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IN THE HIGH COURT OF DELHI AT NEW DELHI
S. RAVINDRA BHAT, A.K. CHAWLA, JJ.
Prabhat Agarwal - Petitioner
Versus
Deputy Commissioner of Income Tax - Respondent
W.P.(C) 8907 of 2008
Decided On : 16-08-2018
Income Tax Act - Reassessment Notice - Section 147/148 - [Section 147/148, Income Tax Act, 1961] - The court discussed the provisions of Section 147/148 of the Income Tax Act, 1961, which allows for reassessment of income if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The court highlighted the requirement for the Assessing Officer to record reasons to believe prior to issuing the notice under Section 148, as mandated under Section 148(2) of the Act. The judgment emphasized the importance of genuine and legitimate transactions and the consequences of attempting to avoid tax through artificial means.
Fact of the Case:
The assessee was aggrieved by a re-assessment notice issued to him under Section 147/148 of the Income Tax Act, 1961, for the assessment year 2004-05. The case related to the assessment for AY 2004-05, involving capital gains from the sale of shares and mutual funds. The Assessing Officer proposed reassessment based on reasons to believe that income chargeable to tax had escaped assessment.
Finding of the Court:
The court found that the reasons to believe were not recorded before the issuance of the notice, as mandated by Section 148(2) of the Act. It concluded that the reassessment notice and subsequent orders were quashed due to the revenue's failure to comply with the mandatory requirement of recording reasons before issuing the notice.
Issues: The issues revolved around the genuineness of the transactions, the timing of recording reasons to believe, and the compliance with the procedural requirements under Section 147/148 of the Income Tax Act, 1961.
Ratio Decidendi: The court's decision was based on the failure of the revenue to demonstrate that the reasons to believe were recorded before the issuance of the notice, as required by law. The judgment emphasized the mandatory nature of recording reasons before initiating reassessment proceedings.
Final Decision: The writ petition was allowed, and the impugned reassessment notice and subsequent orders were quashed. The court directed an inquiry into the manipulation of records and strict disciplinary action against the officials involved.
S. RAVINDRA BHAT, J.
1. The writ petitioner (hereafter “assessee” is aggrieved by a re-assessment notice issued to him, under Section 147/148 of the Income Tax Act, 1961, by the respondent (hereafter “revenue”) on 25th May 2007, for the assessment year (AY) 2004-05; he seeks directions for the quashing of that notice.
2. Briefly, the case relates to assessment for AY 2004-05; the assessee had filed his original return of income on 25/10/2004 declaring Rs. 18,00,16,650/- including income of Rs. 60,00,000/- chargeable at normal rates and the balance from long term capital gains. The income from capital gain was further divided: into two parts, i.e., one from sale of units of various mutual funds-(36 in: number) and second from sale of bonus shares' of M/s Terra Network SA, USA. The sale of shares of Terra Nova SA resulted in long term capital gain of Rs. 18,50,96,372/- but after claiming losses and B/F losses the net income offered to tax was Rs. 6,84,31,075/-. The losses claimed were in respect of two transactions; sale of shares of M/s Parsec Technology and on account of sale of mutual fund units.
3. On 25th May, 2007, the AO issued the impugned notice, proposing to reassess the petitioner’s income. After repeated requests, the “reasons to believe” recorded by the AO were furnished to the assessee; they inter alia, read as follows :
“2. In the original return filed by the assessee. Long term capital gain of Rs.22,76,27,481/- have been shown. Short term capital loss of Rs.5,36,59,621/- has also been shown in the return. From the annexures enclosed with the return of income. It is seen that during the year the assessee has shown capital gains on sale of shares. Capital gains of Rs. 18,50,96,372/- have been shown on the sale of shares of M/s Terra Networks SA, USA. At the same time the assessee has also shown capital loss of Rs.4,53,69,983/- on the sale of shares of M/s Parsec Technologies Ltd. This loss has been adjusted against the capital gains accruing on account of sale of shares of M/s Terra Networks SA, USA. The assessee Sh. Prabhat Aggarwal, is the Promoter and Director of M/s Parsec Technologies Ltd. The address of M/s Parsec Technologies Ltd. is same as that of Sh Prabhat Aggarwal.
3. The shares of M/s Parsec Technologies Ltd. have been sold to Sh. Madan Mohan Aggarwal, the father of assessee. The address of Sh. Madan Mohan Aggarwal is the same as that of the assessee. As per the share transfer form, the sale has been carried out on 26.3.2004 which has been mentioned as approved date in the share transfer form. The sale of shares has not been carried out through a recognized stock exchange. The following table provides the details relating to the sale of shares of M/s Parsec Technologies Ltd.”
The AO proceeded to record that the assessee had acquired Rs. 10/- face value 3,84,500 shares of Parsec Technologies (“Parsec”) at a premium of Rs. 130/- per share and later another 46500 shares for Rs. 10 (without any premium) from one Ravi Sikka. He then sold (on 26.3.2004) 4,00,000 shares to his father M.M. Agarwal at Rs. 25/- per share and declared a loss. This transaction, according to the AO was not genuine and was a device to avoid tax, to claim loss that was not warranted. The AO also reasoned that this share transaction was shown to offset other income. The AO also pointed to another transaction of sale of mutual funds, which according to him, could not result in legitimate capital gain, but other forms of income, because those units were held for less than 3 months from the record date.
The AO then proceeded to observe as follows :
“I have reason to believe that income chargeable to tax amounting to Rs. 9,29,09,875/- (Rs. 4,53,69,983/- on account of in genuine capital loss on shares of M/s Parsec Technologies Ltd as discussed above and Rs 4,75,39,692/- on account of excessive claim of short terms capital loss on mutual funds as discussed above)”.
The assessee/petitioner’s objections to the reassessment notice, were turn
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