2019 (9) TMI 197 - HC - Income Tax

Reopening of assessment u/s 147 - assessee has booked a paper transactions and delivery of commodities in her case has not taken place and the same is to be disallowed - case was not selected for scrutiny, it is therefore, necessary to verify the transactions with respect to the information received as there is an escapement of income of more than 1 lakh as the transactions do not correspond to the return that if filed - HELD THAT - From the reasons recorded for reopening the assessment, it is clear that the A.O. wish to verify the transaction with respect to the information received by the department. It is well settled through serious of judgements of this Court that re-assessment even if in case where return was not scrutinized before the income chargeable to tax has escaped before acceptance originally cannot restore unless the A.O. has reason to believe that the income chargeable to tax has escaped. In other-words, for mere verification or for fishing inquiry, reopening of assessment is not permissible.

Summary

Issues:
Challenging impugned notice for reopening assessment for A.Y. 2011-12 and order disposing objections raised against reopening.

Analysis:
The petitioner challenged the notice dated 29/3/2018 for reopening assessment for A.Y. 2011-12 under Article 227 of the Constitution of India. The reasons for reopening were based on irregularities found by National Stock Exchange Ltd. in the business of M/s.Javerilal Oswal Commodities (P) Ltd. and other related entities. The petitioner contended that the transactions were genuine and the income was duly reflected in the balance sheet. The objections raised against the notice were rejected, leading to the present petition.

The petitioner argued that the reopening was based on the ground that the broker had squared up the transaction, but the amount was still receivable. Reference was made to a decision of the Bombay High Court in a similar case. On the other hand, the revenue contended that the reopening was based on information from the DGIT (Investigation) regarding irregularities at the National Stock Exchange Limited, leading to search and survey actions. The revenue maintained that the transactions were paper transactions without actual delivery of commodities, justifying the reopening.

The Court analyzed the reasons recorded for reopening and emphasized that mere verification or fishing inquiry is not permissible for reopening an assessment. Citing the Bombay High Court's decision, it highlighted the importance of tangible material forming the basis for a reason to believe that income has escaped assessment. The Court concluded that the reasons provided did not establish a rational connection to the belief of income escapement, indicating a fishing inquiry rather than a valid reason.

In light of the arguments and legal principles, the Court allowed the petition, quashing the impugned notice for reopening assessment for A.Y. 2011-12 and the order disposing of objections. The Court found the notice to be bad and illegal, lacking a valid basis for reopening the assessment.