2025 (7) TMI 1230 - AT - Income Tax

Reopening of assessment u/s 147 - notice beyond a period of 4 years from the end of the relevant assessment year - original assessment was completed u/s 143(3) read with section 153A - disallowance of capital gain u/s 10(38) and unexplained expenditure u/s 69C - HELD THAT - We find in the case of Chanchal Bhagwatilal Gokhru vs. Union of India 2023 (5) TMI 280 - BOMBAY HIGH COURT has held that where addition based on penny stock transaction had already been considered while making scrutiny assessment u/s 143(3) notice for reopening under section 148 for same transaction could not be issued as there was no fresh tangible material AO in the order passed u/s 143(3)/153A has allowed the claim of expenditure u/s 10(38) on account of profit from sale of shares of the alleged penny stock company after considering the reply in response to the queries raised him therefore in absence of any fresh tangible material we hold that the re-assessment proceedings initiated for the same transaction are not in accordance with law. In this view of the matter and in view of the detailed reasoning given by the Ld. CIT(A) and in the light of the various decisions cited (supra) we do not find any infirmity in the order of the CIT(A). Accordingly we uphold the same and the grounds raised by the Revenue are dismissed.

Summary

ISSUES:

Whether the notice issued under section 148 of the Income Tax Act, 1961 (the Act) for reopening assessment beyond four years is valid in absence of fresh tangible material and where original assessment under section 143(3) read with section 153A was completed.Whether the Assessing Officer applied independent mind and recorded valid reasons to believe that income chargeable to tax had escaped assessment justifying reopening under section 147 of the Act.Whether long term capital gains (LTCG) claimed as exempt under section 10(38) of the Act on sale of shares of a penny stock company can be disallowed and added as unexplained income under section 68 or unexplained expenditure under section 69C without sufficient material.Whether reopening assessment on the basis of information from the Investigation Wing without verifying facts and applying mind amounts to change of opinion and is impermissible.Whether the assessee's claim of exemption under section 10(38) is sustainable where shares were held in demat account, transactions routed through banking channels, and no adverse material was found against the assessee in investigation reports.

RULINGS / HOLDINGS:

The notice issued under section 148 of the Act beyond four years from the end of the relevant assessment year is held to be invalid and bad in law where no fresh tangible material is available and the original assessment under section 143(3) r.w.s. 153A was completed by considering the same transaction. The reopening notice was quashed accordingly.The Assessing Officer failed to apply independent mind to the information received from the Investigation Wing and merely accepted the report without examining the facts in context, thus the reasons recorded for reopening do not satisfy the statutory requirement of "reason to believe" that income has escaped assessment.The disallowance of LTCG claimed exempt under section 10(38) and additions under sections 68 and 69C based on suspicion and information from brokers' statements without naming the assessee or producing tangible material is not sustainable.Reopening assessment on the same material already considered in original assessment amounts to impermissible change of opinion, and is therefore invalid as per settled judicial principles.The exemption under section 10(38) is upheld where shares were purchased through account payee cheques, held in demat account for requisite period, sales routed through recognized stock exchange and banking channels, and no adverse findings were recorded against the assessee in investigation reports.

RATIONALE:

The Court applied the statutory provisions of sections 143(3), 147, 148, 153A, 10(38), 68, and 69C of the Income Tax Act, 1961, along with the requirement of "reason to believe" for reopening assessments beyond four years as per proviso to section 147.The Court relied on precedent judgments emphasizing that reopening must be based on fresh tangible material and independent application of mind by the Assessing Officer, not mere change of opinion or reliance on third-party information without verification.The Court noted that the original assessment under section 143(3) r.w.s. 153A had duly considered the transactions and allowed exemption under section 10(38), and reopening on the same facts without new material is impermissible.The Court referred to authoritative rulings including the jurisdictional High Court decisions which held that notices issued without proper satisfaction and on incorrect facts (such as non-existence of the alleged penny stock company during relevant year) are invalid.The Court acknowledged that suspicion based on price fluctuations or alleged modus operandi of penny stock companies is insufficient without corroborative tangible evidence implicating the assessee.The Court also considered the legal principle that search-based assessments stand on a higher footing and that reopening on same material post search assessment is generally impermissible.There was no dissenting opinion recorded.