2022 (4) TMI 1396 - HC - Income Tax

Reopening of assessment u/s 147 - proceedings after the expiry of four years from the end of the relevant assessment year - Eligibility of reasons to believe - HELD THAT - As noted the reasons recorded admit that Petitioner had disclosed that it had traded in the shares of Finalysis. To a query raised under Section 142(1), Petitioner has also admitted that it has traded in Finalysis and even provided documents thereto. The issue of capital gains from shares which included the shares of Finalysis was under active consideration before the Assessing Officer. That would also show there was no failure to disclose. Therefore, it cannot be stated that Respondents have crossed the threshold or the fetter provided for in the proviso to Section 147 of the Act that re-opening after the expiry of four years is permissible only when there is failure to truly and fully disclosed material facts.

Summary

Issues:
1. Reopening of assessment after four years from the end of the relevant assessment year.
2. Failure to disclose material facts by the assessee.
3. Allegations of income escapement due to trading in shares of a penny stock company.
4. Compliance with Section 147 of the Income Tax Act, 1961.

Issue 1: Reopening of assessment after four years
The petitioner, an individual assessed to tax, filed a return of income for A.Y. 2013-2014 and later received a notice under Section 142(1) of the Act. Subsequently, after over four years, the petitioner received a notice under Section 148 alleging income escapement for the same assessment year. The court noted that the assessment order had already been passed under Section 153C r/w. 143(3) of the Act. The proviso to Section 147 was invoked, which bars reopening after four years unless there was a failure to disclose material facts by the assessee.

Issue 2: Failure to disclose material facts
The court emphasized that the onus is on the respondents to prove that there was a failure on the part of the petitioner to truly and fully disclose material facts. The reasons for reopening mentioned that the petitioner had traded in shares of a penny stock company, Finalysis, during the relevant assessment year. However, the petitioner had disclosed this information during the assessment proceedings, including details of capital gains/losses related to Finalysis shares.

Issue 3: Allegations of income escapement
The reasons for reopening highlighted the alleged escapement of income due to the petitioner's trading in Finalysis shares. The respondents argued that investigations revealed the petitioner's transactions in Finalysis, warranting a reopening. However, the court noted that there was no allegation that the petitioner was involved in price rigging or was the mastermind behind any irregularities related to Finalysis.

Issue 4: Compliance with Section 147
The court analyzed the compliance with Section 147, emphasizing that if an assessee replies to a query during assessment proceedings, it is deemed to have been considered by the Assessing Officer. In this case, the petitioner had responded to queries related to Finalysis shares, indicating that the issue of capital gains from these shares was actively considered before. The court concluded that there was no failure to disclose material facts, and therefore, the reopening of assessment after the expiry of four years was not justified.

In conclusion, the court granted relief to the petitioner by quashing the impugned notices and orders, emphasizing that there was no failure on the part of the petitioner to disclose material facts, as required under the provisions of the Income Tax Act.