2023 (3) TMI 413 - HC - Income Tax

Validity of reopening of assessment - allegation that assessee taken a fictitious loan from an accommodation entry provider and had entered to fictitious purchases of shares of unlisted companies in the aforementioned FY - argument of difference between the show cause notice issued under Section 148A(b) and the impugned order passed under Section 148A(d) - HELD THAT - In the reply, the petitioner took the position that insofar as the allegation leveled that she had taken a fictitious loan from Mr Jignesh Shah is concerned, the same is not correct. The petitioner says that she has not entered into any transaction with Mr Jignesh Shah. The contract notes generated during the course of the transactions were submitted along with reply. It was also asserted by the petitioner that all transactions were made through banking channels. The petitioner took the position that the shares of the aforementioned entities were sold in the succeeding AY i.e., AY 2017-18 via Screen Based Real Time trading mechanism, provided by the National Stock Exchange, via SMC Global Securities Limited. As asserted by the petitioner that securities transaction tax had been paid on the sale of shares. It is also averred that short term capital gain earned on the sale of the said shares was offered for levy of tax at the rate of 15% under Section 111A of the Act, in AY 2017-18. It is not in dispute that insofar the explanation offered by the petitioner that it had not entered into any transaction with Mr Jignesh Shah is concerned, it had been accepted. In the impugned order, the Assessing Officer (AO) seems to have completely gone off the rails i.e., in a completely different direction, by adverting to the fact that petitioner/assessee entered into two sale transactions concerning penny stock scrips of Prikh Herbals Ltd./Safal Herbs Ltd. The sale transaction, as disclosed in the impugned order, is pegged at Rs.18,35,000/-. Clearly, there is a dissonance between the show cause notice issued under Section 148A(b) and the impugned order passed under Section 148A(d) of the Act. Thus the impugned order and notices are set aside. Liberty is, however, given to the Assessing Officer (AO) to carry out the exercise de novo, albeit, as per law.

Summary

Issues involved:
Challenging notice under Section 148A(b) of the Income Tax Act, 1961, challenge to order under Section 148A(d) and notice issued under Section 148, sustainability of impugned order, dissonance between notice and order, direction for de novo assessment by the Assessing Officer.

Analysis:
The writ petition challenged a notice dated 30.05.2022 issued under Section 148A(b) of the Income Tax Act, 1961, along with an order dated 19.07.2022 under Section 148A(d) and a consequent notice issued under Section 148 of the Act. The petitioner contended that the impugned order was legally unsustainable as it did not align with the notice. The petitioner denied allegations of taking a fictitious loan and engaging in fictitious share transactions as mentioned in the notice. The petitioner provided detailed explanations and evidence regarding the share transactions, including purchase details, transaction mechanisms, and tax compliance for the subsequent assessment year.

The court noted a discrepancy between the allegations in the notice and the findings in the impugned order, which focused on different transactions involving penny stock scrips. Due to this dissonance, the court set aside the impugned order and notices. However, the Assessing Officer was granted liberty to conduct a fresh assessment in accordance with the law. The court directed the Assessing Officer to complete the reassessment within twelve weeks from the date of the judgment. The writ petition was disposed of accordingly, and parties were instructed to act based on digitally signed copies of the order.

This judgment highlights the importance of maintaining consistency between notices and subsequent orders in income tax proceedings. It also emphasizes the need for Assessing Officers to adhere to legal principles and conduct assessments in a timely manner. The court's decision to allow a de novo assessment ensures that the petitioner's case will be reviewed afresh, providing an opportunity for a fair and accurate determination of tax liability.