Principal Commissioner Of Income Tax 9 ... vs P L Goenka Huf
2025 Latest Caselaw 83 Cal/2

Calcutta High Court

Principal Commissioner Of Income Tax 9 ... vs P L Goenka Huf on 6 May, 2025

Author: T.S Sivagnanam

Bench: T.S Sivagnanam

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                         IN THE HIGH COURT AT CALCUTTA
                           CIVIL APPELLATE JURISDICTION
                                  ORIGINAL SIDE

PRESENT :
THE HON'BLE CHIEF JUSTICE T.S SIVAGNANAM
          And
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)

                                     ITAT/241/2024
                                   IA NO: GA/2/2024
              PRINCIPAL COMMISSIONER OF INCOME TAX 9 KOLKATA
                                     VS
                              P L GOENKA HUF



For Appellant      : Mr. Tilak Mitra, Advocate
                     Mr. Prithu Dudhoria, Advocate

For Respondent     : None

Heard on           : May 6, 2025


Judgment on        : May 6, 2025

1. T.S. SIVAGNANAM, CJ : This appeal filed by the revenue under Section

260A of the Income Tax Act, 1961 (the Act) is directed against the order

dated February 09, 2024 passed by the Income Tax Appellate Tribunal

"SMC" Bench, Kolkata (the Tribunal) in ITA/412/Kol/2023 for the

assessment year 2013-14.

2. The revenue has raised the following substantial questions of law for

consideration :

(a) Whether on the facts and in the circumstances of the case and in law

the Learned Income Tax Appellate Tribunal (ITAT) was justified in law

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by not considering the fact that entire transactions were stage managed

with object to facilitate the assessee to plough back its unaccounted

income in the form of fictitious Long Term Capital Gains and claim of

bogus exemption?

(b) Whether on the facts and in the circumstances of the case and in law

the Learned Income Tax Appellate Tribunal (ITAT) was justified in law

by not considering the fact that assessee had indulged in manipulation

of the share prices of penny stock M/s. Tuni Textiles Mils Ltd with an

intention to record fictitious long Term Capital Gains of Rs.5,36,750/-

claiming these as exempt from taxation?

(c) Whether on the facts and in the circumstances of the case and in law

the Learned Income Tax Appellate Tribunal (ITAT) was justified in law

by not considering the fact brought on record establishing manipulation

of share prices of penny stock M/s. Tuni Textile Mills Ltd as part of

colourable device to generate fictitious LTCG with the aim to evade

taxes due?

(d) Whether on the facts and in the circumstances of the case and in law

the Learned Income Tax Appellate Tribunal (ITAT) was justified in law

by not considering the fact that the "tangible information for the

purpose of reassessment contemplated under Section 147 of the Act

would include "borrowed information" and the same ought not to be

mistaken with "borrowed satisfaction" as there exists a striking

distinction between the two concepts. Hence, conclusion arrived at by

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the Assessing Officer based upon his own satisfaction drawn from the

information received from the investigation wing cannot be said to be

borrowed satisfaction?

(e) Whether on the facts and in the circumstances of the case and in law

the Learned Income Tax Appellate Tribunal (ITAT) was justified in law

by not considering the views taken by Hon'ble Supreme Court in

Assistant CIT v. Rajesh Jhaveri Stock Broker Pvt. Ltd. (2008) 14 SCC

208 that the Assessing Officer can be said to have reason to believe

that income has escaped assessment, if he has a cause or justification

to know, or suppose, that income has escaped assessment. The

expression cannot be read to mean that the Assessing Officer should

have finally ascertained the fact by legal evidence or conclusion?

3. We have heard Mr. Tilak Mitra, learned senior standing Counsel assisted by

Mr. Prithu Dudheria for the appellant/revenue

4. The notice sent to the respondent/assessee was served on 1 st October,

2024 as per the track information filed along with the affidavit of service

but none appears for the respondent/assessee.

5. We have elaborately heard the learned senior standing counsel appearing

for the appellant/revenue and carefully perused the materials placed on

record and the reasoning given by the learned Tribunal. The appeal was

filed by the assessee before the learned Tribunal challenging the order

passed by the National Faceless Appeal Centre (NFAC) dated 12 th April,

2023. By the said order the appellate authority confirmed the findings

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recorded by the assessing officer in the assessment order dated 25.09.2021

passed under Section 147 read with Section 144B of the Act. Before the

learned Tribunal the assessee contended that the assessing officer has only

acted on the information received from the investigation wing and has not

recorded his satisfaction nor did any exercise to examine the transactions

done by the assessee before recording the reasons for reopening. The

learned Tribunal did not go into the merits of the matter but relied upon

instruction given by the CBDT dated 10 th January, 2018 which deals with

standard procedure for recording satisfaction under Section 147 of the Act.

After referring to the said instruction, the Tribunal came to the conclusion

that the assessing officer has not adhered to the standard procedures as he

has only referred to the information received from the investigation wing

and the assessee is stated to be one of the beneficiaries for receiving

accommodation entry to avail bogus short term capital gains and that it is

incumbent upon the assessing officer after receiving information from the

investigation wing, he should have examined the return filed by the

assessee and the information vis-à-vis the computation of income and then

forms an opinion that income has escaped assessment to tax. The Tribunal

held that the assessing officer has not applied his mind for reopening the

case that too after four years as the assessee has furnished all details of the

alleged transaction in his income tax return and has not adhered to the

standard operating procedure.

6. The learned Tribunal referred to a decision of the Coordinate Bench of the

Tribunal in the case of Jai Prakash Gupta Vs. ITO in ITA

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No.2142/Kol/2019 dated 18.06.2021 for the assessment year 2013-14 and

held that the reopening was bad in law and, accordingly, allowed the

assessee's appeal.

7. The Revenue being aggrieved by such order are before us by way of this

present appeal.

8. The first aspect which we need to point out is with regard to the effect of

the CBDT instruction. Admittedly, the CBDT instruction is a guiding note

for the assessing officer and not for the assessee. If such is the position,

what could be the effect for such standard operating procedure. The said

procedure cannot be taken to be a rule or a regulation or a mandatory

direction but it is to guide the assessing officer to proceed in a particular

fashion while recording satisfaction under Section 147 of the Act.

Therefore, the Tribunal, in our view, committed an error too by elevating

the status of an instruction which is issued for the guidance of the

assessing officer to be taken as a rule or a regulation which would also be

binding on the assessee.

9. Before we examine the correctness of the decision of the Tribunal, we take

note of the decision of the Hon'ble Supreme Court in Assistant

Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Private

Limited reported in (2008)14 SCC 208. The Hon'ble Supreme Court held

that Section 147 authorises and permits the assessing officer to assess or

reassess income chargeable to tax if he has reason to believe that income

for any assessment year has escaped assessment. It was further pointed

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out that the word "reason" in the phrase "reason to believe" would mean

cause or justification; if the assessing officer has cause or justification to

know or suppose that income had escaped assessment, it can be said to

have reason to believe that an income had escaped assessment. It was

further held that the expression cannot be read to mean that the assessing

officer should have finally ascertained the fact by legal evidence or

conclusion and that 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. Further, a reference was made to the decision in the

case of Central Provinces Manganese Ore Co. Ltd. Vs. ITO reported in

(1991) 4 SCC 166 and it was held that at the initiation stage, what is

required is "reason to believe", but not the established fact of escapement of

income. Further, 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 since the formation of

belief by the assessing officer is within the realm of subjective satisfaction.

It was further held so long as the ingredients of Section 147 are fulfilled,

the assessing officer is free to initiate proceeding under Section 147 and

failure to take steps under Section 143(3) will not render the assessing

officer powerless to initiate reassessment proceedings even when intimation

under Section 143(1) had been issued.

10. Bearing the above legal principles, we proceed to examine the facts of the

present case qua the findings recorded by the learned Tribunal for allowing

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the assessee's appeal. As mentioned above, the learned Tribunal was of the

view that the assessing officer has not formed an opinion and he has

mechanically followed the report of the investigation wing.

11. We have carefully perused the assessment order dated 25.09.2021. In

paragraph 2, the assessing officer sets out the information received from

the investigation wing vide letter dated 6.3.2020. It is not in dispute that

the assessee's name also figures in the information furnished by the

investigation wing. After setting out those details the assessing officer has

taken note of the return filed by the assessee dated 21.10.2020 and

thereafter issued notice under Section 143(2) of the Act. In paragraph 3,

the assessing officer has discussed the entire facts relating to the

transactions done by the assessee in respect of purchase of shares of M/s.

Tuni Textiles Mills Ltd. and noted that the value of the shares of the

assessee is almost 4.5 times in a span of one year and 2 months resulting

in huge capital gains to the assessee. Thereafter, the assessing officer has

verified the contract note and the share certificate submitted by the

assessee and other details of the transactions done by the assessee as well

as the details furnished in the return of income and then has stated that

the facts and circumstances surrounding the transaction of shares of M/s.

Tuni Textiles Mills Ltd. and subsequent earning of exempt LTCG by the

assessee through the transaction in the said shares clearly indicate that the

claim of the assessee regarding earning of significant LTCG exempt under

Section 10(38) requires deeper investigation and analysis to uncover the

real nature of the alleged regular/prudent transaction. Thereafter, the

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assessing officer has taken note of the background of the investigation done

by the department, discussed about the background of the company

namely M/s. Tuni Textiles Mills Ltd. and taken note of the profit and loss

account of the said company and its balance sheet, asset dt. March 31,

2012, statement of cash flow for the year ended 31.03.2012 and come to

the conclusion that the fundamentals of the company are very weak and it

clearly indicates that abnormal price rise in the shares of the company is

not natural or normal but artificially manipulated. Further, noting the

financial strength of the said company the assessing officer has noted that

the price of the shares rose astronomically during the period May 2010 to

March, 2011 from Rs.16/- to Rs. 271/-. With all these details, show cause

notice was issued to the assessee on 03.09.2021 for which the assessee

submitted their reply on 10.09.2021 and the assessing officer took into

consideration the stand taken by the assessee in their reply and has

recorded reasons to hold that the assessee has failed to discharge the onus

and, therefore, the only escapable conclusion is that numerous individual

assessees have taken entry to LTCG by paying its unaccounted money.

Furthermore, that the transaction in shares of M/s. Tuni Textiles Mills Ltd.

by the assessee was a pre-arranged transaction in the form of

accommodation entry managed through collusive transactions by group of

entry operators and shell entities. Thereafter the assessing officer has

taken note of the various decisions, namely, CIT Vs. Durga Prasad More

reported in (1971) 82 ITR 540(SC), Sumati Dayal Vs. Commissioner of

Income Tax reported in (1995) 214 ITR 801 (SC), applied the test of

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human probabilities as propounded in the said decisions and then

completed the assessment and has pointed out that before finalizing the

assessment a final show cause notice was issued on 18.09.2021 for which

the assessee submitted reply on 22.09.2021 and the said reply was also

considered and the assessing officer has pointed out that the assessee has

not submitted any new evidence in response to the show cause notice.

Therefore, the learned Tribunal committed an error in coming to a

conclusion that the assessing officer has not applied his mind for reopening

the assessment under Section 147 of the Act.

12. That apart, the learned Tribunal has not examined the reasons set out by

the appellate authority which has re-examined the factual position, taken

note of the grounds raised by the assessee and their oral submissions and

has in detail discussed about the lowering of funds and how the funds

reached the concerned beneficiaries and has factually found that the

assessee is one of the beneficiaries who received accommodation entry

which was used to avail bogus LTCG/STCL. The various decisions of the

Hon'ble Supreme Court were taken into consideration and the appeal was

dismissed. Therefore, we find that the learned Tribunal committed a

serious factual error in coming to the conclusion that there was no

application of mind of the assessing officer and erroneously elevated the

status of CBDT which is meant as a guiding note of the assessing officer to

have an effect of regulation. Therefore, the order impugned in this appeal

deserves to be quashed.