TMI Blog2023 (3) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... tax return of the petitioner, which was before the Assessment Officer, wherein long term capital gain transactions of securities were specifically disclosed. Also in its reply/objections, to the re-opening, the petitioner had in support of its contention made specific references to documents to support the genuineness of the concerned share transactions, some of which are, statements of long term capital gains claimed as exempt under Section 10 (38) of the Act, bills cum contract notes issued by the Bombay Stock Exchange to substantiate that the stock was traded on market, his Demat statements where the delivery of shares was reflected, the confirmation of SEBI that the stock was traded through recognized brokers and the fact that the entire sale consideration was received through regular banking channels. None of these documents were examined by the Assessing Officer while rejecting the objections of the petitioner, leading us to believe that the entire exercise of a re-opening of assessment was purely based upon suspicion in the face of all the material disclosed by the petitioner to the Assessing Officer. We do not find that any information of the petitioner has remained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on 28.12.2017, which was challenged in Appeal before the Commissioner of Income Tax (appeal) on 20.01.2018. The appeal is pending disposal. b) The respondent No.1, then issued a second notice dated 31.03.2021 under Section 148 of the Act, which is impugned in the present petition, in response to which the petitioner filed his return of income and sought reasons recorded by the Revenue for issuing the second notice through reply dated 06.05.2021. The reasons were provided for the second reopening on 09.11.2021 to which the petitioner filed written objections on 30.11.2021. (4) The two main grounds urged to lay a challenge to the issuance of second notice dated 31.03.2021 are that as per reason s recorded for issuance of the impugned notice, the same is stated to be income related to alleged transaction being undisclosed income . The petitioner submits that the transactions referred to in the notice are added twice issuing a notice under Section 148 on incorrect facts is impermissible at law as it is issued without application of mind. (5) The second ground was that the reopening of assessment has been done for the second time without there being a notice on som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oker and syndicate members for providing bogus long term capital gains and loss to the beneficiaries by inflating the share price through doctored transactions made between the syndicate members ; that the petitioner was one of the beneficiaries, who had claimed such long term capital gains exemption and had resorted to suspicious mode of obtaining gains. That based on the information, the Assessment Officer had reason to believe that the income chargeable to tax, of the petitioner to the tune of Rs.1,00,000/- (Rs.One Lakh Only) had escaped assessment by reasons of failure on his part to disclose fully and truly all material facts for the relevant assessment year. (8) To buttress his arguments, the petitioner has relied upon the following judgments ; A) Sheo Nath Singh Vs. Appellate Assistant Commissioner of Income Tax (Central), Calcutta and Ors., 1971 (ITR) 147 (SC), B) Commissioner of Income Tax Vs. Smt. Paramjit Kaur (2009) 311 ITR 38 (P H). C) Rehana Anwar Shaikh Vs. Income Tax Officer, Mumbai and Ors., judgment dated 18.01.2022 in Writ Petition No.1922/2021. D) Ankita A. Choksey Vs. Income-Tax Officer and Ors., (2019) 411 (ITR) 207 (Bom). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as income. This statement also appears to be based on the surmise of the officer that the transaction is of suspicious nature without divulging specific details of the suppression of income that might have been indulged in by the petitioner. (11) The figures claimed by Revenue in the reason for the re-opening are an amount of Rs.12,73,78,478/- (Rs.6,36,89,239/- + Rs.6,36,89,239/-), which is information lifted from the Insight portal alleged to be Fictitious Profit. In reply to this notice the assessee, apart from taking the specific defence that the notice was devoid of disclosure of any fresh tangible material to proceed with re-assessment or that there was any failure on the part of the assessee to disclose fully and truly all material facts on record, has, without prejudice to these contentions, relied upon his return of income for Assessment Year 2013-14, wherein it has in Schedule E-1 disclosed the details of exempt income being long term capital gains from transactions of securities in the amount of Rs.6,40,84,146/-. As compared to this, the value of alleged fictitious transaction was Rs.6,36,89,239/-, though there is no explanation found in the affidavit-in-reply as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led reasons are stated to be beliefs thus leading to an obvious self-contradiction. We are satisfied that the requirements of Section 34 (1-A) were not satisfied and, therefore, the notices which had been issued were wholly illegal and invalid. Thus, reason to believe , suggest that the Income Tax Officer must act on direct or circumstantial evidence and cannot act upon mere suspicion ; if the basis on which he acts while issuing the notice is suspicion, the conditions for issuance of the notice are not satisfied and such a notice would lack the jurisdictional facts required to proceed in the matter. (14) In Commissioner of Income Tax (supra), with Punjab and Harayana High Court, was considering a question of what constitute sufficient material before the Assessment Officer to proceed to re-open and assessment under Section 147 of the Act. Section 147 of the Act defines the power and jurisdiction of the Assessing Officer for making an assessment or reassessment of escaped income. Section 148 of the Act, on the other hand, provides for initiation of the reassessment proceedings with issuance of a notice on the assessee concerned. Section 147 empowers the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -respect of the query raised but as held in Aroni Commercials Limited Vs. Deputy Commissioner of Income Tax- 2(1), once a query is raised during assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and / or discussion to disclose its satisfaction in respect of the query raised. As noted earlier, the very issue of Petitioner entering into transactions, relating to the scrip of Confidence Finance Trading Ltd., was a subject of consideration by the Assessing Officer during the original assessment proceedings. It would, therefore, follow that re-opening of the assessment by the impugned notice is merely on the basis of change of opinion of the Assessing Officer from what held earlier during the course of the assessment proceedings, leading to the assessment order dated 29 January, 2016. This change of opinion does not constitute justification and/ or reason to believe that income chargeable to tax, has escaped assessment. (17) In Ankita A. Choksey (supra), this Court, dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue does not dispute the facts stated by the Petitioner. On the facts as found, there could be no reason for the Assessing Officer to believe that income chargeable to tax has escaped assessment. (18) The judgment holds that re-opening of an assessment can be done only when the Assessing Officer has based his belief that income chargeable to tax has escaped assessment on correct facts after investigating into the information purportedly received by him. Thus, the condition precedent for proceeding for re-assessment would be only if the Assessing Officer has undertaken the exercise of prima facie dealing with the objections raised by the assessee and establishing that the facts stated by the assessee are incorrect. (19) In United Electrical Co. P. Ltd (supra), the Delhi High Court considered the contention of what constitutes information for the purpose at arriving at the believe that income has escaped assessment. While considering this issue it has held as under : In Bawa Abhai Singh v. Dy. CIT (2002) 253 ITR 83 (Del), a Division Bench of this court, speaking through Chief Justice Arijit Pasayat (as his Lordship then was), has said that the crucial express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice issued under Section 148 on the contention that once it is accepted during regular assessment that depreciation or the loss claimed by the assessee was correct, there have to be a strong reasons to believe that income has escaped assessment, which should be a reason for the failure on the part of assessee to disclose all material facts. The ratio laid down in the said judgment reads as under: Reading of the proviso to Section 147 makes it clear that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under Section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the concerned assessment year. However, where an assessment under Sub-section (3) of Section 143 has been made for the relevant assessment year, no action can be taken under Section 147 after the expiry of four years from the end of the relevant ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort count alone the impugned notice is liable to be quashed and set aside. (21) In Commissioner of Income Tax Vs. Kelvinator of India Ltd. (supra), the Supreme Court has held as under: The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was non- application of mind. Had the Additional Director of Income-Tax realized the mistake, he would have declined to make a noting and would have returned the file to the Additional Director of Income-Tax drawing his attention to Section 151 (2) of the Act which did not require any further approval by the Additional Director of Income-Tax where the return originally filed is only processed under Section 143 (1) of the Act. On the contrary, the Additional Director of Income-Tax again recorded his concurrence with the views of the Assessing Officer and the Additional Director of Income-Tax. Therefore, at the second level also plainly there was non-application of mind. Mr. Rahul Chaudhary, the learned Senior Standing Counsel for the Department, sought to characterise this whole exercise as an 'over- application' of mind. According to him, it was out of anxiety that the reopening of the assessment might ultimately be invalidated, that these officers enthusiastically participated in the exercise by treating the return originally filed as having been subjected to scrutiny under Section 143 (3) of the Act. What is evident to the Court is the non-application of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or come to an independent assessment connecting the petitioner to the particular transactions specified in the information. The entire notice proceeds on the basis of suspicion that the petitioner has entered into the fictitious transactions of the script M/s. Confidence Finance Trading Ltd. The Assessing Officer has not even bothered to compare the information furnished by the petitioner in its reply or go through the income tax return of the petitioner, which was before the Assessment Officer, wherein long term capital gain transactions of securities were specifically disclosed. (25) We further note that in its reply/objections, to the re-opening, the petitioner had in support of its contention made specific references to documents to support the genuineness of the concerned share transactions, some of which are, statements of long term capital gains claimed as exempt under Section 10 (38) of the Act, bills cum contract notes issued by the Bombay Stock Exchange to substantiate that the stock was traded on market, his Demat statements where the delivery of shares was reflected, the confirmation of SEBI that the stock was traded through recognized brokers and the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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