facie lead to a reasonable belief that income chargeable to tax has escaped assessment. In this case, the reasons indicate that the Assessing Officer has not carried out such exercise and accepted the report of the Deputy Collector of Income Tax (Investigation) Mumbai to conclude that the petitioner had dealt with Nivyah Infrastructure and Telecom Services Ltd during the previous year relevant to the assessment year 2011-12. Admittedly, there was no company by name "M/s Nivyah Infrastructure & Telecom Services Ltd" in existence during that year for consideration. This clearly shows that the Assessing Officer acted on the satisfaction of the Deputy Collector of Income Tax (Investigation) that income chargeable to tax has escaped assessment. It must also be borne in mind that the impugned notice is issued beyond the period of four years from the end of the relevant assessment year in a case, where the assessment was completed under section 143 (3) of the Act. Therefore, the Assessing Officer would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, which has rightly been upheld by the Ld. Commissioner. 9. On the contrary, the Assessee by drawing our attention to the documents, demonstrated the purchase of shares, broker ledger, contract notes, statement bills cum transactions, Demat statement and bank statement etc. to substantiate the genuineness of the sale and purchase of the shares/scrip under consideration. The Assessee before us also submitted that may be the SEBI has passed certain orders qua irregularities against the scrip under consideration and the broker but it a fact that name of the Assessee was/is nowhere involved and/or no role of has been attributed to the Assessee qua irregularities, manipulating the documents and/or share prices except bald allegations. The Assessee in support of his case, also relied on various judgments passed by various courts including by the Hon'ble Jurisdictional High Court in the case of Pr. CIT-3 vs. Ziauddin A Siddique in Income Tax Appeal No.2012 of 2017 decided on 04.03.2022. 10. We have given thoughtful considerations to the rival submissions of the parties on merits and the facts and circumstances of the case and material available on record and observe that the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 but not the dates on which the Assessee had transacted. Even the SEBI's order dated 30.12.2021 in fact pertains to irregularities committed by broker but not the Assessee herein and by the said order, no penalty has been levied but the notice/Broker has been warned to be careful in future in dealing with securities' market. 10.1 We also observe that Hon'ble Allahabad High Court in the case of Commissioner of Income Tax vs. Smt. Renu Agarwal ITA No.44 of 2022 decided on 06.07.2022 has also dealt with the identical issue, wherein the AO relied on the statement of the principal officer of stock exchange and other persons, however, the Hon'ble Allahabad High Court affirmed the findings arrived at for deleting the similar addition by the Ld. CIT (Appeals) and the Tribunal, by holding as under: "The basic question involved in the present appeal is with regard to deletion of some amount which was added by the Assessing Officer on the allegation of penny stock. The appeal of the respondent-assessee was allowed against the assessment order The appeal filed by the assessee was allowed by the Commissioner (Appeals) Against the appellate order the Revenue had filed the aforesaid income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SLP. 10.3 For completeness, we further observe that the Hon'ble Jurisdictional High Court in the case of Pr. CIT-3 vs. Ziauddin A Siddique in Income Tax Appeal No.2012 of 2017 decided on 04.03.2022 has also dealt with the identical issue as involved in the instant case where the AO though considered the documents submitted by the Assessee in support of its claim qua sale and purchase of shares however, not criticized the same and there was no allegation against the Assessee that he has participated any price rigging on the scrips involved. For ready reference the decision of the Hon'ble High Court is reproduced herein below: "JUDGEMENT 1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was Justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 of the Act is at all unsustainable. 10.5 As we have observed above that the Hon'ble Jurisdictional High Court in the case of South Yara Holdings (supra) has quashed the reopening of proceedings in the identical facts and circumstances, as involved in this case and therefore on that aspect as well, the impugned assessment made on the basis of the reasons recorded and the notice issued u/s 148 of the Act, is liable to be quashed. 10.6 In cumulative effects, the addition on legal as well as on merits, is liable to be deleted, hence the same is deleted. In the result, the appeal filed by the Assessee stands allowed. 10.7. As we have deleted the addition under consideration, hence not delving into other issues raised by assessee inter-alia that reasons record for reopening of the case are undated and unsigned by the AO as adjudication of the same would prove futile exercise. 11. Coming to the appeal filed by the Revenue Department i.e. ITA No.1348/M/2024, this pertains to the deletion of the addition of Rs. 15,53,373/- which was made by the AO being commission expenses incurred for allegedly taking entry of bogus LTCG. As we have deleted the substantive addition itself, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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