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2023 (1) TMI 855 - AT - Income TaxReopening of assessment u/s 147 - Additions u/s 68 - penny stocks - information which was received from the Investigation Wing and refers to the 10 penny stocks, and from which in one Konarak Commerce Industries Limited, assessee has invested and claimed LTCG - HELD THAT - In the reasons there is not iota of words of assessee having transactions with Kayan brothers. There is no discussion as to how the investment of assessee in the scrip has resulted into escaping income. Apparently the Ld. AO has merely expressed reason to suspect and not cited reason to believe that income chargeable to tax has escaped assessment. AO has no power to review; he has the power to re-assess. The part of reasons reproduced above show that there was merely an attempt to review on basis of view that financial position of assessee is not very sound . This, however, was not a valid ground for invoking the provisions of section 147. Information received from the investigation wing as reproduced in the reasons had no substance qua the assessee and there was non application of mind by Ld. AO, away and apart from the information. The bench is of considered view that tax authorities below have fallen in error as Ld. AO recorded reasons without applying mind independently but based on surmises and conjectures out of financial status of the assessee. While Ld. CIT(A) and Ld. AO have both ignored the factual aspects of purchase of shares five years prior to the sale for substantial amount and have tried to paint its findings based on modus operandi of tainted Kayan brothers, with whom actually there was no dealing by the assessee. Assessee appeal allowed.
Issues Involved:
1. Jurisdiction and validity of the reopening of the assessment. 2. Merits of the reassessment and addition of income under Section 68 of the Income Tax Act. Detailed Analysis: 1. Jurisdiction and Validity of the Reopening of the Assessment: *Grounds of Appeal:* - The appellant challenged the reopening of the assessment on the basis that the reasons were not recorded by the Assessing Officer (AO) who had jurisdiction over the case. - The appellant contended that the AO who recorded the reasons did not apply his mind independently and the notice issued was time-barred. *Submissions and Findings:* - The appellant argued that the notice under Section 148 dated 28.03.2017 was issued by ITO, Ward-14(3), and no notice was issued by ITO, Ward 17(4) within the statutory period. The subsequent notices under Section 148 and 143(2) were also time-barred. - The appellant relied on judgments from the Hon'ble Kerala High Court and Hon'ble Delhi High Court to support the argument that reassessment without proper notice should be considered invalid. - The reasons recorded for reopening the assessment were merely a reproduction of information received from the Investigation Wing, with no specific observations or independent application of mind regarding the appellant's transactions. - The bench noted that the AO's reasons for reopening the assessment lacked a live link between the information received and the alleged failure of the appellant to disclose material facts. The reasons expressed a mere suspicion rather than a belief that income had escaped assessment. - The AO's observation that the appellant's financial position was not sound was deemed insufficient for invoking Section 147 of the Income Tax Act. *Conclusion:* - The bench concluded that the reopening of the assessment was invalid due to the lack of independent application of mind by the AO and the absence of a valid reason to believe that income had escaped assessment. Grounds 1(c) and 2(d) were allowed. 2. Merits of the Reassessment and Addition of Income Under Section 68: *Grounds of Appeal:* - The appellant challenged the reassessment on the basis that the AO had not followed the proper procedure for transferring the case and issuing notices. - The appellant contended that the addition of income under Section 68 was based on presumptions and not on factual evidence. *Submissions and Findings:* - The appellant argued that the reasons recorded for reassessment were factually incorrect as the transactions were with S.K.Khemka and not with the tainted Kayan brothers mentioned in the reasons. - The appellant provided details of the purchase and sale of shares, showing that the shares were purchased on 07.07.2005 and sold on 12.03.2010, thus generating long-term capital gains (LTCG). - The AO and CIT(A) were found to have relied heavily on the findings of the Investigation Wing without independently verifying the appellant's transactions. - The bench observed that the AO and CIT(A) did not consider the factual aspects of the appellant's share transactions and were driven by presumptions arising from the Investigation Wing's findings. *Conclusion:* - The bench concluded that the addition of income under Section 68 was erroneous as it was based on presumptions and not on factual evidence. The AO and CIT(A) failed to independently verify the appellant's transactions and relied solely on the Investigation Wing's findings. Grounds 4 and 5 were allowed. Final Order: - The appeal of the appellant was allowed, and the reassessment and addition of income under Section 68 were set aside. The remaining grounds were deemed superfluous and not adjudicated. Order Pronounced: - The order was pronounced in the open court on 18th January, 2023.
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