2024 (6) TMI 1373 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - assessee involvement in penny share/stock transactions - borrowed satisfaction or independent application of mind by AO HELD THAT - It is not in dispute that the petitioner acquired the shares of M/s. Monark Health Care Limited (New Name Looked Health Care) through initial public offer (IPO) by investing Rs. 21, 60, 000/- through banking transaction. The petitioner was allotted 54, 000 equity shares of the said Company in IPO and the said shares were dematerilized and credited to the DEMAT Account of the petitioner. It also emerges from the record that during the course of the regular assessment the Assessing Officer had called for information with regard to the long term capital gain which claimed as exempt and the requisite details was provided by the petitioner along with reply dated 09.11.2016. The petitioner also submitted bills of shares sold during the year under consideration and break up of the capital gain along with the ledger account of the said company. Thus on the basis of the information received from DDIT Investigation Unit-5(1) New Delhi the respondent has formed a prima facie belief that there is escapement of income as the petitioner has earned substantial amount of long term capital claiming the same as exemption under section 10 (38) - However reasons recorded do not disclose any live link or fresh material to connect the transaction entered into by the assessee with the information in possession of the Assessing Officer. Therefore it is clear that the Assessing Officer has assumed the jurisdiction on the basis of the borrowed satisfaction without there being any live link between the information and the material on record. Decided in favour of assessee.

Summary

Issues Involved:
Challenge to notice under section 148 of the Income Tax Act, 1961 based on alleged escapement of income for Assessment Year 2014-15.

Detailed Analysis:

Issue 1: Jurisdiction of Reopening Assessment
The petitioner challenged the notice issued under section 148 of the Income Tax Act, 1961, alleging that all material facts were fully disclosed during the regular assessment. The petitioner contended that the reasons for reopening assessment were based on borrowed satisfaction, lacking jurisdiction. The petitioner cited relevant case laws to support this argument. The respondent, on the other hand, argued that the information received warranted an inquiry into potential escapement of income, justifying the reopening of assessment.

Issue 2: Lack of Live Nexus in Reopening Assessment
The petitioner argued that the reasons for reopening assessment did not establish a live nexus or tangible material connecting the transaction in question with the information available to the Assessing Officer. This lack of a live link indicated that the jurisdiction for reopening assessment was assumed on borrowed satisfaction, leading to a fishing inquiry. The court found that the reasons recorded did not provide a sufficient basis for the reopening, as there was no direct connection between the information received and the petitioner's transactions.

Issue 3: Compliance During Regular Assessment
It was noted that the petitioner had acquired shares through an IPO, provided details during the regular assessment, and responded to queries regarding long-term capital gains claimed as exempt. The petitioner submitted relevant documents and information during the assessment process, demonstrating transparency in the reporting of transactions. Despite this compliance, the Assessing Officer proceeded with the reopening based on external information.

Conclusion:
After considering the arguments presented by both parties and reviewing the material on record, the court found in favor of the petitioner. The court concluded that the notice under section 148 of the Act was issued without a proper basis, as it was deemed a fishing inquiry lacking legal justification. Consequently, the court quashed and set aside the impugned notice, allowing the petition. No costs were awarded in the matter.