2023 (3) TMI 620 - HC - Income Tax

Reopening of assessment u/s 147 - Eligible reasons as recorded by the Assessment Officer for reopening of the assessment - income related to alleged transaction being undisclosed income - Bogus/non disclosure of LTCG - HELD THAT - As we are clear in our mind that the impugned notice, other than merely quoting that the Insight portal contains information as stated by the AO in his reasons for the reopening, does not further investigate the information or come to an independent assessment connecting the petitioner to the particular transactions specified in the information. The entire notice proceeds on the basis of suspicion that the petitioner has entered into the fictitious transactions of the script M/s. Confidence Finance Trading Ltd. AO has not even bothered to compare the information furnished by the petitioner in its reply or go through the income tax return of the petitioner, which was before the Assessment Officer, wherein long term capital gain transactions of securities were specifically disclosed. Also in its reply/objections, to the re-opening, the petitioner had in support of its contention made specific references to documents to support the genuineness of the concerned share transactions, some of which are, statements of long term capital gains claimed as exempt under Section 10 (38) of the Act, bills cum contract notes issued by the Bombay Stock Exchange to substantiate that the stock was traded on market, his Demat statements where the delivery of shares was reflected, the confirmation of SEBI that the stock was traded through recognized brokers and the fact that the entire sale consideration was received through regular banking channels. None of these documents were examined by the Assessing Officer while rejecting the objections of the petitioner, leading us to believe that the entire exercise of a re-opening of assessment was purely based upon suspicion in the face of all the material disclosed by the petitioner to the Assessing Officer. We do not find that any information of the petitioner has remained undisclosed in relation to the income offered by him to tax for the relevant assessment year. We also find that the material which the Assessment Officer has considered as information for the purpose of arriving at a satisfaction and having reason to believe that income of the petitioner has escaped assessment is not based upon any tangible information in order to proceed with the notice under Section 148 of the Act, beyond the prescribed period of limitation. Decided in favour of assessee.

Issues Involved:
1. Validity of the second notice under Section 148 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer to reopen a completed assessment beyond the prescribed period.
3. Requirement of fresh tangible material for reopening the assessment.
4. Application of mind by the sanctioning authority under Section 151 of the Act.
5. Legal precedents supporting the petitioner's case.

Summary:

Issue 1: Validity of the Second Notice under Section 148
The petitioner challenged the notice dated 31.03.2021 issued by the Revenue under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2013-14. The petitioner argued that the notice was issued without proper application of mind and was based on incorrect facts, making it impermissible at law. The court held that the reasons for reopening, cited in the communication dated 09.11.2021, were based on suspicious transactions observed from ITD, ITBA, and Insight portals, without actual examination of the information. The court found the notice to be based on suspicion rather than concrete evidence, thus lacking jurisdictional facts.

Issue 2: Jurisdiction to Reopen Assessment Beyond Prescribed Period
The petitioner contended that the reopening of assessment for the second time was done without fresh and tangible material and beyond the period of four years from the end of the Assessment Year 2013-14. The court noted that the reasons for reopening did not demonstrate any independent application of mind and were mechanically approved by the sanctioning authority, thus vitiating the entire process.

Issue 3: Requirement of Fresh Tangible Material
The petitioner argued that the reopening was done without any fresh tangible material. The court observed that the reasons for reopening were based on information from the Insight portal, which was not independently verified by the Assessing Officer. The court emphasized that the reopening of an assessment requires a direct nexus between the material and the belief that income has escaped assessment, which was not established in this case.

Issue 4: Application of Mind by Sanctioning Authority
The petitioner questioned the validity of the sanction granted under Section 151 of the Act. The court found that the approval under Section 151 was granted in a mechanical fashion without any independent application of mind, which is required to ensure that the reopening of assessment is not arbitrary.

Issue 5: Legal Precedents
The petitioner relied on several judgments, including Sheo Nath Singh Vs. Appellate Assistant Commissioner of Income Tax, Commissioner of Income Tax Vs. Smt. Paramjit Kaur, and others, to support their case. The court referred to these precedents to emphasize the importance of having concrete reasons for reopening an assessment and the necessity of the Assessing Officer to act on direct or circumstantial evidence rather than mere suspicion.

Conclusion:
The court quashed and set aside the impugned notice dated 31.03.2021 and the order disposing of the petitioner's objections dated 30.12.2021, declaring them arbitrary and issued without requisite jurisdiction under Section 148 of the Act. The rule was made absolute in terms of prayer clause A & B of the petition, with no costs.

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