2022 (10) TMI 239 - HC - Income Tax

Reopening of assessment u/s 147 - notice under section 148A(b) - scrip of Mahanivesh is a penny scrip is also stated in the notice dated u/s 148A(b) - HELD THAT - The petitioner sufficiently informed that the initiation of reassessment proceeding was due to the fact that the AO had reasons to believe that the petitioner has earned bogus LTCG by trading in the penny scrip of Mahanivesh. Pertinently, in her reply dated 31st May, 2022, the petitioner has not responded to the allegation in the notice that Mahanivesh is a penny scrip. The report sets out detailed facts leading to the conclusion that Mahanivesh is a penny scrip and the trade was undertaken between limited persons at pre-determined prices. It has come on record that the detailed report of the Investigation Wing on the suspicious trading activity of Mahanivesh was not provided to the petitioner. AO should have provided this Report in the first instance with the notice issued under section 148A(b), especially when the assessee had requested for this information in her reply dated 31st May, 2022. We, therefore, find merit in the submission of the petitioner that the assessee has been denied an effective opportunity to answer the findings made in the Report with respect to the transactions undertaken by the assessee with Allied Nippon Limited and Lawrence Cold Storage Pvt. Ltd. We set aside the order dated 30th June, 2022 issued u/s 148A(d) and notice issued u/s 148 with a direction to the petitioner to file its additional reply, responding to the findings of the Report within two weeks. AO shall after considering the reply of the petitioner pass an order under Section 148A(b) within a period of eight weeks thereafter, in accordance with law.

Issues:
1. Validity of notice dated 30th June, 2022 issued under Section 148 of the Income Tax Act, 1961.
2. Legality of the order dated 30th June, 2022 passed under Section 148A(d) of the Act.
3. Compliance with statutory provisions and information requirements under the Act.
4. Jurisdictional error and absence of substantial information.
5. Allegations of bogus LTCG transactions and manipulation in share prices.
6. Denial of opportunity to explain transactions and lack of provided material.
7. Link between information received and its connection with the petitioner.
8. Time limitation for reassessment notice under Section 149 of the Act.

Analysis:

Issue 1 & 2:
The petitioner challenged the notice dated 30th June, 2022, issued under Section 148, and the order dated the same day under Section 148A(d) of the Income Tax Act, 1961. The petitioner argued that the notice for Assessment Year 2013-14 was time-barred under the proviso to Section 149(1) of the Act. Additionally, the petitioner contended that the order was flawed due to the absence of mandated information as per the proviso to Section 148 of the Act.

Issue 3 & 4:
The petitioner raised concerns regarding compliance with statutory provisions and information requirements under the Act. It was argued that the notice lacked specific details and documents supporting the allegations of bogus LTCG transactions. The petitioner objected to the absence of substantial information linking the petitioner to the alleged financial transactions, questioning the legal jurisdiction of the proceedings.

Issue 5 & 6:
Allegations of bogus LTCG transactions and manipulation in share prices were central to the case. The respondent relied on a report indicating manipulation in share prices of Mahanivesh and alleged bogus profits and losses. The petitioner denied involvement in any fraudulent transactions but admitted to trading in the scrip, disputing the characterization of the transactions as bogus.

Issue 7:
The petitioner contended that the order failed to establish a live link between the information received and its connection with the petitioner, challenging the legal jurisdiction of the proceedings. The petitioner sought to invalidate the proceedings based on the lack of a clear connection between the provided information and the petitioner's involvement.

Issue 8:
Regarding the time limitation for reassessment notices under Section 149 of the Act, the Court referenced previous judgments to determine that the reassessment notice issued within the extended period of limitation was not time-barred. The Court found that the income alleged to have escaped assessment exceeded the specified threshold, satisfying the requirements of Section 149(1)(b) of the Act.

In conclusion, the Court set aside the order dated 30th June, 2022, issued under Section 148A(d), and the notice dated the same day under Section 148. The petitioner was directed to file an additional reply responding to the findings of the report within two weeks. The Assessing Officer (AO) was instructed to consider the petitioner's reply and pass an order under Section 148A(b) within eight weeks, adhering to legal procedures. The Court emphasized that the AO should decide the matter independently, except on the issue of limitation, without being influenced by previous observations.

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