Manjeet Kaur Duggal v. Income Tax Officer Ward 52 1 Delhi

$~17 *IN THE HIGH COURT OF DELHI AT NEW DELHI%Date of Decision : 29.05.2025 +W.P.(C) 3405/2023 & CM APPL. 13157/2023 MANJEET KAUR DUGGAL.....PetitionerThrough:Mr Gaurav Jai, Mr Shubham Gupta,and Ms Shalini, Advocates. versus INCOME TAX OFFICER WARD 52 1 DELHI.....RespondentThrough:Mr. Debesh Panda, SSC Ms. ZehraKhan, Mr. Vikramaditya Singh, JSCsMsAnaunttaShankarandMsRavicha Sharma, Advocates. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) 1.The petitioner has filed the present petition, inter alia, impugning theorder dated 15.07.2022 [impugned order] passed under Section 148A(d) ofthe Income Tax Act, 1961 [the Act] and consequential notice dated15.07.2022 [impugned notice] issued under Section 148 of the Act inrespect of the Assessment Year 2013-14. The petitioner also praysthat the Assessing Officer be restrained from taking any steps pursuantto the impugned notice. 2.The present petition was listed on 20.03.2023 and this Court passedthe interim order that the proceedings pursuant to the impugned notice maycontinue, however, any adverse order if passed, shall the same would not be Signature Not Verified given effect to till further directions of the Court. There is no cavil thatassessment order, which was passed subsequently would be subject to theoutcome of the petitioner’s challenge in the present petition. 3.The petitioner has assailed the impugned order on several groundsincluding that the impugned notice was barred by limitation. This challengeis founded on two grounds. First, that the impugned order was issuedbeyond the prescribed period of limitation. The said order holding that it is afit case for issuance of notice under Section 148 of the Act was issuedpursuant to the notice dated 06.04.2021, which was directed to be deemed tobe a notice under Section 148A(b) of the Act by virtue of the directionsissued by the Supreme Court in Union of India & Ors. v. Ashish Agarwal:(2022) 444 ITR 1.The petitioner contends that even after taking intoaccount the exclusion/extension of the time period, and the benefit ofextension of time under the Taxation and Other Laws (Relaxation andAmendment of Certain Provisions) Act, 2020 (TOLA), the impugned orderand impugned notice was beyond the time as prescribed. 4.The second ground urged on behalf of the petitioner is that the incomealleged to have escaped assessment neither exceeded ₹50.00 Lacs nor was likely to exceed ₹50.00 Lacs. The time period for issuance of the notice under Section 149(1)(a) of the Act was three years from the end of therelevant assessment year. Thus, the initial notice dated 06.04.2021 was alsobeyond the prescribed period of three years. 5.The original notice dated 06.04.2021 issued under Section 148 [whichwas deemed to be a notice under Section 148A(b) of the Act] did not contain any reason or material which is suggestive of income escape assessment. Interms of the decision of the Supreme Court in Union of India & Ors. v.Ashish Agarwal (supra), the AO had thirty days’ time to provide therelevant material, which is required to be accompanied a notice underSection 148A(b) of the Act.In compliance of the said decision, the AOissued the supplementary notice dated 21.05.2022. The said notice allegedthat the AO had information to the effect that Long Term Capital Gain was booked by the beneficiary in lieu of the commission in respectof the purchase and sale of penny stocks – 1,00,000 shares of M/s GemstoneInvestment Limited [Gemstone] and M/s Priti Mercantile Private Limited . 6.The information as available with the AO as set out in thesupplementary notice dated 21.05.2022 reproduced below: - “3. In this regard, in compliance with the subjectorder of the Hon’ble Supreme Court, you arehereby provided with information and materialrelied upon by this office for issue of the showcause notice. The details of which is provided asunder: - 6.The information as available with the AO as set out in thesupplementary notice dated 21.05.2022 reproduced below: - “3. In this regard, in compliance with the subjectorder of the Hon’ble Supreme Court, you arehereby provided with information and materialrelied upon by this office for issue of the showcause notice. The details of which is provided asunder: - “As per the information received, anenquiry was initiated in the case of M/sPMC Fincorp Ltd. During the investigationit was found that it is listed in BSE and hasfacilitated bogus LTCG to the tune of Rs.1328 Crores. The Scrip price was riggedand managed to provide accommodationentry of LTCG to various beneficiaries inlieu of Commission. During the year underconsideration, you have booked fictitiousprofits of Rs.15,15,000/- from trade in Signature Not Verified GemstoneInvestmentLimitedandRs.37,09,250/-fromtradinginPMCFincorp Ltd. As per the e-filing records,the ITR for A.Y. 2013-14 has been fileddeclaring the income of Rs.33,60,950/-under the head of salary, Income fromhouse property, PGBP and income fromothersources(includingagricultureincome of Rs.2,55,000/-). Therefore, thefictitious profit in equity/derivative tradingamountingtoRs.52,24,250/-remainsunexplained.” 7.The petitioner responded to the said notice disputing the aforesaidcontention.Further, the petitioner amongst other material also forwardedthe following: - a) Purchase contract note for shares of Gemstone; b) Finance ledger; c) Sale contract note for sale of Gemstone; d) Financial letter indicating sale of the subject shares; e) Income tax return of the petitioner; and f) Purchase and sale contract notes regarding shares of PMPL. 8.However, the said reply was not accepted and the AO passed theimpugned order holding that it was a fit case for issuance of notice underSection 148 of the Act. 9.The material provided by the petitioner indicates that the petitionerpaid an aggregate amount of ₹9,08,887/- through banking channel as purchase consideration for the shares of two entities – Gemstone and PMPL.The petitioner contends that the purchase consideration, which is reflected in the income tax return is required to be reduced from the gross saleconsideration of ₹52,24,250/-. However, this contention was rejected by the AO in the following words: - “7.Thesubmissionoftheassesseehasbeenconsidered carefully and found not tenable since aimbehind opting penny scrip cases is to introduceunaccounted cash into books of accounts withoutpaying the due taxes. In penny stock cases beneficiaryprovisions of the I.T.Act, 1961 have been misused bythe syndicates to arrange accommodation entry ofbogus LTCG/LTCG and bogus short term capitalloss/bogusbusinessloss.Asperthereportofinvestigation wing in the penny scrip opted by theassessee – there was no real business, no change in thefundamentals of the company to explain the share riseand consequent fall in the share price, no block of assetand never performed well financially. The assessee isnot denying the information. The transactions has toseen by the department as a whole. Apart from this thedepartment given information to assessee as per ApexCourt decision by treating the case falling undercategory exceeding 50 lacs. 8.Thepaymentthroughbanks(purchase/sale),transaction through stock exchange and other featuresare only apparent features and real feature are themanipulated and abnormal price of off-loan andsudden dip thereafter. The transaction would fallwithin the realm of suspicious and dubious transaction.When transactions are through cheque it looks like realtransaction but the authority is entitled to look behindthe transactions and ascertain the motive behind thetransaction. The short term capital gain as bogus sincederived from rigging of the scrip prices and invariablyaccommodation entry in collusion with concernedentryoperator.Thepaymentthroughbankforpurchase of penny scrip also required verification ofsource which requires deep scrutiny in this case.” Signature Not Verified 8.Thepaymentthroughbanks(purchase/sale),transaction through stock exchange and other featuresare only apparent features and real feature are themanipulated and abnormal price of off-loan andsudden dip thereafter. The transaction would fallwithin the realm of suspicious and dubious transaction.When transactions are through cheque it looks like realtransaction but the authority is entitled to look behindthe transactions and ascertain the motive behind thetransaction. The short term capital gain as bogus sincederived from rigging of the scrip prices and invariablyaccommodation entry in collusion with concernedentryoperator.Thepaymentthroughbankforpurchase of penny scrip also required verification ofsource which requires deep scrutiny in this case.” Signature Not Verified 10.We consider it apposite to set out the relevant extract of thecomputation of the income, which was filed with the income tax returns.The same is set out below: - “Statement of Long Term Capital Gain [Transaction Act, Exempt under Section 10(38)] 11.It is apparent from the above that the petitioner had computed theexempt income – LTCG on the sale of shares in the previous year relevant toAY 2013-14 as ₹42,97,299/-. The petitioner had not claimed exemption regarding any other income. The information provided by the AO related totaxing the income claimed as exempt and not that any payment made by thepetitioner in the prior year (previous year relevant to AY 2012-13) wasrequired to be taxed as income escaping assessment. 12.It is the Revenue’s case that the said transaction of purchase and saleof shares of Gemstone and PMPL is a sham transaction for the purpose ofbooking LTCG, which was exempted under Section 10(38) of the Act. Thestand of the Revenue also draws support from the report by the investigationconducted by the Stock Exchange Board of India in the trading ofshares of Gemstone and PMPL. 13.It is not apposite for this Court to examine the merits of theallegations of purchase and sale as bogus transaction and therefore, income which has escaped the assessment pursuant to the said transaction is requiredto be assessed and the proceedings for assessment of the said information isrequired to be initiated. 14.The only question, which needs to be considered is whether theinformation available with the AO and as furnished to the petitioner,suggested that income of the petitioner has escaped or likely to be escapedassessment exceeds ₹50.00 Lacs. 15.According to the petitioner, the only net income, which is claimed asexempted would be considered as income that has escaped assessment onthe basis of transaction of sale and purchase of stock of Gemstone andPMPL as disclosed by the petitioner. However, according to the Revenue, itis not only the income which was claimed as exempt under Section 10(38)of the Act as also the purchase consideration of the said shares, which islikely to be included in the income that has escaped assessment. 16.Mr Panda, learned counsel for the Revenue referred to the counteraffidavit filed on behalf of the Revenue contended that consideration paid bythe petitioner through banking channel would have received back by thepetitioner in cash by way of separate transaction. According to the AO, thisassumption would flow from the finding that the transaction of sale andpurchase of sales in Gemstone and PMPL were bogus transaction to bookLTCG. 17.In our view, the contentions advanced by the Revenue are ex facieerroneous. We say so for the following reasons. There is no dispute that thepayments were made through banking channel, which were reflected as 16.Mr Panda, learned counsel for the Revenue referred to the counteraffidavit filed on behalf of the Revenue contended that consideration paid bythe petitioner through banking channel would have received back by thepetitioner in cash by way of separate transaction. According to the AO, thisassumption would flow from the finding that the transaction of sale andpurchase of sales in Gemstone and PMPL were bogus transaction to bookLTCG. 17.In our view, the contentions advanced by the Revenue are ex facieerroneous. We say so for the following reasons. There is no dispute that thepayments were made through banking channel, which were reflected as purchase consideration, aggregating ₹9,08,887/-. Mr Panda submits that the particulars of only ₹9,00,000/- has been reflected in the bank statement furnished by the petitioner. However, there is no dispute that the purchaseconsideration was reflected as paid in the prior period. We note that it is theAO’s assumption that the money had been paid through banking channel hasbeen received back in cash. Therefore, there appears to be no cavil that theconsideration of shares of Gemstone and PMPL was paid by the petitioner.Second that these payments had been made and reflected during theFinancial Year 2011-12 relating to AY 2012-13. 18.Even if it is accepted – which we do not – that no purchaseconsideration in fact had been paid and the money was received back incash. There is no material to indicate that said transaction was conducted inthe FY 2012-13 [relating to AY 2013-14]. 19.It is also necessary to bear in mind that any purchase considerationreflected by the petitioner in the books of accounts would necessarily befrom the disclosed sources. Thus, the only income that could possibly escapeassessment in transaction of sale and purchase of shares to book exemptincome would be the difference between the purchase consideration and thesale consideration. 20.The transaction of making payment in cheque and receiving themoney in cash is a separate transaction. There was no such allegation in thenotice issued to the petitioner that there was information as to any suchseparate transaction. There is also no material on record which wouldsuggests that the amount of purchase consideration paid in cash for acquiring the shares have been received back by the petitioner in cashthrough another transaction. And, in any event the said transaction is not inthe previous year relevant to AY 2013-14 as the purchase consideration paidfor the shares in question was paid in the previous year. The only transactionin the previous year relevant to AY 2013-14 is the sale of shares ofGemstone and PMPL. Thus, there is no material with the AO to indicate thatthe gross sale consideration had escaped assessment in AY 2013-14. 21.Thus, if the information as available with the AO was verified to becorrect, the income which the petitioner had claimed as exempt underSection 10(38) of the Act would be the income that was chargeable to taxunder the Act and had escaped assessment. 22.Concededly, this amount of ₹42,97,299/- is below the threshold limit of ₹50.00 Lacs for attracting the provision of Section 149(1)(b) of the Act. 23.In view of the above, we find merit in the contentions of the petitionerthat the impugned notice has been issued beyond the period of limitation asprescribed under Section 149(1)(a) of the Act and the conditions as specifiedso as to attract the provisions of Section 149(1)(b) of the Act are notsatisfied. 24.The petition is, accordingly, allowed. The impugned order andimpugned notice are set aside. Consequently, any order passed pursuant tothe impugned notice or impugned order is also set aside as well. Signature Not Verified 25.The pending application is also disposed of. VIBHU BAKHRU, J TEJAS KARIA, J MAY 29, 2025M Click here to check corrigendum, if any