2022 (4) TMI 1616 - HC - Income Tax

Reopening of assessment beyond period of four years - Eligible reasons to believe - bogus capital gain through share transactions - HELD THAT - We have to note that there is no allegation at all in the reasons recorded for re-opening or in the Affidavit in Reply that investigations have revealed that Petitioner was the master mind or actively involved in rigging of share price of Finalysis in the stock market. Whether trading in Finalysis shares would result in escapement of income is a separate question which we are not dealing with in this matter because that is not the subject of consideration. Even in the statement of Mr. Bipin Divecha on which reliance has been placed it does not show anywhere Petitioner was involved. As noted earlier the reasons recorded admit that Petitioner had disclosed that it had traded in the shares of Finalysis. To a query raised under Section 142(1) Petitioner has also admitted that it has traded in Finalysis and even provided documents thereto. The issue of capital gains from shares which included the shares of Finalysis was under active consideration before the Assessing Officer. That would also show there was no failure to disclose. Therefore it cannot be stated that Respondents have crossed the threshold or the fetter provided for in the proviso to Section 147 of the Act that re-opening after the expiry of four years is permissible only when there is failure to truly and fully disclosed material facts. Thus reassessment notice set aside - Decided in favour of assessee.

Summary

Issues:
1. Re-opening of assessment after four years from the relevant assessment year.
2. Allegation of income escapement due to failure to disclose material facts.
3. Legal implications of disclosing information during assessment proceedings.

Analysis:
1. The petitioner, an individual assessed for tax, filed a return of income for A.Y. 2013-2014 declaring a total income as "Nil." Subsequently, a notice was received under Section 142(1) of the Income Tax Act, requesting details on capital gains from the sale of shares. The assessment order was passed accepting the income as per the return filed. Years later, a notice under Section 148 alleged income escapement related to share transactions in a penny stock company. Investigations by SEBI on the company's financials were mentioned, and the petitioner's disclosure during the assessment proceedings was highlighted.

2. The re-opening of assessment after four years triggers the proviso to Section 147 of the Act, requiring the respondent to prove failure on the petitioner's part to fully disclose material facts. The assessment order under Section 143(3) had been completed earlier. The legal precedent states that if an assessee responds to a query during assessment, it implies the query was considered, even if not explicitly mentioned in the assessment order.

3. The crux of the case revolves around whether there was a failure to disclose material facts by the petitioner. The reasons recorded acknowledged the petitioner's trading in shares of the penny stock company. The court emphasized that the petitioner had actively considered the issue of capital gains on shares during the assessment proceedings, indicating no failure to disclose. The lack of evidence implicating the petitioner in price rigging further supported the conclusion that the re-opening of assessment was not justified.

In conclusion, the court granted relief to the petitioner by issuing a writ to quash the re-opening notice and subsequent orders. The judgment highlighted the importance of full disclosure of material facts by the assessee and the need for the tax authorities to meet the burden of proof when re-opening assessments after the statutory period.