2019 (1) TMI 119 - HC - Income Tax

Unexplained credit u/s 68 - reopening of assessment - held that - The listed equity shares have been credited to his demat account on the day of the purchase itself. It was submitted that, therefore, the Assessing Officer has sought to reopen the assessment on a completely wrong factual premise by solely and mechanically relying upon the information received from other sources without forming any independent opinion that income chargeable to tax has escaped assessment and, therefore, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act by issuing the impugned notice is without authority of law. As further submitted that in the reasons recorded, the Assessing Officer has stated that in this case the assessee has not filed any return of income for the year under consideration, which is factually incorrect as the petitioner had duly filed the return of income, a copy whereof has been annexed as Annexure-A to the petition. Having regard to the submissions advanced by the learned advocate for the petitioner, Issue Notice returnable on 5th February, 2019. By way of ad-interim relief, the respondent is permitted to proceed further pursuant to the impugned notice; he, however, shall not pass the final order without the permission of this court

Summary

Issues:
1. Reopening of assessment for assessment year 2011-12 based on alleged sham transaction to convert unaccounted money into accounted money.
2. Consideration of amount received on account of transaction in the scrip "Global Capital Markets Limited" as unexplained credit under section 68 of the Income Tax Act, 1961.
3. Incorrect information in reasons recorded by Assessing Officer regarding the amount received by the assessee and filing of return of income for the year under consideration.

Analysis:
1. The petitioner's advocate highlighted that the assessment for the year 2011-12 was being reopened due to an alleged sham transaction aimed at converting unaccounted money into accounted money through capital gains. The petitioner received an amount of ?9,52,525 on account of a transaction in the scrip "Global Capital Markets Limited," which the Assessing Officer considered as unexplained credit under section 68 of the Income Tax Act, 1961. The petitioner argued that the information used by the Assessing Officer was based on the acquisition of shares of penny stock companies at low prices through preferential allotment or off-market transactions, with a lock-in period of one year as per SEBI regulations.

2. The advocate further pointed out discrepancies in the assessment, stating that the actual amount received was ?9,50,625, not ?9,52,525 as mentioned. Additionally, the shares in question were acquired in 2002-03 and sold in 2010, exceeding the six-year holding period. The shares were listed on the Bombay Stock Exchange, purchased from a recognized stockbroker, and payment was made through a demand draft. The shares were credited to the demat account on the purchase day. The petitioner argued that the Assessing Officer's decision to reopen the assessment was based on incorrect factual premises and solely relied on external information without forming an independent opinion on tax evasion, questioning the jurisdiction under section 147 of the Act.

3. The advocate also highlighted inaccuracies in the reasons recorded by the Assessing Officer, stating that the petitioner had indeed filed the return of income for the year under consideration, contrary to the officer's assertion. Considering the submissions made by the petitioner's advocate, the court issued a notice returnable on 5th February 2019. The respondent was allowed to proceed further based on the notice but was restricted from passing a final order without the court's permission, with direct service permitted for communication.