2023 (11) TMI 42 - HC - Income Tax

Reopening of assessment - reasons to believe - borrowed satisfaction or independent application of mind - AO had obtained information from the Kolkata Division of the Investigation Directorate regarding the booking of LTCG which was relatable to trade in shares of Blue Print Securities Limited by the petitioner/assessee - HELD THAT - The petitioner, in the letter, had indicated that he had purchased 800 equity shares at the face value of Rs. 10/- each, of a company going by the name Ranisati Commotrade Pvt. Ltd. on 05.04.2010. These shares, according to the petitioner s/assessee s explanation, were transferred to him on 28.04.2010. Also asserted by the petitioner/assessee that the said company was amalgamated with Blue Print Securities Limited, and that the amalgamation was sanctioned by the Calcutta High Court via order dated 25.11.2010. Petitioner/assessee had taken a stand that, against 800 shares held by him in Ranisati Commotrade Pvt. Ltd., he had received 32,000 shares of Blue Print Securities Ltd. at a face value of Rs. 10/-. It is these shares that the petitioner had sold and, thus, earned a long-term capital gain amounting to Rs. 94,85,882.78/-. Interestingly, in the reason to believe , there is no reference to the original assessment order dated 14.01.2015. Had the AO looked at the assessment order and the record concerning the petitioner s/assessee s case, the explanation given by the petitioner/assessee would have come to light. AO being unable to tie up the information received by him, with the alleged failure on the part of the petitioner to fully and truly disclose all material facts, attains criticality in the instant case. There is a non-application of mind by the AO. The AO appears to have solely proceeded based on the general information received by him. The AO, in a sense, has taken recourse to borrowed satisfaction. There is nothing in the reason to believe that would show how the AO has reached a figure of Rs. 1,04,38,000/-. The only clue concerning that figure is in the information that he had received from the Kolkata Division of the Investigation Directorate. Also noted AO verily believed, for some strange reason, that the petitioner s/assessee s case was the one which fell within four (4) years, which is why he had adverted to Section 151(2) rather than Section 151(1) of the Act. Reassessment set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Validity of the reasons to believe formulated by the Assessing Officer (AO).
3. Application of Section 151 of the Act.
4. Failure to disclose material facts fully and truly by the petitioner.

Summary:

1. Legality of the notice issued under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice dated 28.03.2019 issued under Section 148 of the Income-tax Act for the Assessment Year (AY) 2012-13. The notice was based on the AO's 'reason to believe' that Rs. 1,04,38,000/- had escaped assessment.

2. Validity of the reasons to believe formulated by the Assessing Officer (AO):
The AO's 'reason to believe' was based on information from the Kolkata Investigation Directorate, indicating the petitioner was a beneficiary of bogus long-term capital gains (LTCG) through trading in shares of shell companies. The AO concluded that the petitioner had earned LTCG from manipulated stocks and had not fully disclosed material facts.

3. Application of Section 151 of the Act:
The AO incorrectly referred to Section 151(2) instead of Section 151(1) of the Act. The case fell beyond four years from the end of the relevant AY, necessitating sanction from the Principal Commissioner of Income. The AO's form for recording reasons was later corrected to reflect the appropriate section.

4. Failure to disclose material facts fully and truly by the petitioner:
The AO did not indicate that the petitioner failed to disclose all material facts. The petitioner had already provided details of LTCG from Blue Print Securities Limited during the original assessment. The AO did not consider the original assessment order dated 14.01.2015, leading to non-application of mind and reliance on 'borrowed' satisfaction.

Conclusion:
The reassessment proceedings were initiated without due application of mind by the AO. The impugned notice dated 28.03.2019 issued under Section 148 was quashed. Consequently, the order disposing of the objections dated 12.06.2019 was also quashed. The writ petition was disposed of accordingly.