W.P.(C)/13743/2022 of VIKAS JAIN Vs INCOME-TAX OFFICER, WARD 63(1) DELHI AND ORS

IN THE HIGH COURT OF DELHI AT NEW DELHI

+W.P.(C) 13743/2022 and CM APPL. 41953/2022 (for ad interim exparte stay)VIKAS JAIN..... PetitionerThrough :Mr. Vishal Aggarwal and Mr.RishabhOstwal, Advocates.versus

INCOME-TAX OFFICER, WARD 63(1)

DELHI AND ORS..... RespondentsThrough :Mr. Kunal Sharma, Senior StandingCounselforRevenuealongwithMr.Shray Nargotra, Advocate.

%Date of Decision: 7[th]October, 2022

CORAM:

HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA

J U M N T

MANMEET PRITAM SINGH ARORA, J (ORAL):

1.The present writ petition has been filed seeking direction to quashthe order passed under Section 148A(d) of the Income Tax Act, 1961 (‘theAct’) and notice issued under Section 148 of the Act, both dated 20[th]July,2022, for the Assessment Year (‘AY’) 2014-15.

2.The petitioner, Assessee, was initially served with notice dated 12[th]April, 2021, issued under the erstwhile Section 148 of the Act, withoutfollowing the mandatory procedure of newly inserted Section 148A of theAct, which was introduced vide Finance Act, 2021. The said notice was

challenged by the Assessee in W.P. (C) No. 9119 of 2021 and the saidpetition was allowed by common order and judgment dated 15[th]December,2021 in Mon Mohan Kohli v. Assistant Commissioner of Income Tax,2021 SSC OnLine Del 5250, wherein this Court quashed the said noticeholding it to be null and void.

3.Thereafter, Supreme Court in Union of India & Ors. v. AshishAgarwal, 2022 SCC OnLine SC 543, in partial modification, directed thatthe reassessment notices issued under the erstwhile Section 148 of the Actshall be construed as show cause notice (‘SCN’) under Section 148A(b) ofthe Act.In pursuance of the direction given by the Supreme Court, theAssessing Officer (‘AO’) in continuation of the initial notice dated 12[th]April2021 issued notice under Section 148A(b) of the Act dated 27[th]May, 2022withrespecttothesubjectAY2014-15,allegingthefollowing‘information/material relied upon’ against the Assessee:

“1.In this case, information has been populated in INSIGHTPORTAL under high Risk parameter regarding search action onNaresh Jain Groupwho, further in verification, found to be anaccommodation entry provider who in the form of LTCG/Loss inseveral scrips to various beneficiaries. The Assessee Mr. VikasJain, in further verification, found to be among one of thebeneficiaries who created fictitious LTCG/Loss in the pennystockthroughtheaforesaidentityforanamountof-Rs.2,58,14,528/. The amount requires further verification.(a)The copy of information.”

(Emphasis supplied)

4.Learned counsel for the petitioner states that the Assessee filed itsreply dated 9[th]June, 2022, to the aforesaid SCN and specifically raised anobjection with respect to absence of any document or evidence in support of

the said allegation. He states that in the said reply, the Assessee specificallyraised an objection that it had not been provided with any report or materialto substantiate the allegation made in the SCN. With respect to the allegationof earning of fictitious Long Term Capital Gain (‘LTCG’), the Assesseestated that it has never traded in any scrip rigged by Mr. NareshManakchand Jain during the relevant year nor the Assessee has anytransaction with Mr. Naresh Manakchand Jain.

5.Learned counsel for the Petitioner states that the profit i.e. LTCGearned by the Assessee from sale of shares had been duly declared in hisReturn of Income. He states that the sale of shares was made through onlineportal of recognized stock exchange and this transaction was duly recordedin the Assessee’s books of accounts. He further stated that the payment forpurchase and sale was made through bank and the shares were sold throughthe Assessee’s Demat Account and through SEBI registered share broker.

6.Learned counsel for the Petitioner states that in his reply the Assesseehas disputed that he was beneficiary of an accommodation entry in theform of LTCG and no material or document has been provided to theAssessee which would show that the transaction undertaken by Assesseewas non-genuine. The Assessee, in his reply also raised an objection withrespect to limitation.

7.The matter was first listed on 22[nd]September, 2022, when learnedcounsel for respondent, Mr. Kunal Sharma, sought time to obtaininstructions from the concerned AO with respect to the material relied uponin support of the transaction pertaining to the Assessee which led to theissuance of the notice and the matter was thereafter adjourned for today i.e.

07[th]October, 2022. The issue alleged in the present proceedings i.e., ofaccommodation entry provided by Mr. Naresh Manakchand Jain was alsothe subject matter of another writ bearing W.P.(C) No. 11944/2022. In thesaid writ petition, the information received by the Income Tax Departmentfrom Central Circle-2(1), Mumbai through Insight Portal with respect to thesearch and survey action conducted on syndicate lead by Sh. NareshManakchand Jain was relied upon by the Income Tax Department(‘Department’). The list of beneficiaries of accommodation entries from Sh.Naresh Manakchand Jain and his associates, who had been instrumental inmanipulating the prices of several penny stocks scrips on the stock exchangeincluding that of the scrip namely ‘Nyssa Corporation Limited’ was reliedupon in the said proceedings. The Registry was directed to send the e-file ofthe said writ petition for the next date of hearing.

8.Today, learned counsel for respondent, has similarly relied upon thesaid report (a copy of which has been shown to this Court) along with briefnote about the case of Sh. Naresh Manakchand Jain which states searchand survey action was conducted on 19[th]March, 2019, on syndicate ofpersons led by Sh. Naresh Manakchand Jain. The said note further states thatit was discovered that Sh. Naresh Manakchand Jain was operating with hisseveral associates to rig the stock market and to provide accommodationentries inter alia in the form of bogus LTCG to various beneficiaries whointended to bring their unaccounted income into their Books of Accountswithout paying taxes. In this report, the petitioner, Assessee has beenenlisted as beneficiary of LTCG for sum of Rs. 2,58,14,582/- in FY2013-14, at Serial No. 7158, on account of the sale of shares undertaken in

Nyssa Corporation Limited. The details of the penny stocks manipulated bySh. Naresh Manakchand Jain includes Nyssa Corporation Limited.

9.In reply to the aforesaid, learned counsel for the petitioner states thatin the Assessee’s ITR for AY 2014-15, he has duly disclosed that in therelevant assessment year he has sold shares of Nyssa Corporation Limitedand earned LTCG of Rs. 2,54,64,904/-, which was claimed as exemptincome under Section 10(38) of the Act. He states that the Assessee admitsthe said transaction, however he disputes that the aforesaid transaction is anaccommodation entry. He states that in the ITR, the Assessee has dulydisclosed that the said shares were purchased for Rs. 2,50,000/- on 05[th]April, 2011, and were sold on 19[th]November, 2013, for Rs. 2,57,40,720/-thereby earning the petitioner LTCG of Rs. 2,54,64,904/- after accountingfor transfer expenses of Rs. 25,816/-. He disputes that the LTCG earned bythe Assessee was bogus and asserts that it was an arm’s length transactionundertaken on the stock exchange.10.We have perused the paper-book. The impugned order records thatthe AO, after perusing the reply filed by the Assessee, concluded that theAssessee has not provided any documentary evidence such as its DematAccount, Broker’s note, etc along with his reply. The AO further observedthat the transactions have not been reported in the Assessee’s ITR andconcluded that it appears that the Assessee does not wish to explain thedetails of the transactions undertaken in the relevant AY. The AO, thereforerejected the reply of the Assessee and passed its impugned order dated 20[th]July, 2022, under Section 148A(d) of the Act and consequently issued anotice dated 20[th]July, 2022, under Section 148 of the Act.

11.The petitioner, in this petition as well has not placed on record anydocuments evidencing its purchase of the shares on 5[th]April, 2011 i.e.contract note, the Bank Statement and the Demat Account for the relevantperiod. Similarly, the ITR for Assessment Year, 2012-13 declaring the initialpurchase of said shares has also not been placed on record. The AO had alsoobserved to this effect in its impugned order dated 20[th]July, 2022. The ITRfor AY 2014-15 disclosing sale has been placed on record.

12.Further, the respondent’s submissions that Nyssa Corporation Limitedis penny stock, whose price has been manipulated by Mr. NareshManakchand Jain and its associates and that accommodation entries in formof bogus LTCGs has been provided to various beneficiaries including thePetitioner herein and the Petitioner’s contention that the said shares weresold at arm’s length on stock exchange are rival allegations, which cannot beexamined by this Court in the writ jurisdiction.

13.The petitioner sought remand to the AO for reconsideration byrelying upon the order passed in W.P.(C) No. 11944/2022. However, thefacts of the said writ petition are distinguishable, inasmuch as, the Assesseein that case had denied the transaction as well as allegation of being abeneficiary of any LTCG or loss, bogus or otherwise, and therefore, thematter was remanded to AO for re-consideration, however, in the presentcase, the Assessee has admitted to the transaction in respect whereof the AOhas received investigation report. Therefore, no case for remand is made out.

14.The issue of limitation though raised in the reply to the SCN was noturged by the learned counsel for the petitioner. However, as noted above theinitial reassessment notice has been construed as notice under Section

148A(b) in terms of the judgment in Ashish Agarwal (supra) and thereforethe proviso to Section 149 of the Act is not attracted in the facts of this case.

15.In view of the report of DDIT (Inv.) Unit-7(1) and 7(3) Mumbai,shared with the AO which suggests that the LTCG earned by the petitionerin AY 2014-15 was bogus and since, the said LTCG was claimed as exemptincome, the AO at this stage, concluded that the said bogus LTCG is anincome chargeable to tax which has escaped assessment. We therefore in thefacts of this case do not find any ground to interfere with the impugnedorder dated 20[th]July, 2022, passed under Section 148A(d) of the Act and there-assessment proceedings, at this initial stage.

16.The writ petition is dismissed reserving liberty to the petitioner toraise all its contentions before the AO. We however direct the AO to providethe petitioner with all the relevant information pertaining to petitioner’stransaction with Nyssa Corporation Limited available with the AO, afterredacting third party information within four weeks from today.

17.We make it clear that we have not expressed any opinion on themerits of the controversy in the writ petition.

18.With the above directions, the writ petition and the application standdismissed.

MANMEET PRITAM SINGH ARORA, J

MANMOHAN, J

OCTOBER 7, 2022/j