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TMI Blog2023 (9) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. A.O. in issuing the notice dated 31.03.2019 to reopen the assessment of the Appellant completed under section 143(3) of the Act vide order dated 25.03.2015 without appreciating the facts and circumstances of the case. Hence, the impugned order passed under section 250 of the Act is bad in law and the same may be. quashed. ii. The Ld. CIT(A) failed to appreciate that the Ld. A.O. has issued the impugned notice merely relying on the information received from the information wing without making any further independent inquiry. Thus, no income has escaped assessment due to failure on the part of the Appellant to disclose fully and truly all material facts necessary for completion of her assessment. Hence, impugned notice issued under section 148 of the Act as well as the reassessment order dated 19.12.2019 is void ab initio. Hence, the impugned order passed under section 250 of the Act is bad in law and the same may be quashed 3. Addition by treating the long term capital gain as unexplained cash credit under section 68 of the Act unjustified - Rs. 2,01,925/- i. The Ld. CIT(A) erred in upholding the action of Ld. A.O. in making addition of Rs. 2,01,925/- treating the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for reopening of the assessment was provided to the assessee. The assessee has filed the objections vide letter dated 13.05.2019 and objections were disposed off. 3. Whereas in respect of the transactions of sale of share of M/s Scan Steels Ltd., earlier known as M/s Clarus Finance and Securities, the assessee has furnished the details supporting transactions with the brokers bill, contract notes and statement of holding etc. Whereas the AO found that the assessee has sold 500 shares of M/s Clarus Finance and Securities on 19.07.2011 for Rs. 98,950/- and 500 shares for Rs. 1,01,875/- on 21.07.2021 were the total sale value is aggregated to Rs. 2,00,825/- and the assessee has claimed the exemption of Long Term Capital gains of Rs. 1.94.315/-. The AO has dealt on the facts of the transactions, where the assessee has purchased the shares of M/s Clarus Finance and Securities Ltd for Rs. 7,610/- and is of the opinion that the transactions are not duly supported with the evidences by the assessee and the A,O was not satisfied with the explanations and made an addition of Rs. 2,01,925/- as unexplained cash credit u/sec 68 of the Act and assessed the total income of Rs. 5,74,900/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The Assessee has complied with the scrutiny guidelines in submitting the information and the A.O. has passed the order u/s 143(3) of the Act on 23.03.2015. At this juncture, it is appropriate to refer to the provisions of Sec. 147 of the Act and the first proviso which is read as under: "147. If the[Assessing] Officer[has reason to believe] that any income chargeable to tax has escaped assessment91 for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess91 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 proceedings91 under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various persons were recorded in the course of the search action. In his statement Shri Naresh Jain stated that during the assessment year 2012-13, he had used scrips of seven entities to provide bogus entries which included the scrip of M/s. Scan Steels Ltd.. Further, information revealed that the Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014/-. Therefore, Respondent No. 2 stated that he had reasons to believe that this income had escaped assessment within the meaning of section 147 of the Act. 20. Thus what is discernible is that the main ground on which assessment is sought to be re-opened is that Petitioner had traded in the shares of Scan Steels Ltd., and was in receipt of Rs. 23,98,014/-, which the Petitioner failed to disclose fully and truly before the Assessing Officer and which Respondent No. 2 believed had escaped assessment. 21. Before adverting to the initial assessment order passed under section 143(3) of the Act dated 28-3-2015, it would be apposite to advert to the averments made by the Respondents in the affidavit in reply, more particularly the reasons given to justify re-opening of the assessment. In para 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uce the following documents :- "1. Reasonably detailed note on the nature of business including details of addresses, phone number of all premises - Office, Branch, Godown, Workshop etc.. 2. Complete set of audited accounts, Tax Audit Report u/s. 44AB with all schedules, computation of income and income tax and hard copies of returns. 3. Any other details and/or documents for the purpose of assessment." 24.1 By another notice of even date, Petitioner was informed by the Assessing Officer that there were certain points in connection with the return of income submitted by the Petitioner about which he would like some further information. Accordingly, Petitioner was asked to appear before the Assessing Officer and to produce any documents, accounts and any other evidence on which it relied upon in support of the return filed. 25. On 10-6-2014 Assessing Officer issued another notice under section 142(1) of the Act, calling upon the Petitioner to submit the particulars mentioned therein including the details regarding increased authorized share capital with the list of the shareholders and details of purchase of equity shares of Rs. 7,04,92,390.44 with details of payment. Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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 of the Act. 28.1 The first proviso to section 147 is important. As per this proviso, where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 28.2 Section 149 deals with time limit for notice under section 148. As per clause (a) of sub-section (1), no notice under section 148 shall be issued for the relevant assessment year, if four years have elapsed from the end of the relevant assessment year unless the case falls under clause (b) or clause (c). Clause (b) say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o filed would be construed to be a return filed under section 139. As per sub-section (2) of the said section, the Assessing Officer shall before issuing any notice under section 148, record his reasons for doing so. 31.2 In GKN Driveshafts (India) Ltd. (supra), Supreme Court held that when a notice under section 148 of the Act is issued, the proper course of action for the assessee is to file the return and if he so desires, to seek the reasons for issuing the notice. If sought for, Assessing Officer is bound to furnish the reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to the notice in which event the Assessing Officer would be under an obligation to dispose of the same by passing a speaking order. 32. Reverting back to the two expressions as noticed above, we may mention that these two expressions were examined and interpreted in great detail by the Supreme Court in Income-tax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437. That was also a case where notice under section 148 of the Act was put to challenge. Though provisions of section 147 of the Act as it existed then have since been reconstructed and have undergone cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to issue notice. However, sufficiency of the grounds is not justiceable. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Incometax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant. To this limited extent, initiation of proceedings in respect of income escaping assessment is open to challenge in a court of law. 32.3 Dilating further, Supreme Court held that reasons for formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. But it has to be borne in mind that it is not any and every material ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that he had reasons to believe that this amount had escaped assessment within the meaning of section 147 of the Act. 36. First of all it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where-after the Assessing Officer had concluded the assessment proceedings by passing assessment order under section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings. 37. In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent No. 2 could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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