2022 (11) TMI 308 - AT - Income Tax

Reopening of assessment u/s 147 - Assessee is beneficiary of long term capital gains on sale of shares and there is a failure on part of the assessee to disclose his income on account of long term capital gains on sale of shares in her return of income - HELD THAT - We find that the assessee has duly reported the transaction of sale of shares in her return of income. Further, where the assessee is of the belief that she fulfills the conditions of exemption and has gone ahead and claimed exemption under section 10(38), she is well within her rights to claim exemption under section 10(38) of the Act. The reporting of sale transaction and claiming exemption under section 10(38) cannot be equated with non-furnishing of particulars of income. There cannot be different yardsticks to determine whether the assessee has reported the transaction in her return of income in cases where the assessee has not claimed the exemption and in another case, where the assessee has claimed the exemption. The Revenue is well within its right to examine the claim of the exemption and whether the same has been rightly claimed or not and take appropriate action as per law however, as far as reporting of transaction is concerned, the same has been duly complied with by the assessee. Had the Assessing officer carried out basic enquiry and verification of the return of income before recording the reasons, in all likelihood, he himself would have found the basis so stated as not emerging from the material on the record. Therefore, the belief and the reasoning so arrived at by the AO that the income has escaped assessment on account of failure on part of the assessee to truly and fully disclose the transaction has no material basis and cannot be sustained. The nexus between formation of belief and material basis which such belief is formed is clearly absent in the instant case and therefore, we are of the considered view that the notice issued under section 148 has no legal sanctity and cannot be sustained in the eyes of law and the same is hereby quashed and the consequent reassessment proceedings are thus set-aside. Assesse appeal allowed.

Summary

Issues:
Challenge to jurisdiction under section 147/143(3) by the assessee.
Validity of assessment without following natural justice.
Addition made under section 68.
Grounds mentioned in the Show Cause Notice.

Analysis:
Issue 1: Challenge to jurisdiction under section 147/143(3) by the assessee
The assessee contended that the Assessing Officer must have a valid reason to believe that income has escaped assessment under section 147. The notice issued by one Assessing Officer and assessment completed by another was challenged. The assessee argued that without a valid notice, the proceedings are void. Legal precedents were cited to support this argument. The Tribunal found the notice lacked legal sanctity due to the absence of a material basis for the belief that income had escaped assessment. Consequently, the notice under section 148 was quashed, and reassessment proceedings were set aside.

Issue 2: Validity of assessment without following natural justice
The assessee raised concerns about the assessment being made without following the principles of natural justice. However, the Tribunal's decision on the jurisdictional issue rendered this argument academic and was not further adjudicated upon.

Issue 3: Addition made under section 68
An addition was made under section 68 of the Act, which was challenged by the assessee. The Tribunal's decision on the jurisdictional issue rendered this challenge moot and was not specifically addressed in the final decision.

Issue 4: Grounds mentioned in the Show Cause Notice
The assessee contested that no additions were made based on the grounds mentioned in the Show Cause Notice. This argument was not specifically discussed in the final decision as the Tribunal primarily focused on the jurisdictional issue and set aside the reassessment proceedings based on that ground.

In conclusion, the Tribunal allowed the appeal of the assessee based on the lack of legal sanctity in the notice issued under section 148 due to the absence of a valid reason to believe income had escaped assessment. The other contentions raised by the assessee were not addressed in detail as they became academic in light of the jurisdictional issue.