TMI Blog2023 (9) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... is bad in law and quash the assessment order passed u/s 143(3) r.w.s 147 of the Act. Grounds of appeal are allowed in favour of the assessee. - Shri Pavan Kumar Gadale, Judicial Member For the Assessee : Shri. Jitendra Singh. AR For the Revenue : Shri. Abhishek Kumar Singh, DR ORDER PER PAVAN KUMAR GADALE - JM: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 of the Act. The assessee has raised the following grounds of appeal: 1. The Ld. National Faceless Appeal Centre (NFAC) Delhi [hereinafter referred to as the Ld. CIT(A) ] erred in passing the order dated 25.01.2023 upholding the action of the Ld. Income Tax Officer - 23(2)(6), Mumbai [hereinafter referred to as 'Ld. A.O.'] in determining the total income of the Appellant at Rs. 5,74,900/- as against returned income of Rs. 3,72,978/- without appreciating the facts and circumstances of the case. Thus, the order dated 25.01.2023 passed by Ld. CIT(A) is bad in law and the same may be quashed. 2. Reopening of assessment is bad in law i. The Ld. CIT(A) erred in upholding the action of the Ld. A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est under section 234B and 234C of the Act. Hence, the same are not leviable. 5 The Appellant craves leave to add, alter, amend, delete, rescind or withdraw any of the grounds of appeal mentioned hereinabove 2. The brief facts of the case are that, the assessee is engaged in the business and has filed the return of income for the A.Y 2012-13 on 18.07.2012 disclosing a total income of Rs. 3,72,978/- and the return of income was processed u/s143(1) of the Act and the asseseement was completed u/s 143(3) of the Act with the assessed the total income of Rs. 4,58,640/-.Subsequently, the Assessing Officer(AO) has received the information from JDIT (Inv), Mumbai that the assessee has dealt in shares of Scan Steels Ltd and the scrip has been used to facilitate the Long term capital gains claimed as exempt or short term capital loss and the assessee is one of the beneficiary. Therefore the AO has reason to believe that the income has escaped assessment and has issued notice u/s 148 of the Act. In response to notice, the assessee has filed the return of income on 18.04.2019 disclosing a total income of Rs. 3,72,978/-, subsequently notice u/s 143(2) and 142(1) of the Act are issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Heard the rival submissions and perused the material on record. The sole grievance of the assessee as envisaged by the Ld. AR on the validity of issue of notice u/s 148 of the Act and the assessee sold the shares in the recognized stock exchange subjected to payment of STT, which were acquired in the earlier years through banking channel and complied the criteria for claiming exemption of Long Term Capital Gains. The Ld. AR emphasized that in the assessment proceedings U/sec143(3) of the Act, the assessee has disclosed fully all material facts with the evidence on the shares transactions. The Ld. AR submitted that the A.O has issued the notice on the same set of information which was available on record in the original assessment and no material was available to make reassessment and it is only a mere change of opinion. The Ld. AR has demonstrated the reasons recorded for the reopening of assessment at page 29 to 31 of the paper book. Further the original assessment was completed u/s 143(3) of the Act and the assessee has produced all the material information and the A.O. has duly verified the information as per the observations at page 1 para 4 of the A.O. order, which cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt investigation by the A.O. The assessee in the present reassessment proceedings has submitted letter dated 11-12-2019 placed at page 48 49 of the paper book. On the validity of issue of notice on the same share scrip, the Hon ble Jurisdictional High Court in writ petition No. 2518 of 2019 Gateway leasing Pvt Ltd Vs. ACIT for the A.Y 2012-13 dated 11-03-2020 (426 ITR 228(Bombay)) has granted relief to the assessee and has observed at Para 19 to 40 of the order read as under: 19. From the above, it is seen that according to Respondent No. 2 information was received from the Investigation Wing about search and seizure action carried out in the premises of Shri Naresh Jain on 19-3-2019 which concluded on 21-3-2019. The search action revealed that a syndicate of persons were acting in collusion and had managed transactions in the stock exchange, thereby generating bogus long-term capital gains, bogus short term capital gains and bogus business loss entries for various beneficiaries. The search action unravelled the workings of the syndicate and brought on record the make believe nature of paper work that is manufactured in order to show the arranged transactions as legitimate mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that though the Petitioner had furnished details relating to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.), but that did not amount to full and true disclosure of all material facts unless true and real facts are disclosed before the Assessing Officer. Assessing Officer had not discussed in the assessment order about the genuineness or camouflage nature of the transactions of purchase and sale of shares of Mittal Securities Ltd. by the Petitioner. 23. From the above, it is seen that what Respondent No. 2 contends is that though Petitioner had disclosed details of the transactions pertaining to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.), Petitioner did not disclose the real colour/true character of such transactions and therefore, he did not make a full and true disclosure of all material facts which was also overlooked by the Assessing Officer. 24. Reverting back to the original assessment proceeding, we find from the materials on record that after the Petitioner had filed the initial return of income on 20-9-2012, Assessing Officer had issued notice to the Petitioner under section 142(1) of the Act date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 94(7) did not arise. Petitioner did not make any investment nor was there any inventory of shares; no dividend was earned during the year. Alongwith the said letter relevant documentary evidence in respect of the concerned transactions were enclosed. 26. Thereafter, assessment order was passed on 28-3-2015, wherein Assessing Officer had noted that during the course of scrutiny details of income, expenditure, assets and liabilities were called for, examined and placed on record. After perusing all details and after examination of those and upon discussion, total income was computed in terms of the return filed by the Petitioner. As already noted above, the assessment order was passed under section 143(3) of the Act. It was mentioned therein that representative of the Petitioner had attended the assessment proceedings from time to time and had filed details with explanations. 27. At this stage, we may briefly refer to the relevant legal provisions. 28. Section 147 of the Act deals with income escaping assessment . Section 147 says that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for the relevant assessment year. The second condition is that the Assessing Officer must arrive at the satisfaction that income chargeable to tax has escaped assessment for the said assessment year by reason of the failure on the part of the assessee to make a return under section 139 or to respond to a notice under section 142(1) or section 148 or due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. 31. The key or crucial expressions appearing in section 147 are reason to believe and failure to disclose fully and truly all material facts necessary for assessment . 31.1 Before dilating on these two expressions, it would be apposite to refer to section 148 of the Act, which deals with issue of notice where income has escaped assessment. As per subsection (1), before making the assessment, re-assessment or recomputation under section 147, a notice in the prescribed form is required to be served upon the assessee by the Assessing Officer, calling upon him to file return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is cast upon the assessee to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer the books of account or other evidence from which material evidence with due diligence could have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law but the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. If the Incometax Officer draws an inference, which appears subsequently to be erroneous, it would amount to change of opinion and mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment. 32.2 The grounds or reasons which led to formation of the belief that income chargeable to tax has escaped assessment must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exists reasonable grounds f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year before he proceeds to issue notice under section 148. The reasons which are recorded by the Assessing Officer for re-opening an assessment are the only reasons which can be considered when the formation of the belief is impugned. Recording of reasons distinguishes an objective from a subjective exercise of power and is a check against arbitrary exercise of power. The reasons which are recorded cannot be supplemented subsequently by affidavits. The question as to whether there was reason to believe within the meaning of section 147 that income has escaped assessment must be determined with reference to the reasons recorded by the Assessing Officer. Even in a case where only an intimation is issued under section 143(1), the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment. 35. Having discussed the above, we may once again revert back to the reasons furnished by Respondent No. 2 for re-opening of assessment under section 147 of the Act. After referring to the information received following search and seizure action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had ..... 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