2022 (9) TMI 1611 - HC - Income Tax

Reopening of assessment u/s 147 - LTCG earned by the petitioner through her financial transactions in the shares of Mahanivesh are bogus - HELD THAT - Notice u/s 148A(b) and the notice u/s 148A(d) specifically identify the financial transactions undertaken by the petitioner in respect of Mahanivesh. The financial value of the transaction is also expressly provided in the notice and the impugned order. The basis for initiation of the inquiry being that, the scrip of Mahanivesh is a penny scrip is also stated in the notice dated u/s 148A(b). The petitioner was therefore sufficiently informed that the initiation of reassessment proceeding was due to the fact that the AO had reasons to believe that the petitioner has earned bogus LTCG by trading in the penny scrip of Mahanivesh. Pertinently, in her reply dated 31st May, 2022, the petitioner has not responded to the allegation in the notice that Mahanivesh is a penny scrip. The report sets out detailed facts leading to the conclusion that Mahanivesh is a penny scrip and the trade was undertaken between limited persons at pre-determined prices. It has come on record that the detailed report of the Investigation Wing on the suspicious trading activity of Mahanivesh was not provided to the petitioner. AO should have provided this Report in the first instance with the notice issued u/s 148A(b), especially when the assessee had requested for this information in her reply dated 31st May, 2022. We, therefore, find merit in the submission of the petitioner that the assessee has been denied an effective opportunity to answer the findings made in the Report with respect to the transactions undertaken by the assessee with Allied Nippon Limited and Lawrence Cold Storage Pvt. Ltd. We set aside the order issued u/s 148A(d) and notice issued u/s 148 with a direction to the petitioner to file its additional reply, responding to the findings of the Report within two weeks. AO shall after considering the reply of the petitioner pass an order u/s 148A(b) within a period of eight weeks thereafter, in accordance with law.

Summary

Issues:
1. Validity of notice dated 30th June, 2022 under Section 148 of the Income Tax Act, 1961.
2. Legality of the order dated 30th June, 2022 passed under Section 148A(d) of the Act.

Analysis:
Issue 1: The petitioner challenged the notice dated 30th June, 2022, issued under Section 148 of the Income Tax Act, 1961, as being time-barred under the 1st proviso to Section 149(1) of the Act. The petitioner contended that the notice lacked necessary information as mandated by the proviso to Section 148 of the Act. The petitioner argued that the proceedings initiated were without legal jurisdiction due to the absence of substantial information linking the petitioner to the alleged financial transactions.

Issue 2: The respondent relied on a report from the Income Tax Department's Investigation Wing, which concluded that the petitioner had engaged in financial transactions involving a penny stock, resulting in bogus profits and losses. The report specifically identified the petitioner as a seller of shares to certain entities. The respondent asserted that the LTCG earned by the petitioner through these transactions was bogus. The petitioner denied the allegations but admitted to trading in the stock. The court noted that the AO should have provided the detailed report to the petitioner along with the notice, as requested by the petitioner.

Judgment: The court held that the notice issued under Section 148A(b) and the subsequent order under Section 148A(d) did establish a link between the information received and the formation of belief regarding the petitioner's transactions. However, the court found merit in the petitioner's argument that the detailed report should have been provided initially. The court set aside the order dated 30th June, 2022, and the notice dated 30th June, 2022, directing the petitioner to file an additional reply responding to the findings of the report within two weeks. The AO was instructed to consider the reply and pass an order under Section 148A(b) within eight weeks, emphasizing a fair decision-making process without influence from previous observations except on the issue of limitation.