2023 (12) TMI 1260 - AT - Income Tax

Reopening of assessment u/s 147 - bogus LTCG - reopening was done on the basis of information received from the Investigation Wing that the assessee has earned long-term capital gain from transfer of shares of Quest Financial Service Limited, which is a penny stock company and the said gain has been claimed as exempt u/s 10(38) - HELD THAT - The reasons were recorded without application of mind and in a very casual and mechanical manner. AO in the first second para stated that the assessee has taken bogus long-term capital gain through penny stocks. Besides we also note that the ld. AO has stated sometimes in the said reasons recorded his/her . We find merit in the contentions of the A.R. that the reasons have to be read as they are recorded and there has to be an independent application of mind by the AO and a objective satisfaction has to be recorded whereas the AO acted on the borrowed satisfaction which is a clear-cut non-application of mind by the AO. The case of the assessee finds support from the decision of Hindustan Lever Limited vs.- R.B. Wadkar, Asst. CIT 2004 (2) TMI 41 - BOMBAY HIGH COURT wherein it has been held that the reasons have to be read as they are recorded and it cannot be substituted. The Hon ble Court has held that there has to be satisfaction of AO for reopening of the assessment and reopening cannot be made for borrowed satisfaction in a mechanical manner. Thus we quash the reopening of assessment and direct the ld. AO to delete the addition. The appeal of the assessee is allowed on legal issue.

Summary

Issues Involved:
The judgment involves the issue of condonation of delay in filing the appeal, challenge to the reopening of assessment under section 147 of the Income Tax Act, and the legality of additions made by the Assessing Officer.

Condonation of Delay:
The appeal was initially barred by limitation by 11 days, and the Counsel for the assessee explained the delay due to the assessee's health issues. The delay was condoned after considering the reasons provided by the assessee.

Reopening of Assessment:
The assessee challenged the reopening of assessment under section 147 of the Act, which was based on information regarding long-term capital gain from shares of a penny stock company. The Assessing Officer made additions under section 68 of the Act, alleging commission for arranging accommodation entry of long-term capital gain. However, it was observed that the reasons for reopening the assessment were recorded without proper application of mind and in a casual manner. The Tribunal found that the Assessing Officer's reasons lacked clarity and did not establish a valid basis for reopening the assessment, as per the legal requirement of disclosing all material facts necessary for assessment.

Legality of Additions:
The Tribunal noted discrepancies in the reasons recorded by the Assessing Officer for reopening the assessment, including the mention of a surprise figure related to the assessee's alleged involvement in malpractices. Citing a precedent from the Bombay High Court, the Tribunal emphasized the importance of clear and unambiguous reasons for reopening an assessment, based on concrete evidence. Consequently, the Tribunal quashed the reopening of assessment and directed the Assessing Officer to delete the addition made. The appeal of the assessee was allowed on legal grounds, and the merit-based grounds were not adjudicated upon.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee based on the legal issue of the improper reopening of assessment under section 147 of the Income Tax Act. The Tribunal emphasized the necessity of clear and valid reasons for such actions, as highlighted in relevant legal precedents. The judgment was pronounced on 26/12/2023.