The court emphasized that vague reasons for reopening an assessment do not satisfy the legal requirement for establishing income escapement under Section 148.

ORDER :

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

[1] By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 31st March 2021 issued by the respondent – Assessing Officer under Section 148 of the Income Tax Act, 1961 (for short, “the Act”) for reopening of the Assessment Year 2015-16.

[2] The brief facts of the case are as under:

[2.1] The petitioner is an individual and was engaged in the activity of trading in shares and securities. During the year under consideration, the petitioner had also traded in two contracts of “purchase” and “sale” of derivatives of Rs.19,20,000/- each and there was neither any profit nor any loss on account of such transactions. The petitioner filed return of income for the year under consideration on 31st October 2015 declaring total income at Rs.64,40,890/-.

[2.2] Thereafter, the respondent issued the impugned notice dated 31st March 2021 under Section 148 of the Income Tax Act, 1961 (for short, “the Act”) seeking to reopen the case of the petitioner for the year under consideration.

[2.3] The petitioner, in response to the impugned notice, filed return of income on 19th April 2021 and further requested the respondent to supply copy of reasons for reopening.

[2.4] The respondent supplied copy of reasons for reopening vide letter notice dated 5th March 2021. The case of the petitioner has been reopened by the respondent broadly on the count that the petitioner has indulged into generating non-genuine losses and profits by trading in illiquid stock options on the Bombay Stock Exchange. An information has been received by the respondent from the Insight Portal in March 2021 regarding coordinated and premediated trading on the Bombay Stock Exchange by engaging in reversal trades in illiquid stock options resulting into non-genuine business loss / gains to various beneficiaries and it is alleged that the petitioner is a party to such manipulation. It is stated that from the data made available under Project Falcon on the ITBA, it is seen that the petitioner has created “losses” and “profits” of Rs.38,40,000/-. Both “buy” and “sell” trades have been executed on the Bombay Stock Exchange. The petitioner has undertaken two unique trades which, in turn, resulted into “fictitious losses of Rs.19,20,000/-” as well as “fictitious profits of Rs.19,20,000/-”. Thus, the petitioner has traded in two unique contracts and has undertaken both “buy” and “sell” trades in each of the contracts and selling transactions is identical. The respondent is of the view that the petitioner has indulged in generating non-genuine losses and profits of Rs.38,40,000/- by trading in illiquid stock options on the Bombay Stock Exchange and therefore, the respondent has reason to believe that the income of Rs.38,40,000/- has escaped assessment and thus, the case of the petitioner has been reopened by the respondent – Assessing Officer.

[2.5] The petitioner, vide letter dated 24th May 2021, raised objections against reopening wherein various factual and legal submissions were raised. As per para 5 of the objections raised by the petitioner against reopening, the petitioner requested for large number of documents from the respondent and the respondent was also requested to drop the reassessment proceedings.

[2.6] The respondent, vide order dated 13th November 2021, disposed of the objections, inter alia, holding that reopening is justified. Therefore, the impugned notice issued by the respondent under the provisions of Section 148 of the Act is bad, illegal and barred by limitation and without jurisdiction. Being aggrieved, the petitioner has approached this Court.

[3] Learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner submitted that there is no escapement of income chargeable to tax so as to assume the jurisdiction to reopen the assessment by the respondent – Assessing Office. It was submitted that on perusal of the reasons recorded,