2024 (7) TMI 901 - AT - Income Tax

Validity of order u/s 147 r.w.s. 148 - non recording proper reasons - reasons recorded that there was information from the Investigation Wing that the assessee had derived fictitious profits in the trading on BSE in equities and derivatives HELD THAT -The issuance of notice u/s 148 by the AO simply on the basis of information of the Investigation Wing is unjustified. The same requires to be quashed. Further, it is also noted that the reasons recorded were factually wrong. The AO has simply adopted the figures alleged to be fictitious profits in the business of shares on BSE on the basis of report of the Investigation Wing of the department. The AO did not make efforts to verify as to how the figure of Rs. 51,47,700/- was arrived. There is absolutely no such profit of Rs. 51,47,700/- in the share business conducted by the assessee. Even in the assessment order, the AO has not given the working of this alleged fictitious profit of Rs. 51,47,700/- with reference to the scrips in which trading was done. In the absence of these details, the assessee was bereft of giving any defence. It is settled position of law that initiation of proceedings u/s 148 on the basis of wrong/incorrect facts is invalid in the eye of law. AO was not justified in making addition by rejecting the claim of loss of the assessee suffered in share trading. The addition made deserves to be deleted. Hence, taking into consideration above deliberations in the facts and circumstances case as detailed hereinabove, the Bench does not concur with the findings of the ld. CIT(A) and thus the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Legitimacy of the addition of fictitious profits and disallowance of losses in share transactions.

Detailed Analysis:

Issue 1: Validity of Notice Issued Under Section 148
The assessee challenged the validity of the notice issued under section 148 on the grounds that it was based on incorrect facts and lacked proper reasons. The assessee contended that the notice was issued without independent verification by the Assessing Officer (AO) and was based solely on information from the Investigation Wing. The Tribunal observed that the AO did not conduct any independent inquiry and relied entirely on the information provided by the Investigation Wing, which is against established legal principles. The Tribunal cited several case laws, including CIT Vs. Shree Rajasthan Syntex Ltd. and SIGNATURE HOTELS (P) LTD. vs. INCOME TAX OFFICER, to support the argument that reopening of assessment based on borrowed satisfaction is invalid. Consequently, the Tribunal found the issuance of notice under section 148 to be unjustified and quashed it.

Issue 2: Legitimacy of Addition of Fictitious Profits and Disallowance of Losses
The AO made additions of fictitious profits and disallowed losses claimed by the assessee from share transactions, terming them as fictitious. The Tribunal noted that the AO had issued the notice under section 148 based on information that the assessee had earned fictitious profits. However, the AO did not make any addition on this ground in the final assessment. Instead, the AO disallowed the losses claimed by the assessee, which was inconsistent with the initial reason for reopening the assessment. The Tribunal emphasized that if the AO fails to make any addition on the ground on which the notice under section 148 was issued, then no addition on any other ground can be made. The Tribunal also pointed out that the AO did not bring any material on record to establish that the trading by the assessee was manipulative or involved reversal trades. The Tribunal concluded that the disallowance of losses was not justified and directed the deletion of the addition made by the AO.

Separate Judgments for Different Assessment Years:
For the assessment years 2013-14, 2016-17, and 2016-17, the Tribunal delivered consistent judgments. The Tribunal allowed the appeals of the assessee for all three assessment years, quashing the notices issued under section 148 and deleting the additions made by the AO. The Tribunal applied the same reasoning and legal principles across all the appeals, emphasizing the lack of independent verification by the AO and the inconsistency in the grounds for reopening the assessments.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2013-14, 2016-17, and 2016-17, quashing the notices issued under section 148 and deleting the additions made by the AO. The Tribunal highlighted the importance of independent verification by the AO and the necessity of consistency in the grounds for reopening assessments. The judgments underscore the legal principle that reopening of assessment based on borrowed satisfaction is invalid.