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2015 (12) TMI 305 - HC - Income TaxReopening of assessment - genuineness of the loss in respect of shares held as stock-in-trade is perverse and accordingly cannot be sustained - Held that:- Interestingly nearly two years prior to the issuance of the notice, the AO had issued a notice on 26th March 2000 under Section 148 of the Act for re-opening of the assessment for AY 1996-97 on account of unexplained credits from two firms but that ended in an order of re-assessment dated 27th March 2002 referring to the unexplained share loss. Therefore, when the AO issued the notice on 26th March 2002 under Section 148 proposing to reopen the assessment for 1995-96, there was no fresh material to enable him to form reasons to believe that income on account of share loss had escaped assessment. Importantly, despite the fact that the reopening was sought to be made after the expiry of four years after the end of the AY 1995-96, no mention was made by the AO of the failure by the Assessee to make a full and true disclosure of all material facts in the original assessment. This is significant in the context of the AO noting in the original order of assessment under Section 143(3) of the Act, passed by the AO on 10th July 1997, that the Assessee had produced the books of accounts which had been checked by the AO. The AO also noted that the Assessee was dealing in shares and securities. The fact that Mr. R.R. Modi, the Director of the Assessee was also the person who floated PPL, could not by itself have constituted 'tangible material' for forming 'reasons to believe' when viewed in the context of the fact that the value of the closing stock of shares had been computed on the basis of the quotation in the Gauhati Stock Exchange which was at ₹ 2 per share. Further, both the CIT (A) and the ITAT have concurrently found as a fact that the Assessee had consistently followed the said method of valuation of shares at cost or at market price whichever is lower and that this method had been accepted by the Revenue for the earlier AYs. Clearly, therefore, the legal requirement that "the reason to believe must be predicated on tangible material or information" and that "the belief must be rational and bear a direct nexus to the material on which such a belief is based" was not fulfilled in the present case. - Decided in favour of assessee.
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