2023 (9) TMI 976 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Bogus LTCG - exemption u/s. 10(38) denied - allegation of mandatory statutory procedural requirement stated in section 142(3) denied - AO observed that there are certain important circumstantial as well as direct evidence to show that gain reported by the assessee is not natural but is arranged one - HELD THAT - As challenging the legality of the reassessment carried out u/s. 147 read with sec. 148 from the approval granted on his note that satisfied with the reasons we find that it is sufficient to indicate that approving authority has examined the reasons recorded and does not indicate a mechanical approach while giving the approval since the reasons to believe recorded contained details in respect of the share applicant for the reassessment proceeding sought to be initiated. Accordingly, we do not ascribe to the contentions raised by the Ld. Counsel on the legality of the impugned reassessment order. Non-supply of material gathered by the ld. AO from the enquiries conducted by him in the course of assessment and utilised for the purpose of assessment - Alternate plea taken, to remit the matter back to the Ld. AO in absence of the material, which also ought to have been provided by complying with the specific provision of section 142(3) - As we note that Ld. AO has conducted certain enquiries by issuing notice u/s. 133(6) of the Act to Calcutta Stock Exchange as well as summon u/s. 131 to one of the parties who bought the shares from the assessee i.e. the SVPL. From the impugned assessment order while rebutting the allegations of the assessee, Ld. AO has noted that he himself has made various enquiries in respect of the share transaction undertaken by the assessee. In the present case before us, from the perusal of the impugned assessment order, as a matter of fact, it is noted that Ld. AO has conducted enquiry from CSE by issuing notice u/s. 133(6) and has also issued summon u/s. 131 on one of the buying parties to whom assessee has sold 500 shares. Considering the above discussion in respect of provisions contained in sec. 142(3) read with sec. 142(2), we are inclined to consider the alternate plea taken by the ld. Counsel to remit the matter back to the file of Ld. AO by giving direction to the Ld. AO to make available the material gathered by him in the course of enquiry conducted in terms of sec. 142(2) and provide a reasonable opportunity of being heard to the assessee as enunciated u/s. 142(3) of the Act. Thereafter, Ld. AO may complete the assessment in accordance with the provisions of law. Accordingly, ground no. 11 and 12 taken by the assessee are allowed for statistical purposes.

Issues Involved:
1. Addition of Rs. 9,72,000 on account of bogus claim of exempt Income.
2. Denial of exemption under section 10(38) of the IT Act, 1961.
3. Addition of Rs. 24,300 as unexplained expenditure under section 69C.
4. Validity of the notice under section 148.
5. Validity of the reopening of assessment under section 148.
6. Adequacy of reasons recorded for reopening under section 148.
7. Reopening based on borrowed satisfaction.
8. Reopening without relevant material linking to escapement of income.
9. Mechanical sanction under section 151.
10. Reliance on judgments without giving opportunity to the appellant.
11. Use of material collected behind the back of the assessee.
12. Reliance on third-party statements without cross-examination.
13. Jurisdiction of the assessment order under section 147/143(3).
14. Validity of the notice under section 143(2).
15. Lack of proper opportunity of hearing before the CIT(A).
16. Violation of principles of natural justice.
17. Incorrect computation of interest under sections 234 A/B/C.
18. Permission to produce additional evidence.
19. Permission to press new or modify grounds of appeal.

Summary:

Issue 1: Addition of Rs. 9,72,000 on account of bogus claim of exempt Income
The assessee's claim of long-term capital gain exemption of Rs. 9,37,866 on the sale of shares was rejected by the AO, who treated the entire sale proceeds of Rs. 9,72,000 as unexplained cash credit under section 68. The AO based this on circumstantial and direct evidence suggesting the gain was arranged.

Issue 2: Denial of exemption under section 10(38)
The AO denied the exemption under section 10(38) of the IT Act, 1961, as the transactions were considered not genuine.

Issue 3: Addition of Rs. 24,300 as unexplained expenditure under section 69C
The AO added Rs. 24,300 as unexplained expenditure for commission to arrange the share transaction.

Issues 4-9: Validity and legality of notice and reopening under sections 148 and 147
The assessee challenged the notice under section 148 and the reopening of assessment under section 147 on grounds of lack of jurisdiction, borrowed satisfaction, and mechanical sanction under section 151. The Tribunal found that the approval for issuing notice under section 148 was not mechanical and contained sufficient details to indicate the AO's belief. However, the Tribunal noted that the AO did not comply with the mandatory requirement under section 142(3) to provide the assessee with the material gathered during the enquiry, which is a statutory procedural requirement.

Issues 10-12: Use of material and third-party statements without opportunity
The Tribunal observed that the AO had conducted enquiries and gathered material without providing the assessee an opportunity to be heard, violating section 142(3). The Tribunal remitted the matter back to the AO to comply with section 142(3) by providing the material to the assessee and allowing a reasonable opportunity for a hearing.

Issues 13-19: Other grounds
Since the matter was remitted back to the AO, all other grounds were rendered academic and not adjudicated upon.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, remitting the matter back to the AO to comply with section 142(3) and provide the assessee an opportunity to be heard. The AO is directed to complete the assessment in accordance with the law after complying with these procedural requirements.

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