The main legal point established is that there must be a rational connection or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of income, and the burden of proof lies on the person who wishes the Court to believe in the existence of a particular fact.

JUDGMENT :

KAMAL KHATA, J.

1. The above two Writ Petitions are for the assessment years (‘AYs’) 2015-16 and 2016-17 having common facts and can be disposed of with a common order. For the sake of brevity we advert to the facts stated in Writ Petition No. 2827 of 2022.

2. This Petition under Article 226 impugns notice under section 148 of the Income-tax Act, 1961 (‘Act’) dated 31st March 2021 issued by Respondent No. 1 proposing to reassess the income for the AY 2015-16 and the order dated 24th January 2022, rejecting the objections raised by Petitioner challenging the validity of the said notice.

3. The reasons for opening are as under:

“The assessee company filed its return of income for A.Y. 2015-16 on 28.09.2015. Further, the case was selected for scrutiny and the assessment was completed under section 143(3) on 15.11.2017 assessing total income at Rs. Nil.

Subsequently, a credible information has been received from ITO (I&CI) Unit 2(3) Mumbai, that the assessee i.e. Ms. PRABHAT PROPERTIES PRIVATE LIMITED has shown a total profit of Rs. 2,07,33,019 from trading in shares in F & O/commodities/ currency. The same was verified by I&CI in the course of verification made after SEBI passed orders in cases of reversal trades and accommodation entries. The assessee has traded through two share brokers namely Master Capital Services Ltd & Skung Trade link Ltd. The Global report of Skung Trade link Ltd. shows loss of Rs. 84,94,990 and though the assessee has not submitted further break up of other income, it appeared that the profit shown above was a net profit taking into account transactions of both the brokers and after setting of the loss from trading in futures and option on BSE platform of Rs. 94,90,000. This has reduced assessee’s net profit of the F.Y. 2014-15 to the tune of Rs.84,90,000.

The assessment in the case of assessee for A.Y. 2015-16 was completed under section 143(3) on 15.11.2017. During the assessment proceedings, there is clear failure on part of the assessee to make full and true disclosure of these material facts.

In view of the above, since assessee has failed to disclose fully and truly all material facts necessary during assessment, I have reason to believe that income amounting to Rs. 84,90,000/- chargeable to tax has escaped assessment. Accordingly, provisions of sub-clause (c)(i) of Explanation 2 of section 147 of the Act are clearly attracted.”

4. The Petitioner responded to the reasons giving all details and explanations. The relevant para is as under:

“3. In the reasons for reopening , it is mentioned that you have received the information from ITO(I&CI), Unit 2(3), Mumbai that the Assessee has shown a total profit of Rs. 2,07,22,019/- from trading in shares in F&O/Commodities/Currency . The above profit was verified by I&CI in the course of verification made after SEBI passed orders in case of reversal trades and accommodation entries. The Assessee has traded through two share brokers namely Master Capital Services Ltd. and Skung Trade Link Ltd. The Global Report of Skung Trade Link Ltd. shows loss of Rs. 84,94,990. It appeared that the profit shown above was not a net profit taking into account transactions of both the brokers and after setting off the loss from trading in futures and option on BSE platform of Rs. 94,90,000/-. This has reduced assessee’s net profit of the Financial Year 2014-15 to the tune of Rs. 84,90,000/-.

4. In this respect we submit that the assessee has done the transaction on the Stock Exchange in derivative transactions and earned profit on these transactions during the to the tune of Rs. 1,98,74,269/- and Profit of Rs. 8,58,750/- from Intraday Trading. The same was declared as Profit/Loss from Trading In Intraday/Futures/Options of Shares/Commodities/Currencies under the head Other Income Profit & Loss Account of Rs. 2,07,33,019/-. The same can be verified from Note No. 17 of profit and loss account forming part of the Financial Statements for the year ended 31-03-2015 and Part A-P&L