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TMI Blog2024 (8) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected by the stock broker to deal with his errors in execution or whether the modification was effected under instructions of the Petitioner. Besides, every transaction executed under the Petitioner s client code and thereby captured in his books of accounts have been subjected to scrutiny assessment. If someone else s client code had been entered by the stock broker and that had been changed to the Petitioner s client code, the transaction would get captured in the Petitioner s books and would be part of the material scrutinized. If it is the Petitioner s client code that had been originally entered by the stock broker, leading to it being modified after execution, it would have no bearing on the income of the Petitioner, since it would be the person whose client code was entered upon modification, whose taxation would be impacted. Therefore, without any basis to show that there had been a failure on the Petitioner s part in making a full and truthful disclosure of material facts, the very jurisdiction to initiate reassessment as provided for in Section 147 would not be attracted. It is because the Revenue cannot demonstrate a failure on the part of the Petitioner to make full a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax, Circle 7 in Pune, Respondent No. 2. The sanction for the issuance of the notice under Section 148 had been issued by the Principal Commissioner of Income-tax-4, Pune, Respondent No. 3. In response, the Petitioner submitted that he had no change to make to the originally filed returns and therefore, the very same returns were again filed by him on 28th April, 2021. On 30th June, 2021 Respondent No. 2 issued a notice under Section 143 (2) along with the reasons for reassessment. The stated reason provided for the proposed reassessment was that the returns had not been subjected to scrutiny assessment. 4. On 3rd July, 2021, the Petitioner submitted his written objections to the impugned notice questioning the validity of the reasons for which reassessment had been proposed. The Petitioner asserted that his returns for AY-2013-14 had indeed been subjected to scrutiny assessment. He also submitted that under Section 147 as then applicable, no reassessment would be permissible after the expiry of four years from the end of the relevant assessment year unless the escapement of income was attributable to failure on his part to disclose fully and truly all material fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment. The information in question was stated to be the modification of client codes by the stock broker, which could have led to fictitious profits and fictitious losses being claimed by different clients of the stock broker. Such information, according to the Revenue, pointed to the Petitioner having had a benefit of Rs. 20,69,450/-, due to which the Revenue had reason to believe that income had escaped assessment. Such reason to believe would suffice to shift the onus to the Petitioner to substantiate and prove the genuineness of the transactions about which information was not in the possession of the Revenue. 7. The Petitioner also questioned the manner of approval of the reassessment proceedings. According to him, since a period of four years from the end of AY-2013-14 had expired on 31st March 2018, when reassessment was being considered in 2021, even assuming this was permissible under Section 149, it was incumbent for the more senior specified authorities under Section 151 (ii) to have applied their mind to approve such reassessment. Authorities specified under Section 151 (i) could only approve reassessments proposed within a period of three years, he would submit. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to benefit their clients. Since such information had not been available at the time of original assessment, the affidavit averred, it would be deemed that the Petitioner had failed to disclose material facts during the original assessment. 11. In rejoinder, by an affidavit dated 11th August, 2022, the Petitioner asserted that once scrutiny assessment had been conducted, when there has been an expiry of four years after the end of the assessment year, for the Revenue to initiate reassessment, it must be demonstrated that the escapement of income from assessment was due to failure on the part of the assessee to disclose material facts during the original assessment. In the instant case, the Revenue has asserted that no scrutiny assessment had taken place. Therefore, the very foundation of the reassessment stands disturbed. The Petitioner has asserted that all documents connected to securities trading by the Petitioner during the relevant period had been examined during the scrutiny assessment and there was nothing to show that there had been any failure on the part of the Petitioner to disclose any material fact. The Petitioner also submitted that even in the proceedings before thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils and explanation of dividend income. On 29th January, 2016, as part of the scrutiny assessment, proof of purchase of various shares that had been sold during the relevant year was demanded in order to ascertain whether the transactions indeed qualified for long-term capital gains. There is also a reference to charges said to have been paid by the Petitioner to the securities depository, stock exchange, and other transaction charges, with explanations being sought for justification of such amounts. Likewise, certain securities and bonds routed through the capital account were picked up for scrutiny and questions were raised. 16. In reply, various submissions had been made by the Petitioner including replies dated 13th August, 2015, 15th October, 2015, 18th January, 2016 and 28th January, 2016. The Petitioner also attended a personal hearing through an authorized representative. All of this culminated in the assessment order dated 11th March, 2016. Therefore, it is evident to us that the original assessment was an outcome of a robust examination of the returns, which included a detailed scrutiny of the trades in securities during the relevant financial year. 17. In these circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1 to Explanation 4 ***** [Emphasis Supplied] 19. Even a plain reading of the foregoing would show that a vital precondition for invoking Section 147 of the Act after the expiry of four years from the end of the relevant assessment year, is that during the original assessment, the assessee ought to have failed to fully and truly disclose all material facts necessary for the assessment. 20. We note from the record that in his objections to the proposed reassessment, the Petitioner had indeed pointed out that client code modifications for orders placed by the stock broker on the stock market system, are a matter of what the stock broker may have done as part of his operations. The Petitioner pointed out that all the trades instructed by him had indeed been executed as instructed and they are reflected in contract notes issued to him, and indeed tally with his ledger. The trades executed for him, therefore, form part of his books of accounts and financial statements and are reflected in his tax returns, which have been scrutinized and assessed. Therefore, all trades in his returns are indeed trades that have indeed been executed, and under instructions from the Petitioner. The contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its possession he ought to have failed to make a disclosure. In the absence of such necessary ingredients, it would be impossible to invoke a provisions under Section 147 unless such jurisdictional facts are present. In our opinion, it would not be open to the Revenue to initiate reassessment on the premise that it can simply form a belief and that such belief is supported by its own reasons, thereby ignoring the explicit formulation of the jurisdiction within which reassessment may be initiated. 24. It is a matter of public knowledge that client codes entered by a stock broker at the time of execution of the trades are permitted to be modified within a stipulated time after execution, if the stock broker finds that there had been any error in entering the correct client code. In the instant case, there is nothing to show whether such modification had been effected by the stock broker to deal with his errors in execution or whether the modification was effected under instructions of the Petitioner. Besides, every transaction executed under the Petitioner s client code and thereby captured in his books of accounts have been subjected to scrutiny assessment. If someone else s clie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceeding under section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be for the concerned assessment year. However, where an assessment under sub-section (3) of section 143 has been made for relevant assessment year, no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reasons of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. 19. In the case in hand it is not in dispute that the assessment year involved is 1996-97. The last date of the said assessment year was 31st March, 1997 and from that date if four years are counted, the period of four years e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside. [Emphasis supplied] 28. The discussion in the case above would squarely fit the facts of the instant case too. Without anything to show that it was the Petitioner who had failed to disclose any material fact fully and truly, there is no scope for initiating reassessment. Consequently, this Writ Petition deserves to be allowed, quashing the Impugned Notice (dated 31st March, 2021), and both consequential notices under Section 143 (2) (dated 30th June, 2021) and the notice under Section 142 (1) (dated 21st December, 2021); and indeed, the order dated 14th February, 2022, purporting to dispose of the objections raised by the Petitioner to the proposed reassessment. 29. Rule is made absolute in the aforesaid terms, and the Writ Petition is disposed of accordingly. There sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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