2024 (5) TMI 217 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus LTCG of shares - reason to believe - general finding of Kolkata Investigation Directorate in 84 penny stock companies and modus operandi and second paragraph mentioned that assessee is one such person who has taken accommodation entry of bogus long term gain - HELD THAT - As brought on record that assessee has earned short term capital loss as these shares were purchased on 16/03/2015 17/03/2015 and were sold on 18/03/2015 19/03/2015. The said short term capital loss has not been set off against any income or has been carried forward by the assessee. So there was no benefit to the assessee on this transaction which can lead to any inference that assessee must have engaged in some clandestine bogus entry for some benefit. There is no co-relation between the reasons recorded and the addition which has been made by the ld. AO. If ld. AO had such a belief during the course of assessment proceedings, he could have recorded the reasons on investment made in the purchase of shares. Thus, there is no link between the information and the reasons recorded and the assessment which has been made by the ld. AO. It is sine-qua-non that for reopening the assessment, AO should have reason to believe that income chargeable to tax has escaped assessment and such reason to belief should be based on material and information having live link nexus or direct nexus with the income escaping assessment, which here in this case is purely lacking. In fact the reasons have been recorded on a wrong premise and on a wrong information and ld. AO has not even applied his mind on such information or verified the records before issuing notice u/s. 148. Such reasons cannot be sustained or give jurisdiction to the ld. AO to reopen the case and accordingly, we hold that the entire reopening is bad in law and consequently entire assessment proceeding is quashed. Appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in the judgment are the validity of reopening u/s. 147 and the addition of Rs. 3,36,70,000/- as unexplained investment u/s. 69.

Validity of Reopening u/s. 147:
The appeal was filed against the order dated 28/09/2023 passed by NFAC, Delhi for the quantum of assessment u/s. 143(3) r.w.s. 147 for the A.Y. 2015-16. The assessee challenged the jurisdiction of reopening u/s. 147, arguing that the AO lacked valid reasons to believe that income had escaped assessment. The AO alleged the appellant had earned bogus long term capital gains, but the appellant had actually incurred a loss on the sale of shares. The notice issued under section 148 was deemed to be without jurisdiction, leading to the assessment order being considered bad in law.

Addition of Unexplained Investment u/s. 69:
The National Faceless Appeal Centre upheld the AO's decision to add Rs. 3,36,70,000/- as unexplained investments of the appellant u/s. 69 of the Income Tax Act, 1961. The AO noted discrepancies in the purchase and sale of shares of EINS Edutech Ltd., leading to doubts about the source of investment. The appellant failed to provide evidence supporting the investment, and the AO treated the amount as unexplained. The CIT (A) upheld this decision, stating that the appellant had no known source of income for the investment, and dismissed the grounds taken by the appellant.

Judgment:
Upon review, it was found that the reasons for reopening the case were based on general findings without a direct link to the income escaping assessment. The AO had not verified if the appellant had claimed bogus long term capital gain on the shares in question. The appellant had disclosed long term capital gain on a different scrip, Bhageria Dye Chem Ltd., which was not a penny stock. The AO's jurisdiction for reopening was deemed invalid as there was no live link nexus with the income escaping assessment. The assessment based on incorrect premises was quashed, and the entire reopening process was considered bad in law. Consequently, the appeal of the assessee was allowed on legal grounds.