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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Bhargav D. Karia, Niral R. Mehta, JJ.
Rakesh Ramanlal Shah – Petitioner
Versus
Deputy Commissioner Of Income Tax Circle 2(1)(1), Ahmedabad & Anr. – Respondents
R/Special Civil Application No. 4840 of 2022
Decided On : 11-06-2024
Income Tax - Reopening of Assessment - Section 147, 148, 143(3), 10(38) - The court held that the reopening of assessment was based on borrowed satisfaction without any fresh material linking the transactions to the alleged escapement of income, thus quashing the notice.
Fact of the Case:
The petitioner challenged a notice issued under section 148 of the Income Tax Act for reopening the assessment of income for the Assessment Year 2014-15, claiming that all material facts were disclosed during the original assessment.
Finding of the Court:
The court found that the reasons for reopening the assessment lacked a live link to the information received and were based on borrowed satisfaction, leading to the conclusion that the notice was issued for a fishing inquiry.
Issues: Whether the reopening of assessment under section 148 was justified based on the information received regarding alleged escapement of income.
Ratio Decidendi: The court emphasized that reopening assessments requires a direct link between the information received and the taxpayer's transactions, which was absent in this case.
Result: The impugned notice under section 148 of the Income Tax Act is quashed and set aside.
ORDER :
BHARGAV D. KARIA, JJ.
1. Heard learned advocate Mr. B.S.Soparkar for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for the respondents.
2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Varun Patel waives service of notice of rule for the respondents.
3. Having regard to the controversy in narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing.
4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 30.03.2021 issued under section 148 of the Income Tax Act,1961 [for short ‘the Act’].
5. Brief facts of the case are as under:
5.1 The petitioner filed return of income for Assessment Year 2014-15 on 26.07.2014 declaring total income of Rs. 39,61,071/-.
5.2 The return of the petitioner was processed and the case of the petitioner was selected for scrutiny. A detailed scrutiny was undertaken by the Assessing Officer by issuing notice dated 21.09.2016 under section 142(1) of the Act requiring the petitioner to furnish various details relating to the capital gain earned during the year under consideration along with documentary evidence. The petitioner filed detailed reply dated 09.11.2016 furnishing requisite details. The Assessing Officer passed the assessment order under section 143(3) of the Act on 18.11.2016 and has assessed income without making any addition.
5.3 Thereafter, the respondent No.1 issued impugned notice under section 148 of the Act asking the petitioner to file return of income for A.Y. 2014-15.
5.4 The petitioner filed return of income in compliance of the notice under section 148 of the Act on 24.07.2021 and also sought for copy of reasons recorded for reopening of the assessment.
5.5 Respondent No.1 provided the copy of the reasons recorded which are reproduced hereunder:
An information was received from DDIT (Inv)Unit §(1), New Delhi wherein, beneficiades of penny stock of Looks Health Services Ltd was discussed. As per the information, the Looks Health Services Ltd is a penny stock company, which has been used by beneficiaries (sellers of shares) to launder money in the grab of long term Capital Gains while claiming tax exemption under section 10(38) of the IT Act. As per the information, the assessee is one of the beneficiaries/memher of this, syndicate. The DDIT further reported that large. scale manipulation of trades and fabricated trading activity has taken place in the scrip. This has led to generation of fictitious profits and loss derived by various traders which were not genuine and were pre-determined. It can also be stated that the trades were carried out between a set of very few persons which were responsible for trade matching and placing huge orders which were matched against the corresponding counter orders immediately after the orders are placed. Even the price of the scrip was manipulated by the traders by manipulating closing price of the scrip on a particular trading day. This is important as closing price direcily influences the opening price of the next trading day. This also is necessary to artificially jack up the price of the scrip so that it can be raised up to certain level and the shares are sold to predetermined parties thereby earning bogus long- term capital gains which is exempt from tax u/s 10(38) of the Income Tax Act, 1961. Reverse modus operandi is adopted in order to provide entry of bogus ShortTerm Capital Loss. As per the information, the assessee has indulged in this sham transaction and has made total sale during the year of Rs. 2,27,30,800/-.
In the investigation report, it is reported that the assessee had received an amount of Rs. 2,27 ,30,800/as the sale consideration on account of sale in the shares of Looks Health Services Ltd. Further, looking to the investigation report, the transaction in this share is to be considered as sham.
Reopening of assessment requires fresh material linking the taxpayer's transactions to the alleged income escapement, which was not established in this case.
The reopening of an assessment under the Income Tax Act requires the Assessing Officer to provide specific reasons linking alleged income escapement to the taxpayer's records, which must not solely r....
Reopening of assessments under the Income Tax Act requires fresh tangible material; reliance on previously examined information constitutes a change of opinion and is invalid.
Point of law: It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whethe....
The Assessing Officer must have tangible evidence linking the taxpayer to alleged income escape for valid reassessment under the Income Tax Act; mere suspicion is insufficient.
Assessment under Income Tax requires concrete information indicating escapement of income, which was absent in this case, rendering notices invalid.
Under section 147 of the Act the proceedings for the reassessment can be initiated only if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any....
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