2024 (9) TMI 872 - HC - Income Tax

Validity of reopening of assessment - proceedings are initiated after four years - change of opinion - borrowed satisfaction - bogus share transaction - assessee failed to give treatment to the outstanding amount at NSEL and delivery of goods purchased at NSEL in his books of accounts - scope of statutory audit report u/s 142A - as contented in absence of purchase and sale transaction in the Assessment Year 2014-15, the question of impact of any difference in the value of stock on the profit and loss account of the company would not arise - HELD THAT - It appears that the respondent assessment officer without considering the objections raised by the petitioner pointing out that there was no transaction or purchase or sale on the NSEL during the Financial Year 2013 14 A.Y. 2014-15, as per the Note no. 31 of the audited financial statement and report of the statutory audit conducted u/s 142A of the Act, wherein the statutory auditor has categorically stated there is no stock lying in the AY 2014-15 pertaining to NSEL transactions conducted during AY. 2013-14 as well as in absence of purchase and sales transactions in A.Y. 2014-15, the question of impact of any difference in the value of Stock on the Profit Loss Account of the Assessee Company does not arise. Thus, AO without application of mind only on the basis of the information and material made available by the NSEL confidential information which shows that outstanding dues to be paid by the petitioner for transactions carried out in earlier years is outstanding, and considering that outstanding amount payable by the petitioner to NSEL was determined during the F.Y. 2013-14, the impugned notice is issued for the alleged escapement of income. It can be said that the impugned notice is issued on borrowed satisfaction without considering the material available on record in form of statutory audit report u/s 142A of the Act. It is pertinent to note that during the regular assessment framed under Section 143 read with Section 144C and 142 (2A) of the Act, the entire issue was scrutinized by the then assessing officer and therefore, the issuance of impugned notice of reopening would also amount to change of opinion. Debt payable by the petitioner not appearing in the books of account - Notes Forming part of the Financial Aaccounts wherein it is mentioned that debt payable includes debt payable to third party Rs. Nil towards transaction on NSEL and hence the petitioner has made full and true disclosures during regular assessment and the same has been brushed aside while forming a belief of escapement of income. Moreover, it is not disputed by the respondent that there was no transaction or sale or purchase during the year under consideration. Therefore the reasons recorded by the respondent assessing officer for issuing notice is without jurisdiction on the face of the material available on record. Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the order dismissing the objections raised by the petitioner against the notice.

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice dated 27.03.2021 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2014-15, arguing that it was based on incorrect presumptions and without proper consideration of facts. The petitioner contended that there were no transactions with the National Spot Exchange Limited (NSEL) during the Financial Year relevant to the Assessment Year 2014-15. The special audit report also confirmed the absence of any stock or transactions pertaining to NSEL for the said period.

The court observed that the reasons recorded for reopening the assessment were contrary to the facts on record. The Assessing Officer had failed to consider the objections raised by the petitioner, including the statutory audit report which categorically stated that there were no purchase or sale transactions during the relevant financial year. The court noted that the assumption of jurisdiction by the Assessing Officer to reopen the assessment was without any basis and contrary to the facts on record.

2. Validity of the order dismissing the objections raised by the petitioner against the notice:

The petitioner also challenged the order dated 14.02.2022 dismissing their objections to the impugned notice. The petitioner argued that the reassessment proceedings were initiated based on incorrect information and that the reasons recorded for reopening the assessment were not true and correct. The court found that the Assessing Officer had not applied his mind and had issued the notice based on borrowed satisfaction without considering the material available on record, including the statutory audit report under Section 142A of the Act.

The court held that the issuance of the impugned notice for reopening the assessment amounted to a change of opinion, as the entire issue had already been scrutinized during the regular assessment. The court also noted that the notice was issued merely because reassessment proceedings for an earlier assessment year had been upheld by higher courts, which was not a valid ground for reopening the assessment for the current year.

Conclusion:

The court concluded that the impugned notice issued under Section 148 of the Act was without jurisdiction and contrary to the facts on record. The court quashed and set aside the notice and the order rejecting the objections raised by the petitioner. The petition was allowed, and the rule was made absolute with no order as to costs.