2022 (1) TMI 374 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - undisclosed short term capital gains - petitioner had not offered to tax the short term capital gains on scrip named Vikas Wsp Ltd. Admittedly, it was offered only after petitioner received the notice under Section 148HELD THAT - Even if, we hold that the reasons are not very happily worded, still the fact that petitioner after almost 6 years and after receiving the notice under Section 148 filed return showing upward revision, itself would mean that the Assessing Officer would be entitled to reopen the assessment. Though, we would agree with Mr. Jain that reopening of the assessment is not permitted for fishing or roving inquiry or for verification purpose, still the fact that petitioner has filed returns in response to the notice under Section 148 of the Act and disclosing therein that short term capital gains earned in F. Y.- 2011-2012 was not offered to tax, would itself entitle the Assessing Officer to issue notice under Section 142(1) of the Act calling for further details. If we interfere, the Revenue may suffer. In the circumstances, we do not wish to exercise our jurisdiction under Article 226 of the Constitution of India. Petitioner may adopt the alternate remedy that is available under the provisions of the Act.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act 1961 and subsequent order disposing objections.

Analysis:
The petitioner challenged a notice dated 25th March 2019 issued under Section 148 of the Income Tax Act 1961 and the subsequent order dated 27th August 2019 disposing of the objections to the notice. The notice was based on the allegation that the petitioner traded in a penny stock scrip during the financial year 2011-2012, which was not declared for taxation. The Assessing Officer contended that the petitioner's total income was underreported, leading to the reopening of assessment. The petitioner raised objections to the reasons provided for reopening, arguing that there was a lack of application of mind by the Assessing Officer and the sanctioning authority. Additionally, the petitioner relied on a Gujarat High Court judgment to support the argument that reopening for verification purposes is impermissible.

Mr. Jain, representing the petitioner, contended that the reopening of assessment for verification is not allowed and referred to a specific judgment to support this argument. On the other hand, Mr. Walve, representing the Revenue, opposed the petition, stating that the court should not intervene and highlighted that the petitioner revised their income only after receiving the notice under Section 148. Mr. Walve also cited an explanation to Section 147 to justify the reassessment based on issues that were not part of the original reasons recorded.

The court considered the arguments presented by both parties and examined the facts of the case. It was noted that the petitioner did not declare the short-term capital gains on a specific scrip until after receiving the notice under Section 148. Despite acknowledging potential issues with the wording of the reasons provided for reopening, the court held that the petitioner's subsequent upward revision of income after almost six years justified the Assessing Officer's decision to reopen the assessment. The court agreed that reopening for fishing or roving inquiry is not permissible but concluded that the petitioner's actions warranted further investigation by the Assessing Officer. Therefore, the court declined to interfere, allowing the Revenue to proceed with the assessment process.

In conclusion, the court dismissed the petition, advising the petitioner to pursue alternative remedies available under the Income Tax Act and preserving the petitioner's rights to raise contentions before the Assessing Officer.