2023 (5) TMI 1214 - AT - Income Tax

Reopening of assessment - validity of notice u/s 148 - Information received by the AO under Project Falcon from DGIT(Investigation), Mumbai about trading on the United Stock Exchange of India by engaging in reversal trades in illiquid stock options resulting in non-genuine business loss/gains to the beneficiary assessee and that the present assessee is a party to such manipulation - HELD THAT - Reasons derived by the AO on the alleged ground of income escaping assessment which consists of claim of artificial loss from trade reversal on Stock Exchange and the belief that the assessee has incurred an amount as commission paid for obtaining a loss of is beyond logic and not borne out of any record. Hence, the order passed by the Assessing Officer u/s 147 dated Nil is to be treated non est in the eyes of law. Appeal of the assessee is allowed.

Summary

Issues involved:
The judgment involves issues related to the validity of notice u/s 148, assumption of jurisdiction u/s 147, reopening based on reappreciation of facts, legality of notice u/s 148, application of mind, treatment of loss as speculative, addition of commission, approval of notice u/s 148, and treatment of loss as speculative by CIT(A).

Validity of notice u/s 148:
The appeal challenged the validity of notice u/s 148 issued without proper recording of reasons as per section 147 of the Income Tax Act, 1961. It was contended that the notice was invalid and barred by limitation since the original assessment was completed u/s 143(3)/153A after detailed scrutiny. The reopening u/s 147 was deemed unsustainable due to lack of specific tangible material and change of opinion.

Application of mind and jurisdiction u/s 147:
The appeal argued that the reopening was without proper application of mind and requisite enquiry, merely based on borrowed satisfaction. The allegation of non-genuine loss and cash expenses was challenged as being purely conjectural and lacking adverse material or evidence against the appellant, rendering the basis of reopening as mechanical and legally unsound.

Treatment of loss as speculative:
The CIT(A) upheld the treatment of the loss suffered in trading in derivative segment as speculative, disregarding the genuineness of the loss. The appellant contended that the loss was genuine and allowable under section 43(5) of the Income Tax Act, 1961, thus challenging the speculative characterization by the CIT(A).

Addition of commission:
The CIT(A) upheld the addition of commission paid on the alleged ground of commission, which the appellant argued to be inconsistent and without basis. The genuineness of the transaction on the recognized stock exchange was accepted, making the allegation of commission payment unfounded and illegal.

Approval of notice u/s 148:
The CIT(A) was criticized for upholding the notice u/s 148 without proper approval as per section 151 of the Income Tax Act, 1961. The lack of approval was highlighted as an error in the judgment of the CIT(A).

Conclusion:
The judgment allowed the appeal of the assessee, declaring the order passed by the Assessing Officer u/s 147 as non est in the eyes of the law. The reasons for income escaping assessment were deemed illogical and not supported by any record, leading to the decision in favor of the assessee.