2018 (11) TMI 139 - HC - Income Tax

Re-opening of assessment - information received from the departmental channels - assessee company as found to be indulging in providing bogus claim of long term and short term capital gain - Held that - Perusal of the reasons recorded by the AO would suggest that the petitioner had shown to sold scrip of one TURBO TECH Company for a sale consideration of ₹ 1.33 crores rounded off and claimed exemption long term capital gain thereon. The information was received from the departmental channels that the sale pertains to 31750 shares of TURBO TECH, the Kolkatta Investigation Wing had investigated several companies including TURBO TECH. During the course of investigation it was found that the TURBO TECH was not engaged in any substantial activity. The financials of the company were poor, funds raised were not used for any business purposes. It was also found that there was preferential allotment of shares in a pre-arranged manner managed to allot such shares to beneficiaries of bogus long term capital gains claimants. The prices of the shares were rigged on the stock exchange through manipulation. The shares of the company were basically used for providing bogus claim of long term or short term capital gain. It was found that the assessee had thus sold penny stocks which were valued at ₹ 1.33 crores and thereby claimed wrong exempt capital gain. The return filed by the assessee were accepted without scrutiny. Since there was no scrutiny assessment, the AO had no occasion to firm any opinion on any of the issue arising out of the return filed by assessee. The concept of change of opinion would therefore no application. It is equally well settled that at the stage of re-opening of the assessment, the court would not minutely examine the possible additions which AO wishes to make. The scrutiny at that stage would be limited to examine whether the AO had formed a valid belief on the basis of the material available with him that income chargeable to tax had escaped assessment. In the present case the Assessing Officer has heard the material on record which would prima facie suggest that the assessee had sold number of shares of a company which was found to be indulging in providing bogus claim of long term and short term capital gain. The company was prima facie found to be a shell company. The assessee had claimed exempt of long term capital gain of ₹ 1.33 crores by way of sale of share of such company. Principal Commissioner of Income Tax, Rajkot-3 v. Gokul Ceramics 2016 (7) TMI 214 - GUJARAT HIGH COURT , the Division Bench had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department - Decided against assessee.

Summary

Issues:
Challenge to notice of re-opening of assessment for Assessment Year 2013-2014.

Analysis:
The petitioner, an individual, challenged a notice of re-opening of assessment for the Assessment Year 2013-2014. The Assessing Officer issued the impugned notice based on information received regarding the petitioner's sale of shares of a company named TURBO TECH, resulting in exempt capital gain. The investigation revealed that TURBO TECH was not engaged in substantial activity, and its shares were manipulated for bogus capital gain claims. The petitioner objected to the notice, claiming lack of material for income assessment evasion. The petitioner argued that the Assessing Officer relied on external information without conducting an independent inquiry, leading to a fishing inquiry. However, the court found that the Assessing Officer had valid reasons to believe income evasion based on the material available. The court cited precedents emphasizing that the Assessing Officer's belief of income escapement does not require conclusive evidence at the initiation stage.

The court noted that since the petitioner's return was accepted without scrutiny, the Assessing Officer had not formed any opinion on the income issues. The court clarified that the concept of change of opinion does not apply during re-opening assessments. It was established that the Assessing Officer had valid reasons to believe that income had escaped assessment due to the petitioner's sale of shares in a suspicious company. The court referenced a judgment highlighting that the Assessing Officer's belief at the initiation stage does not require conclusive proof of income evasion. Additionally, the court referred to a case where the Assessing Officer's reliance on external material for re-opening assessment was deemed valid, emphasizing the importance of forming a genuine belief of income escapement. Ultimately, the court dismissed the petition challenging the notice of re-opening of assessment for the Assessment Year 2013-2014.