2015 (12) TMI 1502 - AT - Income Tax

Validity of reopening of the case u/s 147 - AO treating the amount received on sale of shares which was claimed as Long-term-capital-gain, as income from other sources along with the commission paid for obtaining the alleged fictitious LTCG @ 0.15% - Held that - From the analysis of the reasons recorded, it is evident that there is no specific information that the shares of N.E. Electronics Company purchased through M/s Goldstar Finvest Pvt Ltd. In April 2001 and sold through M/s Mahasagar Securities Pvt Ltd in June 2003 was a bogus transaction or was an accommodation entry. If the AO has received certain information from investigation wing then, it was incumbent upon him to apply his mind and peruse the assessee s assessment record to see, whether the transactions undertaken by the assessee is also sham transaction or was only a accommodation entry taken from these companies of Mukesh Chokshi and there is any failure on the part of the assessee to disclose all material facts relating to such transaction.. More so, in this case the assessment sought to be reopened was beyond the period of 4 years. The reason to believe entertained by the AO in such cases should be such that, whether there is any failure on the part of the assessee to disclose truly or full all material facts because that is a point of jurisdiction which AO has to acquire to reopen the competed assessment u/s 143(3). The information received from the Investigation wing was that assessee had also transacted with the said companies, i.e., it was also one of the beneficiary appearing in the list forwarded by the DDI(IT). There is no specific mention that, whether the particular transaction undertaken by the assessee of N.E. Electronics Pvt Ltd was a bogus transaction. From the perusal of the statement recorded of Shri Mukesh Chokshi it is evident that there is no mention or whisper about the assessee has taken accommodation entry to the assessee. The other most important fact here is that, the AO has not uttered a word about failure on the part of the assessee for disclosing the true and correct material facts. Such ascribing of failure of the assessee in the reasons recorded itself is mandatory, because from the reasons alone, it can be gathered whether there was any failure on the part of the assessee or not so as to acquire jurisdiction for reopening the case beyond the period of 4 years. There is not an iota of allegation of failure on the part of the assessee to disclose material facts. Thus, without there being any failure on the part of the assessee, the reopening of the assessment u/s 147 beyond a period of 4 years is not permissible in the present case, as the assessee had completely disclosed all these material facts which has also been subjected to the scrutiny. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Treatment of income from the sale of shares as Long-Term Capital Gain (LTCG) versus income from undisclosed sources under Section 68.
3. Allowance of deduction under Section 54EC.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The assessee challenged the reopening of the assessment on two grounds:
- The original assessment was completed under Section 143(3) after detailed scrutiny, and there was no tangible material to justify reopening, thus amounting to a "change of opinion."
- The reopening was done after the expiry of four years from the end of the relevant assessment year, making it barred by limitation under the Proviso to Section 147.

The Tribunal examined the facts and found that the assessee had disclosed all material facts regarding the purchase and sale of shares during the original assessment proceedings. The AO had accepted the LTCG claim after detailed scrutiny. The reopening was based on general information from the Investigation Wing regarding bogus transactions by certain companies, but there was no specific information that the assessee's transactions were bogus. The Tribunal held that the reopening was not justified as there was no failure on the part of the assessee to disclose material facts fully and truly. Consequently, the reopening beyond the period of four years was quashed.

2. Treatment of Income from Sale of Shares:
The revenue contended that the transaction of purchase and sale of shares through M/s Mahasagar Securities Pvt Ltd and M/s Goldstar Finvest Pvt Ltd was dubious and should be treated as income from undisclosed sources under Section 68. The CIT(A) had treated the transaction as genuine and directed the AO to treat the resultant gain as LTCG.

The Tribunal noted that the assessee had provided all necessary documents, including contract notes, purchase bills, dematerialization forms, and bank statements, to substantiate the genuineness of the transactions during the original assessment. The AO had accepted these documents and allowed the LTCG claim. The Tribunal upheld the CIT(A)'s decision, affirming that the transactions were genuine and the gains should be treated as LTCG.

3. Allowance of Deduction under Section 54EC:
The revenue also challenged the allowance of deduction under Section 54EC. The CIT(A) had allowed the deduction, which was contested by the revenue on the grounds that the income should be treated as undisclosed sources and not as LTCG.

The Tribunal found that since the transaction was genuine and the gains were correctly treated as LTCG, the deduction under Section 54EC was rightly allowed by the CIT(A). The Tribunal dismissed the revenue's appeal on this ground as well.

Conclusion:
The Tribunal quashed the reopening of the assessment under Section 147 as it was beyond the period of four years and based on a change of opinion without any new tangible material. The income from the sale of shares was correctly treated as LTCG, and the deduction under Section 54EC was rightly allowed. The revenue's appeals were dismissed, and the assessee's cross-objections were allowed.