2022 (3) TMI 656 - AT - Income Tax

Reopening of assessment u/s 147 - Non disposal of objection of reopening - HELD THAT - This is a fatal mistake. In paper book page 26-30 objection raised by the assessee against reopening dated 15.5.2019 are duly attached. When the assessee has duly objected to the reopening it is incumbent upon the Assessing Officer to dispose of the same. Not disposal of objection to reopening is a fatal mistake and vitiates the order of Assessing Officer. As in Asian Paints Ltd. Vs. DCIT 2007 (1) TMI 159 - BOMBAY HIGH COURT duly supports this proposition. When it remains uncontroverted that the assessee has objected to the reopening and the same was not disposed off the validity of jurisdiction by the Assessing Officer loses its legality on the touchstone of the aforesaid decision of Hon'ble Bombay High Court. Hence, we set aside the orders of the authorities below on the ground of jurisdiction defect. Unexplained investment under section 69 - The assessee s explanation is that it has given loan to some parties which gave the said shares to the assessee as securities. That the said party asked the assessee to sell the said shares and after selling the said shares assessee made entries for adjusting the amount received from loan given to the said party and returned the balance amount to the said party. Hence, there is no claim of long term capital gain under section 10(38) of the Act in the books of the assessee. This aspect has been duly supported by documents submitted. None of the above has been controverted by the Revenue. Hence, addition has been made without considering facts, law and income returned by the assessee. Such order without application of mind is not at all sustainable in law. Hence addition made under section 69 of the Act claimed to be for long term capital gain claimed exemption by the assessee under section 10(38) of the Act is not actually correct and same is liable to be set aside on this account also. Accordingly, decide the issue in favour of the assessee.

Summary

Issues:
1. Validity of reopening of assessment under section 147 of the Act.
2. Treatment of long term capital gain on sale of equity shares as unexplained investments under section 69 of the Act.

Issue 1: Validity of Reopening of Assessment under Section 147 of the Act

The appeal challenged the reopening of assessment under section 147 of the Act, contending that it was invalid due to non-compliance with prerequisites. The Assessing Officer initiated proceedings based on information from the investigation wing regarding trading activities in penny stocks. The National Faceless Appeal Centre (NFAC) upheld the reopening, citing detailed investigations into penny stock cases. The NFAC rejected the challenge to the assumption of jurisdiction under section 148, emphasizing the reliance on external information for initiating proceedings. The NFAC also dismissed claims that transactions were through banking channels, highlighting the obligation on the assessee to prove the legitimacy of transactions. Citing relevant case laws, the NFAC confirmed the addition of unexplained investments as bogus long term capital gains and dismissed the appeal.

Issue 2: Treatment of Long Term Capital Gain as Unexplained Investments under Section 69 of the Act

The Assessing Officer added an amount as unexplained investments under section 69 of the Act, alleging that the assessee claimed long term capital gain as exempt under section 10(38). However, the assessee clarified that the shares in question were received as security for a loan given to a third party, and the subsequent sale was for loan repayment purposes, not for claiming capital gains exemption. The ITAT found that the addition under section 69 was based on incorrect assumptions, as the assessee did not actually claim the exemption under section 10(38). The ITAT noted that the addition lacked consideration of facts and the income returned by the assessee, leading to an unsustainable order. Consequently, the ITAT set aside the orders of the authorities below and ruled in favor of the assessee, allowing the appeal.

In conclusion, the ITAT ruled in favor of the assessee, setting aside the orders of the authorities below on both issues related to the validity of reopening of assessment and the treatment of long term capital gain as unexplained investments. The judgment highlighted the importance of proper assessment procedures and accurate consideration of facts and legal provisions in tax matters.