2024 (3) TMI 381 - HC - Income Tax

Reopening of assessment u/s 147 - Non-disclosure of the cost of purchase of these penny shares - Petitioner has disclosed net long term capital gains under the IDS, 2016 under protest, thus shares of SAL is one of the penny shares as identified by the Income Tax Department and the entire long term capital gains realized by Petitioner by the purchase and sale of the penny shares should be taxed in the hands of Petitioner - brokerage/commission paid to the brokers - HELD THAT - To our query as to whether there was any evidence that Petitioner had paid brokerage, or who was paid and the quantum, it was met with silence. We are not happy with the stand of the Revenue or the reasons. We would agree with Petitioner that reliance placed on the declaration made under the IDS, 2016 is against the principles of natural justice and is not valid. Moreover, Respondents having issued a certificate under the IDS, 2016 after verifying the details filed by Petitioner, the declaration cannot be the basis to reopen the assessment of Petitioner. The reopening merely by deeming commission expenses of 5% of total sale consideration of the shares and arbitrarily and in an adhoc manner fixing 5% of the total sale consideration as commission expenses cannot be accepted. Ad-hoc disallowances without pointing out any specific defects cannot accepted. In fact, there is not even an allegation in the reasons to believe escapement of income that Petitioner had in fact paid any commission to any broker or operator. The AO proceeds on a surmise that there was no such free service available and, therefore, Petitioner would have paid brokerage. The AO having observed that the brokerage/commission varied between 0.5% to 5% does not even explain why he takes into account 5% as the brokerage paid and not 0.5% or any other figure in that band. We are also satisfied that there has been no failure on the part of Petitioner to disclose any material fact. By notice u/s 142(1) Petitioner was called upon to give details of long term capital gain on sale of shares and short term capital gain of office premises and in response, vide letter dated 10th March, 2016, Petitioner gave the entire details relating to the transactions in shares of SAL and even in the assessment order, long term capital loss, short term capital loss, etc. are discussed. It is also recorded in the assessment order dated 26th April, 2016 that capital gain was nil. Thus the subject matter of capital gains in the shares of SAL was certainly a subject matter of consideration of the AO during the original assessment proceedings. As held by this Court in Aroni Commercials Limited 2014 (2) TMI 659 - BOMBAY HIGH COURT once a query is raised during the assessment proceedings and Assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is also not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Therefore, the reopening of the assessment, in our view, is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment. The impugned notice issued u/s 148 cannot be sustained. Decided in favour of assesee.

Summary

Issues involved:
The judgment involves the issues of reopening of assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2014-15 based on alleged escapement of income due to non-disclosure of material facts regarding long term capital gains on shares and assumed brokerage/commission expenses.

Details of the Judgment:

Issue 1 - Reopening of Assessment:
The petitioner, an individual engaged in trading/investments in shares and securities, filed a return of income for AY 2014-15. The assessment order was passed under Section 143(3) of the Act, which included disclosure of long-term capital gains on shares. Subsequently, the petitioner availed the Income Declaration Scheme, 2016 (IDS, 2016) and declared long-term capital gains. Over three years later, a notice was issued under Section 148, alleging an escapement of income regarding the cost of purchase of shares and assumed brokerage/commission expenses. The petitioner challenged the reopening, citing the proviso to Section 147 and arguing that there was no failure to disclose material facts. The court agreed, stating that the reopening was based on a change of opinion and lacked justification.

Issue 2 - Alleged Brokerage/Commission Expenses:
The reasons for reopening mentioned assumed brokerage/commission expenses of 5% of the total sale consideration of shares. The respondent contended that such expenses must have been paid, but failed to provide evidence of actual payment or details of the recipient. The court found the basis for assuming the expenses as speculative and arbitrary, noting the lack of specific defects pointed out. The petitioner had disclosed all relevant details during assessment proceedings and under the IDS, 2016, making the reopening unjustified.

Separate Judgment:
The High Court, comprising K.R. Shriram and Dr. Neela Gokhale, JJ., held that the notice issued under Section 148 of the Act for AY 2014-15 could not be sustained, as the alleged escapement of income was based on a change of opinion by the Assessing Officer. The court further ruled that the rejection of the petitioner's objections could not be upheld, ultimately disposing of the petition in favor of the petitioner.