2022 (7) TMI 335 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - loss on transactions of sale and purchase of shares by the assessee - Onus to prove - HELD THAT - We have carefully examined the aforesaid issue and we are in complete agreement of the findings assigned by the Tribunal inasmuch as that the assessee has discharged its onus to justify the loss claimed by it on purchase and sale of shares. Thus, the tribunal is right in observing that the onus has shifted on the Revenue Department to disprove the same by placing on record contrary evidence. Merely since the Companies and few purchasers have not responded to the notice issued by the Assessing Officer at the stage of reassessment cannot be a reason to discard the evidences placed by the assessee. Even otherwise we could notice that the aforesaid transactions were looked into by the AO during the original assessment and upon due compliance of the procedure envisaged under the Act. AO at the stage of original assessment was satisfied about the genuineness of such share transactions and had thereafter permitted the loss claimed by the assessee towards the share transactions. We are in complete agreement with the findings recorded by the Tribunal that even otherwise the assessee being transferor of shares cannot be subjected to tax in the instant case, more particularly, considering the amendment brought by the Legislation on the statute book in the form of Sections 50CA and 56(2)(x)of the Act, which is applicable with effect from 01.04.2018 and 01.04.2017 respectively. The conjoint reading of both sections, clearly provides that the tax liability if any, arise in such kind of transactions will be applicable in the hands of recipients and no liability can be imposed on the transferor of shares. We cannot accept the submissions of the Revenue to treat the present case as a case of escapement of income conferring jurisdiction on the Assessing Officer for reopening the assessment. In fact for the reasons recorded, the Assessing Officer had no jurisdiction to initiate the reassessment under Section 147 read with Section 148 of the Act, more particularly, in absence of any new tangible material found on record. So far the issue of deleting the addition of disallowance of loss claimed on sale and purchase of shares in case of assessee is concerned, as noted above, both the CIT (A) as well as Appellate Tribunal have elaborately discussed the supporting evidence and has individually examined the transactions of each five Companies. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act.
2. Validity of the reassessment order under Section 143(3) read with Section 147 of the Income Tax Act.
3. Deletion of the disallowance of loss claimed on the sale and purchase of shares.

Issue-Wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 of the Income Tax Act:
The Revenue Department contended that the Assessing Officer had reason to believe that income had escaped assessment, particularly concerning the loss claimed by the assessee on the sale and purchase of shares amounting to Rs.10,81,15,500/-. The Department argued that the reopening of the assessment was justified under the precedent set by the Supreme Court in CIT vs. PVS Beedies Pvt. Ltd., where reopening is permissible if a legal mistake is found. However, the respondent Company argued that the reassessment was based on a mere 'change of opinion' without any new tangible material. The Court found that no new tangible material had come on record to justify the reassessment, and the details of the transactions had already been examined during the original assessment. Hence, the notice issued under Section 148 was deemed invalid.

2. Validity of the Reassessment Order Under Section 143(3) Read with Section 147 of the Income Tax Act:
The original assessment had accepted the loss on the sale of shares as genuine, and no new material was presented to justify the reopening of the assessment. The CIT(A) and the Appellate Tribunal both found that the reassessment was based on a change of opinion rather than new evidence. The Tribunal concluded that the material available at the initiation of the reassessment was already on record during the original assessment, thus invalidating the reassessment proceedings. The Court agreed with this finding, stating that the Assessing Officer had no jurisdiction to initiate reassessment in the absence of new tangible material.

3. Deletion of the Disallowance of Loss Claimed on the Sale and Purchase of Shares:
The Revenue Department argued that the transactions were not genuine and were a colorable device to reduce tax liability. However, the CIT(A) and the Appellate Tribunal found that the assessee had provided sufficient documentary evidence, including share certificates, ROC filings, and banking transactions, to prove the genuineness of the transactions. The Tribunal noted that the Revenue Department failed to provide contrary evidence to disprove the assessee's claims. The Court upheld the Tribunal's findings, agreeing that the transactions were genuine and the loss claimed was valid. The Court also noted that the legislative amendments in Sections 50CA and 56(2)(x) of the Act, effective from 2017 and 2018, respectively, would apply tax liability to the recipient, not the transferor, further supporting the assessee's position.

Conclusion:
The Court dismissed the Revenue's appeal, answering both substantial questions of law in the negative. The Court found no error of law or fact in the orders passed by the CIT(A) and the Appellate Tribunal, thereby upholding the deletion of the disallowance of the loss claimed on the sale and purchase of shares. The reassessment proceedings were deemed invalid due to the absence of new tangible material, and the transactions were confirmed as genuine based on the evidence provided by the assessee.