2023 (10) TMI 193 - AT - Income Tax

Reopening of assessment u/s 147 - investment in penny stock company - information received from DDIT(Inv), Unit-8(3), Mumbai stating that the assessee has traded in penny stock /shares of M/s Nivyah Infrastructure and Telecom Services Pvt. Ltd to bring its unaccounted income in the books through, circuitous route during AY 2011-12 - HELD THAT - As decided in SOUTH YARRA HOLDINGS 2019 (3) TMI 582 - BOMBAY HIGH COURT on receipt of information, the least that is expected of the Assessing Officer is to examine the same in the context of the facts of this case and satisfy himself whether the information received does prima facie lead to a reasonable belief that income chargeable to tax has escaped assessment. In this case, the reasons indicate that the Assessing Officer has not carried out such exercise and accepted the report of DDIT(Inv), Unit-8(3), Mumbai to conclude that the petitioner had dealt with Nivyah Infrastructure and Telecom Services Ltd during the previous year relevant to the assessment year 2011-12. Admittedly, there was no company by name M/s Nivyah Infrastructure Telecom Services Ltd in existence during that year for consideration. This clearly shows that the Assessing Officer acted on the satisfaction of the Deputy Collector of Income Tax (Investigation) that income chargeable to tax has escaped assessment. It must also be borne in mind that the impugned notice is issued beyond the period of four years from the end of the relevant assessment year in a case, where the assessment was completed u/s 143 (3) - Therefore, the Assessing Officer would have to examine the information received in the context of the facts on record. If such an exercise were to be done, it is likely that the Assessing Officer would have come to the conclusion that there was no failure to disclose truly and fully all material facts necessary for assessment. Thus, hit by the proviso to section 147 - AO has not applied his mind to the information received in the context of the facts on record. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.

Summary:

Issue 1: Validity of Reopening the Assessment under Section 147 of the Act

The assessee challenged the order of the Ld. CIT(A) upholding the reopening of the assessment under Section 147 of the Income Tax Act, arguing that it was not in accordance with the law. The assessee contended that the approval from the higher authority was mechanical and that the Assessing Officer (AO) acted on the information from the investigation wing without forming an independent belief. The AO reopened the assessment based on information from DDIT(Inv), Mumbai, regarding the assessee's investment in penny stock company S.V. Electricals Ltd., which later became Nivyah Infrastructure and Telecom Services Ltd. The AO issued a notice under Section 148 and completed the assessment, adding Rs. 41,12,845/- as a bogus loss from trading in the said penny stock.

The Ld. CIT(A) dismissed the assessee's appeal, stating that the reopening was done after obtaining due approval and recording detailed reasons. The assessee did not object to the notice or the reasons during the assessment proceedings and failed to cooperate by not responding to statutory notices. The Ld. CIT(A) found no reason to interfere with the AO's order.

The assessee argued before the Tribunal that the AO's reasons for reopening were recorded without application of mind and were based on incorrect facts. The AO mentioned trading in Nivyah Infrastructure and Telecom Services Ltd., not recognizing that it was formerly S.V. Electricals Ltd. The assessee cited the Bombay High Court's decision in South Yarra Holdings vs. ITO, where a similar reopening was quashed due to the AO acting on the satisfaction of the investigation wing rather than forming an independent belief.

The Tribunal agreed with the assessee, noting that the AO's reasons were based on borrowed satisfaction from the investigation wing and lacked independent application of mind. The Tribunal quashed the reopening of the assessment and the consequent order framed under Section 147/143(3) of the Act, following the precedent set by the Bombay High Court in South Yarra Holdings.

Conclusion: The appeal of the assessee was allowed, and the reopening of the assessment under Section 147 was quashed.