2021 (7) TMI 301 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - notice issued after end of 4 years - HELD THAT - Since the revenue has failed to show the non-disclosure of facts, the notice having been issued after period of 4 years is required to be quashed - assessee had disclosed all material facts at the time of previous assessment proceedings and all the relevant facts with regard to transaction alleged in the reasons recorded were duly within the knowledge of the Assessing Officer. After disclosure of primary facts with regard to purchase and sales of scrip of M/s. Aarya Global, the Assessing Officer, could have made further inquriy with regard to truthfulness of the transaction and reliability of the company. AO being an expert in the subject, could have inferred from the price of purchase and sales of the scrip that the transaction is bogus. It is pertinent to note that the Assessing Officer was investigating the transaction of penny stock Company i.e. KGN Industries. The record indicates that the report of SEBI imposing penalty was pronounced on 30.11.2017. Therefore, it cannot be said that the revenue was unaware with regard to alleged bogus trading undertaken by M/s. Aarya Global and connected persons and their beneficiaries. Under such circumstances, contention raised by the revenue is not acceptable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Reopening of the assessment after the expiry of 4 years.
3. Alleged failure of the assessee to disclose fully and truly all material facts.

Issue-wise Detailed Analysis:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:
The writ applicant challenged the notice dated 31.03.2018 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the applicant's income tax assessment for the A.Y. 2011-12. The notice was based on the grounds that the assessee had taken entry of bogus long-term capital gain (LTCG) through the scrip of M/s. Aarya Global Shares and Securities Ltd., which was allegedly used to facilitate the introduction of unaccounted income. The court scrutinized the reasons recorded for reopening the assessment and found that all relevant facts regarding the transaction with M/s. Aarya Global were within the knowledge of the Assessing Officer during the original assessment proceedings. The court concluded that the impugned notice was issued due to a change of opinion, which is not permissible under the law.

2. Reopening of the assessment after the expiry of 4 years:
The court noted that the reopening of the assessment was sought after the expiry of 4 years from the end of the relevant assessment year. According to Section 147, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment and that this was due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the assessee had made a "true" and "full" disclosure of all primary facts during the original assessment proceedings, and the Assessing Officer had consciously decided not to make any addition regarding the transaction with M/s. Aarya Global. Therefore, the reopening of the assessment was deemed invalid and without jurisdiction.

3. Alleged failure of the assessee to disclose fully and truly all material facts:
The revenue contended that the assessee failed to disclose the transaction of shares of the penny stock company, M/s. Aarya Global, and that the subsequent information revealed the transaction to be bogus. However, the court found that the assessee had disclosed all material facts during the original assessment proceedings, including the details of LTCG earned from M/s. Aarya Global. The court held that the Assessing Officer had the opportunity to investigate the transaction further but chose not to make any addition. Thus, the court concluded that the assessee had not failed to disclose any material facts, and the reopening of the assessment was based on a mere change of opinion.

Conclusion:
The court allowed the writ application, quashing and setting aside the impugned notice dated 31.03.2018 issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2011-12. The court held that the reopening of the assessment was invalid as it was based on a change of opinion and was issued after the expiry of 4 years without any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.