2024 (11) TMI 31 - HC - Income Tax

Reopening of assessment u/s 147 - Time limit for notice u/s 149 - transactions in Cubical were bogus transactions - threshold limit of Rs. 50,00,000/- for reopening of an assessment ending prior to three years preceding the notice. HELD THAT - AO seeks to reopen the assessment in respect of the AY 2013-14 ending prior to a period of three years. Admittedly, a notice u/s 148 of the Act in such cases can be issued only where the AO had in his possession, the books of account or other documents or evidence, which reveal that the income chargeable to tax that had escaped assessment amounts to or likely to the amount of Rs. 50,00,000/- or more. Insofar as the transactions of the sale of shares of Gemstone is concerned, it is apparent that the AO had the material which suggested that the petitioner s income chargeable to tax for the AY 2013-14, had escaped assessment. However, neither the impugned notice dated 25.05.2022 issued under Section 148A (b) of the Act nor the impugned order passed under Section 148A (d) of the Act indicates that the AO had any books of account or documents or evidence, which would reveal that the petitioner s income chargeable to tax, reflected as capital gains from the transactions in Cubical, had escaped assessment in the relevant AY 2013-14. As noted above, the impugned notice merely alleges that the assessee had taken bogus profits through the scrips of Cubical to the tune of Rs. 30,71,263/- which is a penny stock during the financial year 2012-13 . However, there was no material to suggest that any profit from sale and purchase of the said shares was made or had escaped assessment. The report annexed with the impugned notice dated 25.05.2022 was only related to Gemstone and it did not mention about Cubical. AO had also furnished a tabular statement which reflected the transactions entered by the petitioner in the financial year 2012-13. The third row of the said tabular statement in the impugned order mentions the value of the opening quantity, the value at which the quantity was bought, the sale quantity, and the value which resulted in the profit of Rs. 30,71,263/-. The said tabular statement did not mention that the quantities or values were in respect of the shares of Cubical. The tabular statement is merely a statement reflecting the figures which represented the transactions. However, even if it is assumed that the said tabular statement related to the transactions in respect of the shares of Cubical, the same does not suggest that the income as generated from the shares was bogus or a camouflage to reflect the undisclosed income as long term capital gains. The impugned order also does not reflect any material that would suggest that the assessee s income in respect of the transactions in Cubical, had escaped assessment. AO has merely mentioned Cubical as a penny stock. However, the fact that a stock is a penny stock (a stock of low value), absent of any other material or information led to the conclusion that the transaction in the said stock is not genuine or a subterfuge to bring the undisclosed income as capital gains in the books of account. In absence of any material or evidence with the AO at the material time to suggest that the transactions in Cubical were bogus transactions, the amount of Rs. 30,71,263/- relating to the transactions in Cubical could not be included in the amount suggested having escaped assessment. If the said amount of Rs. 30,71,263/- is excluded, the value of the sale transaction of the shares of Gemstone (Rs. 29,75,000/-) falls short of the threshold limit of Rs. 50,00,000/- for reopening of an assessment ending prior to three years preceding the notice. Decided in favour of assessee.

Issues Involved:

1. Validity of the initiation of reassessment proceedings under Section 148A of the Income Tax Act, 1961.
2. Adequacy of information and evidence for reopening assessment for AY 2013-14.
3. Compliance with procedural requirements as per Supreme Court directives and CBDT instructions.
4. Assessment of income escaping taxation exceeding Rs. 50,00,000/-.

Detailed Analysis:

1. Validity of the initiation of reassessment proceedings under Section 148A of the Income Tax Act, 1961:

The petitioner challenged the reassessment proceedings initiated by the Assessing Officer (AO) through the impugned notices and order dated 25.05.2022, 25.07.2022, and 26.07.2022, respectively. The petitioner argued that the AO lacked information to suggest that the income for AY 2013-14 exceeding Rs. 50,00,000/- had escaped assessment. The AO relied on information indicating that the petitioner's income of Rs. 60,46,263/- had escaped assessment, primarily from transactions involving shares of M/s Gemstone Investment Ltd. and M/s Cubical Financial Services Ltd.

2. Adequacy of information and evidence for reopening assessment for AY 2013-14:

The AO alleged that the petitioner had disclosed income from capital gains, which was actually undisclosed income camouflaged as capital gains. The AO's belief was based on transactions involving the sale of shares of Gemstone and Cubical. However, the court found that the AO did not possess any books of account, documents, or evidence revealing that the income from Cubical had escaped assessment. The impugned notice merely labeled Cubical as a penny stock without supporting material to substantiate the claim of bogus profits.

3. Compliance with procedural requirements as per Supreme Court directives and CBDT instructions:

Following the Supreme Court's decision in Union of India & Ors. v. Ashish Aggarwal, the CBDT issued instructions mandating the AO to provide information and material relied upon for reassessment within 30 days. The court noted that the AO failed to provide adequate information regarding the transactions in Cubical, as required by the Supreme Court's directives and CBDT's instructions. The AO's reliance on a tabular statement was insufficient to suggest that the income from Cubical was bogus or a camouflage for undisclosed income.

4. Assessment of income escaping taxation exceeding Rs. 50,00,000/-:

The court examined whether the AO had sufficient evidence to conclude that income exceeding Rs. 50,00,000/- had escaped assessment. The AO's assessment included Rs. 29,75,000/- from Gemstone and Rs. 30,71,263/- from Cubical. However, in the absence of material evidence regarding the Cubical transactions, the court excluded the amount of Rs. 30,71,263/- from consideration. Consequently, the remaining amount of Rs. 29,75,000/- from Gemstone fell short of the Rs. 50,00,000/- threshold required for reopening assessments beyond three years.

Conclusion:

The court set aside the impugned notices and order for AY 2013-14, concluding that the AO lacked adequate material evidence to justify the reassessment proceedings. The petition was disposed of in these terms, emphasizing the necessity of possessing concrete evidence before initiating reassessment, especially for periods extending beyond three years.

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