Decided on May 09,2014

Kamalchand Nathmal Lunia Appellant


MUKUL KUMAR SHRAWAT,JM. - (1.) THIS is an appeal filed by the assessee arising from the order of learned CIT(A) -I, Surat dated 17.12.2012. The main ground contested before us is reproduced below: "I. Reopening of the assessment: (1) The Assessing Officer erred in reopening of assessment when valid conditions for the reopening were not satisfied. (2) The appellant submits that reopening was also not justified because instead of the Assessing Officer recording his satisfaction, he initiated action at the behest of DIT (Investigation), Surat. (3) The appellant further submits that the Assessing Officer having taken his decision based on the decision of the DIT, the Assessing Officer ought to have been provided with the copy of the report. (4) On the facts and circumstances of the case and as per law, the learned Commissioner of Income -tax (Appeals) ought to have held that the reopening was not validly initiated. "
(2.) FACTS in brief as emerged from the corresponding assessment order passed u/s. 143(3) r.w.s. 147 of IT Act, dated 30th of December, 2011 were that the AO has received information that a search u/s.132 was carried out in the case of M/s. Mahasagar Securities Pvt. Ltd. In that case a statement of one Sri Mukesh Choksi was recorded u/s.132(4) of IT Act. He had admitted that the said company was engaged in providing bogus speculation profit/loss, as well as commodities profit/loss. Pursuant to the said information a notice u/s.148 was issued on 23rd of March, 2011. Reasons were recorded and duly communicated to the assessee, for the sake of completeness reproduced below: "REASONS FOR ISSUE OF NOTICE U/S. 148 OF THE I. T. ACTASSESSMENT FOR A. Y.2005 -06 : In this case, the assessee has filed return of income declaring total income at Rs.88,695/ - on 13.02.2006. The assessee had during the A.Y. 200506 relevant to F.Y. 2004 -05 has shown the share profit of Rs. 4,05,576/ -. The transaction of share has been carried out by the assessee with Alliance Intel. Mediateries and network Pvt. Ltd. In the return of income he has claimed the said long term capital gain exampled u/s. 10(38) of the I.T. Act. As per the information received from the DIT(Inv.), Surat, in the case of the assessee had sold the share of Rs. 4,80,035/ -. During the search and seizure action u/s. 132 of the I.T. Act undertaken in the case of M/s. Mahasagar Securities Pvt. Ltd. it has been revealed that the Mahasagar Securities Pvt. Ltd. its related group company, out of which ones being M/s. Alliance Intel. Mediateries and network Pvt. Ltd. from whom theassessee has sold the shares of various companies. On verification of the return of income filed, the assessee has sold the following shares of the various companies as on 28.02.2005 vide Bill No. CC/2005/039/5 dated 28.02.2005. Sr. No. Name of the company No of Share Amount Channel Guide 3400 Rs. 39,950/ - 2 Broadban Ltd. 17000 Rs. 65,200/ -
(3.) D . Karuna Cable 12500 Rs. 2,89,605/ - Sacheta Metals 2600 Rs. 85,280/ - Total Rs, 4,80,035/ - During the course of search proceeding it was revealed that the Mahasagar Securities Pvt. Ltd. and its related group of 34 odd companies (the prominent ones being M/s. Alliance Intermediaries & Network Pvt. Ltd., M/s. Mihir Agencies Pvt. Ltd., M/s. Gold star Finvest Pvt. Ltd. etc - all run by Mukesh Choksi) were engaged in fraudulent biling activities and in the business of providing bogus speculation profit/loss, short term/long term capital gain/loss, Share application money, commodities profit/loss on commodity trading (Through MCX) and had been continuing this business for many years, In this case the assessee has received accommodation entry by way of long term capital gain of Rs. 4,80,035/ - and increased his capital or introduce his unaccounted income by way of LTCG. I have reason to believe that income chargeable to tax shown as long term capital on sale proceeds of shares has escaped the assessment and within the means of section 147 of the IT Act. Therefore, it is necessary to initiate the action u/s.147 of the IT Act, 1961, in the case of the assessee. Issue notice u/s.148 of the accordingly. " 2.1 The assessee has challenged the reopening of the case before learned CIT(A) who has rejected the same in the following manner: "12. The contentions of the appellant have been examined. The AO followed all the procedural formalities for issue of notice u/s.148 and for proceedings conducted that. The search led to admission of the fact that the only business of those companies was to provide accommodation entries. The transaction with appellant appeared the seized materials. Therefore, the AO had a reason to believe that income has escaped assessment. Considering the same reopening is held to be valid and ground 1 is decided against the appellant. " 3. Now before us, learned AR, Mr. R.N. Vepari has pleaded that there was no independent application of mind by the AO and merely on an information from DIT (Investigation), the AO has issued the impugned notice u/s.148 of IT Act. He has argued that the AO should have satisfied himself about the reason of reopening. He has also pleaded that the reasons talk about revelation that Mahasagar Securities P. Ltd. and other group companies were engaged in fraudulent billing activities, etc. But it is not mentioned or found in search proceedings that there was any evidence found that the appellant too, had engaged himself in such activities. This would come out only if report of DIT(Inv.), which is the basis of reopening is made available to assessee. This has not been done. On last date i.e. on 30.12.2011, the assessee was given inspection of this report but copy denied. In the report, there is no mention of assessee having been part of such activities. In absence of any such clear finding in search about assessee having been involved in it, there can be only "reason to suspect" and not "reason to believe. On this legal point, he has placed reliance on various judgments. "1. Rajesh Jhaveri Stock Brokers (P) Ltd., 196 CTR 105 (Guj) 2. SFIL Stock Broking Ltd., 41 DTR 98 (Del) 3. Sarthak Securities Co. P. Ltd., 329 ITR 110 (Delhi) 4. Aslam Ulla Khan, 321 ITR 150 (Karn);

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