2022 (10) TMI 550 - HC - Income Tax

Reopening of assessment u/s 147 - Scope of mandatory procedure of newly inserted Section 148A - bogus LTCG - HELD THAT - The issue of limitation though raised in the reply to the SCN was not urged by the learned counsel for the petitioner. However, as noted above the initial reassessment notice has been construed as a notice under Section 148A(b) in terms of the judgment in Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT and therefore the proviso to Section 149 of the Act is not attracted in the facts of this case. In view of the report of DDIT (Inv.) Unit-7(1) and 7(3) Mumbai, shared with the AO which suggests that the LTCG earned by the petitioner in AY 2014-15 was bogus and since, the said LTCG was claimed as exempt income, the AO at this stage, concluded that the said bogus LTCG is an income chargeable to tax which has escaped assessment. We therefore in the facts of this case do not find any ground to interfere with the impugned order dated 20th July, 2022, passed under Section 148A(d) of the Act and the re-assessment proceedings, at this initial stage. Writ petition is dismissed reserving liberty to the petitioner to raise all its contentions before the AO. We however direct the AO to provide the petitioner with all the relevant information pertaining to petitioner s transaction with Nyssa Corporation Limited available with the AO, after redacting third party information within four weeks from today.

Summary

Issues:
Challenge to order under Section 148A(d) of the Income Tax Act, 1961 and notice issued under Section 148 for AY 2014-15.

Analysis:

Issue 1: Challenge to Order under Section 148A(d) and Notice under Section 148
The petitioner sought to quash the order passed under Section 148A(d) of the Income Tax Act, 1961, and the notice issued under Section 148 for the Assessment Year 2014-15. The petitioner had previously challenged a notice under the erstwhile Section 148, which was quashed by the court. Subsequently, in light of a Supreme Court directive, a notice under Section 148A(b) was issued, alleging the petitioner's involvement in accommodation entries related to LTCG. The petitioner disputed the allegations, claiming the LTCG was legitimate and duly declared in the Return of Income.

Issue 2: Dispute Over LTCG and Allegations of Accommodation Entry
The petitioner disputed being a beneficiary of an accommodation entry and argued that the LTCG earned from share sales was genuine, supported by proper documentation and transactions through recognized channels. The Assessing Officer rejected the petitioner's reply, citing lack of documentary evidence and non-reporting of transactions in the ITR. The respondent alleged that the petitioner benefitted from accommodation entries in penny stocks manipulated by a syndicate, including Nyssa Corporation Limited. The court noted the conflicting claims regarding the nature of the transactions.

Issue 3: Request for Remand and Consideration of Limitation
The petitioner sought a remand to the Assessing Officer for reconsideration, citing a previous case with different circumstances. However, the court found that the petitioner had admitted to the transaction in question, and the investigation report supported the allegations. The issue of limitation was raised but not emphasized by the petitioner's counsel, with the court determining that the initial notice fell under Section 148A(b) and was not limited by Section 149 proviso.

Conclusion:
The court dismissed the writ petition but granted the petitioner the opportunity to present all contentions before the Assessing Officer. The court directed the Assessing Officer to provide relevant transaction information to the petitioner while reserving judgment on the merits of the controversy. The dismissal was based on the current stage of reassessment proceedings and the information available to the Assessing Officer, emphasizing the need for further assessment and consideration of the petitioner's claims.