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TMI Blog2025 (1) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... vant information is discernable from reading of the reasons recorded, to connect assessee with any wrong doing to claim LTCG from one line statement given by the AO of his reasons recorded, which is cryptic and is extremely scanty and vague; and abruptly holds assessee to have dealt with penny-stock to claim bogus LTCG. Thus we find that there is absolutely no relevant details available in the reasons recorded to form such adverse conclusion; and in the light of the same, the initiation of proceedings u/s. 147 of the Act by the AO cannot be held to be valid and justified in law. According to us, the information given by the Office of the CCIT can only be at the most a basis to ignite/trigger an enquiry. The information given by CCIT only constitutes the starting point of AO to enquire; and such an information can only be termed as a foundation to form reason to suspect and not reason to believe escapement of income which is the jurisdictional fact law required to enable the AO to successfully assume jurisdiction to reopen an assessment as per section 147 of the Act. Thus the material/information referred to by the AO in his reasons recorded cannot be held to be a tangible material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained the increase in capital of Rs. 37,82,856/- which includes exempt income . Thereafter, the case of the assessee was reopened after the expiry of four years vide notice u/s. 148 of the Act dated 31.03.2021. In response, the assessee filed RoI on 12.04.2021 and the AO supplied the reasons recorded prior to reopening of the assessment vide letter dated 17.01.2022, which read as follows: Reasons for the belief that income has escaped assessment : 1. Brief details of the Assessee: The assessee is an individual and filed the return of his income for the AY 2014-15 19.09.2014, admitting a total taxable income of Rs 12,63,210/-. 2. Brief details of information received by the AO (details and evidences to be submitted): The assessee is one of the beneficiary in the Penny stock cases forwarded by the CCIT Office, Coimbatore and he has claimed exempt incomes from the bogus LTCG transaction. 3. Analysis of Information received: During the FY 2013-14 the assessee had claimed to have sold shares for a consideration of Rs. 98 Lakhs and admitted an income of Rs. 96,73,796/- Sale of such shares. The income admitted from sale of shares is found to be claimed as exempt. 4. Enquiries made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the essential condition precedents for invoking the jurisdiction to reopen was absent was disposed of by the AO. And the AO issued requisitions u/s 143(2) 142(1) of the Act inter alia calling for details in connection with sale of shares which fetched LTCG received during the year. From the details submitted, it is noted that the assessee during the original assessment/first round had filed her books, balance-sheet, income expenditure, has clearly shown at Page No.4, the very same LTCG/exempt income of Rs. 96,73,796/-; and in the computation of total income for AY 2014-15 has given the details of LTCG/exempt income viz. sale of shares in two transactions on 3rd 4th March, 2014, fetching Rs. 97,73,797/- as total sale consideration and LTCG claimed at Rs. 96,73,797/-. Upon examination of the replies, as well as the details comprising of demat account statement, contract note for sale of equity shares, letter of allotment and holding statement issued by M/s.Enam Securities Direct Pvt. Ltd., notification received from the respective Companies and contract notes received from M/s.Axis Securities Ltd. for sale of shares, the AO noted that the assessee has sold 10,000 shares at a price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation relating to the impugned transaction of sale of shares duly considered in the original assessment u/s. 143(3) of the Act. 5. That the impugned proceeding u/s. 147 of the Act is not only illegal but was based on change of opinion on same set of material and therefore the entire proceeding is vitiated and bad in law. 6. That without prejudice to the above, even otherwise, the Ld. CIT(A) failed to appreciate the fact that the completion of assessment u/s. 147 of the Act making disallowance of the exemption claimed on account of Long term capital gain on sale of shares of Sharp trade, duly recorded in regular books of accounts, when the assessee had already furnished sufficient documentary evidences in support of the genuineness of the impugned transaction of sale of shares, is totally illegal and not as per law. 5. Assailing the action of the Ld.CIT(A), the Ld. AR submitted that the Ld. CIT(A) didn t appreciate the contentions raised objecting to reopening of the regular/original assessment under Section 147 of the Act. He submitted that in the present case the original assessment was passed after scrutiny u/s 143(3), and the proceedings u/s. 147 were initiated after the expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from reading of para 8 of the reasons recorded which reveals that AO erred in wrong assumption of crucial fact that assessee didn t undergo scrutiny assessment, whereas for AY 2014-15, the assessee s original assessment was framed u/s 143(3) on 24.06.2016. Therefore, it is evident that AO didn t even bother to look into the assessment records before reopening the assessment, and consequently failed to satisfy the proviso to section 147 of the Act, which is sine qua non before reopening the assessment after four years from the end of the relevant assessment year. 7. Moreover, according to the Ld.AR, a perusal of the reasons recorded would reveal that based on the report from office of Ld.CCIT, the AO had recorded his reasons for reopening the assessment; and in the same there is no mention about the contents of the information received from the CCIT, Coimbatore. Therefore, according to the Ld.AR, merely based on bald statement that an information from office of CCIT, the AO could not have resorted to reopening of the assessment. According to Ld.AR, there was no tangible material before the AO which can be said to have been gathered by the CCIT, Coimbatore which could have led one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w allegation which is not emanating from the assessment records and asserted that the assessee had committed deception while furnishing information at the time of original assessment and invited our attention to the reply filed by the assessee during the original assessment [which is found placed at Page No.10 of the Paper Book] wherein the assessee has replied to the AO explaining the increase in the capital account. In the reply, the assessee had shown that the capital account to be Rs. 1,34,37,662/- which includes balance brought forward of Rs. 96,54,806/- and the remaining Rs. 37,82,856/- is the excess of income over the expenditure for the year [Rs.96,54,806/- plus Rs. 37,82,856/- = Rs. 1,34,37,662/-]. According to Ld DR, this reply/explanation of the assessee that Rs. 96,54,806/- was brought forward from the earlier year, was a false statement and made to hoodwink the AO. In other words, the AO was deceived by a make-believe story that sum of Rs. 96,54,806/- was the opening balance of the capital as on 01.04.2013, but actually it was the LTCG from the sale of shares of Rs. 96,73,797/-. In the light of the aforesaid facts pointed out, according to the Ld.DR, it can t be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the ITR exempting schedule of income shows total exempt income of Rs. 1,27,61,857/- which includes Rs. 96,73,797/- which is the impugned LTCG on the basis of which the AO has made an ad hoc addition of Rs. 98 lakhs. Thus, according to Ld.AR, the allegation made by the Ld.DR is neither emanating from the reasons recorded by the AO to re-open the assessment nor emanating from the impugned re-assessment order. Further according to the Ld.AR, even though it is an undisputed fact that original assessment u/s. 143(3) of the Act has been re-opened after four years from the relevant assessment year but the reasons recorded by him does not have a whisper about the failure on the part of the assessee to fully and truly disclosed all material facts necessary for the assessment. Therefore, according to the Ld.AR the essential condition precedent for re-opening of assessment is not satisfied and therefore, the impugned action of the AO to re-open the assessment is bad in law and need to be quashed. 10. We have heard both parties and perused the records. Before we advert to the legal issue [ challenging the jurisdiction of AO to reopen the assessment already completed u/s. 143(3) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sional jurisdiction respectively. The legislative history is that in respect to the reopening u/s. 147 of the Act, the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted for reason to believe escapement of income to for reasons to be recorded by him in writing, is of the opinion which gave unbridled subjective satisfaction to the AO was later substituted back to reason to believe escapement of income , by the Direct Tax Laws (Amendment) Act, 1989. The Hon ble Apex Court as well as the Hon ble jurisdictional High Court as well as other Hon ble High Courts have already held in plethora of cases the test of a prudent person instructed in law in understanding jurisdictional fact law (mixed question of fact and law) the reason to believe escapement of income (supra). 12. As noted, the AO, who is a quasi-judicial authority is empowered to reopen the assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax, which he has to record before issuing notice u/s 148 of the Act. In this regard, it must be borne in mind that reasons to believe postulates foundation based on information, and belief based on reason. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has no power to review; and emphasized that AO in absence of tangible material should not resort to reopening. The Hon ble Supreme Court held that merely on change of opinion the AO should not re-open the assessment because he doesn t enjoy the power to review his own order. 15. Thus, as noted before the AO assumes jurisdiction to re-open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., AO should record reason to believe that the income chargeable to tax for that assessment year has escaped assessment. And, if the AO intends to re-open an assessment [scrutinized u/s 143(3)] after four years from the relevant assessment year, then an additional condition needs to be satisfied viz escapement of income was due to fault of the assessee, in not fully and truly disclosing all the material facts necessary at the time of original assessment. If the conditions stipulated by statute are not satisfied at the first place, then it cannot be said that AO has validly assumed jurisdiction u/s. 147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO, he could have validly reop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to him; and that assessee has claimed exempt income from bogus LTCG transactions. Further at Para 3 onwards it was stated that the assessee has claimed to have sold shares for a consideration of Rs. 98 lakhs and admitted an income of Rs. 96,73,796/- and claimed it as exempt. According to the AO, pursuant to receiving the aforesaid information he verified from the ITR of assessee and noted that the assessee has received accommodation entry on sale of penny-stocks and has booked bogus capital gain which was claimed as exempt income. On the basis of the aforesaid facts, the AO formed his opinion that income chargeable to tax has escaped assessment. Further, at Para No.8 [of the reasons recorded], the AO records that even though return was filed by the assessee, no scrutiny assessment u/s. 143(3) of the Act was made and therefore, according to him, in this case, the only requirement to initiate proceedings u/s. 147 of the Act is reason to believe escapement of assessment which assertion he reiterates in the last paragraph; and also acknowledges that more than four years have lapsed from the end of the assessment year and therefore has taken approval from Pr.CIT for reopening the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding sale of shares; whether SEBI carried out any enquiry etc; No relevant information is discernable from reading of the reasons recorded, to connect assessee with any wrong doing to claim LTCG from one line statement given by the AO at Para No.2 of his reasons recorded, which is cryptic and is extremely scanty and vague; and abruptly holds assessee to have dealt with penny-stock to claim bogus LTCG. Thus we find that there is absolutely no relevant details available in the reasons recorded to form such adverse conclusion; and in the light of the same, the initiation of proceedings u/s. 147 of the Act by the AO cannot be held to be valid and justified in law. 18. Furthermore, a perusal of Para Nos.3 to 5 of the reasons recorded only shows that assessee in his ITR has claimed LTCG of Rs. 96,73,796/- as exempt. Nothing more is discernable. Nothing turns on the AO's statement that pursuant to receipt of information from the Office of the CCIT, he enquired/verified from the ITR filed by the assessee and found that assessee has claimed exempt LTCG. There is no mention or reason stated therein as to how he branded the shares sold by assessee as penny-stock and alleged the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the assessee to disclose fully and truly all material facts necessary for the assessment. Thus, in the facts and circumstances of the case, in the absence of satisfying the essential condition precedent as envisaged in the first proviso to section 147 of the Act, the AO's action to reopen is bad in law. The AO erred not only taking note of the relevant facts, he erred in applying/omitting to apply the correct law before reopening the assessment. In this regard, it would be gainful to refer to the decision of the Hon ble Supreme Court in the case of CIT v. Avadh Transformers (P.) Ltd. 51 Taxmann.com 369 wherein, the Apex Court upheld the judgment of the Allahabad High Court, holding that in absence of failure on the part of the assessee in disclosure of material facts, the reassessment proceedings could not be initiated after expiry of four years. 20. For the reasons discussed in the foregoing, therefore, we find that the essential condition precedents to invoke the jurisdiction to reopen the assessment for AY 2014-15 is absent; and consequently the action of AO to reopen the assessment without complying with the requirement of law is held to be wholly without jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X
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