INDU MAHENDRA SHAH (L/H OF LATE SHRI MAHENDRA G. SHAH),MUMBAI vs. ACIT, CIRCLE-20(2), MUMBAI

In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of the Ld. Assessing Officer of initiating the reassessment proceedings u/s 147 of the Act merely on the basis of change of opinion without being in possession of any fresh tangible material after completion of the first reassessment.

In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of the Ld. Assessing Officer of initiating the reassessment proceedings u/s 147 of the Act on the basis of incorrect reasons recorded for reopening.

In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the reassessment proceedings which was initiated with a mechanical and invalid sanction granted u/s 151. 5. In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of the Ld. Assessing Officer of issuing notice u/s 148 on borrowed satisfaction merely relying on the basis of alleged information received without any independent application of mind thereon.

In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of the Ld. Assessing Officer of completing the assessment u/s 143(3) read with section 147, without providing the material or information in his possession and without providing any opportunity of cross examination of the witnesses relied upon by the Assessing Officer and thus violating the law laid down by Honorable Supreme Court in the case of Kishanchand Chellaram v. CIT (1980) 125 ITR 713 and Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006.)

In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Ld. Assessing Officer in treating the transaction of the sale of shares of M/s Nivyah Infrastructure & Telecom Services Ltd. 2 as bogus and treating it as accommodation entry and has erred in confirming the addition of Rs. 5,46,32,198/- as unexplained cash credit under section 68 of the Act.

In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in upholding the action of the Ld. Assessing Officer of not granting the exemption of long terms capital gain under section 10(38) of the Act on sale of listed equity shares sold through recognized stock exchange which has duly been subjected to security transaction tax (S.T.T.) on surmises, conjecture and suspicion.

In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in confirming addition in respect of commission of Rs. 1,63,896/- estimated at 3 per cent of Rs. 5,46,32,198/-, as unexplained expenditure under section 69C of the Act.”

Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the Assessing Officer had no juri iction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside.” (Emphasis Supplied)

In the above judgment it has been held by the Hon’ble Bombay High Court that the reasons are to be read as they have been recorded by the Assessing Officer. Neither any addition/substitution can be made to the reasons recorded nor can any inference be drawn. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission. Therefore, the reasons recorded must be self-

The assessee has e-filed its return of income for the A.Y.2011-12 on 29/03/2012 declaring total income at 1,48,45,010/- the ITR has been processed u/s 143(1).

Information was received from DDIT(Inv.), Unit-8(3), Mumbai vide letter No. DOIT(Inv) Unit-8(3) Diss/Action/2017-18/232 dated 23.03.2018 wherein the above mentioned assessee has traded in stocks of M/s Nivyah Infrastructure & Telecom Services Ltd. (Scrip Code: 517534) Information has been received that M/s Nivyah infrastructure & Telecom Services Ltd is a penny stock listed on BSE and trading in this Scrip highly suspicious and this scrip has been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or short-term capital loss in their book of accounts. The share price of this scrip rose from Rs. 39 on 21st July 2009 to Rs. 2050 on 5th Jan. 2011 and dipped to Rs. 47.20 on 18th July 2012 The sharp rise in the market price of this entity is not supported by the financial fundamentals of the company Both purchase and sale of the shares are concentrated within few persons/ entities. The above mentioned share is one of the penny stocks whose prices were rigged to gain huge profit/loss through manipulated affairs.

In view of the above, I have reason to believe that income to the extent of Rs 5,46,32,199/ chargeable to tax has escaped assessment for A.Y 2011-12 Accordingly, the 7 proceedings u/s 147 of the Act are duly attracted in order to frame proper reassessment to bring to tax appropriate income of the (assessee). This is a fit case for issuance of notice u/s 148 of the Act.

It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration and assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause. (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

Since the period of 4 years but not more than 6 years have elapsed from the end of relevant A.Y 2011-12, prior approval of Pr. CIT-20, Mumbai is needed as per the provision of section 151 of the Income Tax Act, 1961. 6. Notice u/s 148 of the Income Tax Act, 1961. Notice u/s 148 of the Act, 1961 is accordingly to be issued to the assessee for AY 2011-12.” (Emphasis Supplied)

In the present case, the reassessment proceedings have been initiated subsequent to passing of the assessment order under Section 143(3) of the Act and after the expiry of 4 years but before the expiry of 6 years from the end the relevant assessment year. The reasons recorded state that the re-assessment proceedings were initiated on the basis of report received from Deputy Director of Income Tax (Investigation Wing), Unit-8(3), Mumbai vide letter dated 23/03/2018. We note that the aforesaid report was not available with the Assessing Officer at the time of framing the assessment under Section 143(3) of the Act. In the case of Raymond Woollen Mills Ltd. Vs. Income-Tax Officer: [1999] 236 ITR 34 (SC), it was held by the Hon’ble Supreme Court that the sufficiency or correctness of the material is not to be considered at the stage of issue of notice under Section 148 of the Act. The existence of some prima facie material to form a 8 belief that income has escaped assessment is sufficient for initiation of re-assessment proceedings provided other conditions specified in Section 147/148 of the Act are satisfied. In our view, in the facts and circumstances of the present case, the report received from the Investigation Wing constitutes fresh tangible material for reopening the assessment, and it cannot be said that the re-assessment proceedings have been initiated without there being any fresh tangible material. However, mere reference to such information in the reasons recorded, without application of mind to such information, does not satisfy the requirement of Section 147 of the Act.

During the course of hearing, it was contended on behalf of the Assessee that the Assessing Officer has proceeded on the basis of incorrect facts and has failed to apply his mind before initiating the re-assessment proceedings. We find merit in the aforesaid contention advanced on behalf of the Assessee. In the reasons recorded the Assessing Officer has stated that the Assessing Officer has reasons to believe that income chargeable to tax to the tune of INR 5,46,32,199/- had escaped assessment. In paragraph 4, it has been stated that in the present case that the return filed by the Assessee was only processed under Section 143(1) of the Act and therefore, in view Clause (b) of Explanation 2 to Section 147 of the Act, it was deemed that income chargeable to tax had escaped assessment. We note that the Assessee has placed on record copy of notices issued under Section 142(1)/143(2) of the Act during the course of regular scrutiny proceedings as well as the assessment order, dated 28/02/2014, passed under Section 143(3) of the Act. Thus, clearly, the Assessing Officer had initiated reassessment proceedings on incorrect understanding of facts that the return was processed under Section 143(1) of the Act. Further, the reasons recorded also do not allege that there was any failure on the part of the Assessee to disclose fully and truly 9 all material facts necessary for assessment. Thus, in our view, there is clearly no application of mind by the Assessing Officer while recording reasons for reopening assessment.

In view of the above, we hold that the reasons recorded fail to satisfy the requirements of Section 147 of the Act. Accordingly, notice dated 29/03/2018, issued under Section 148 of the Act initiating reassessment proceedings for the Assessment Year 2011-12 under Section 147 of the Act as well as the consequent re-assessment order, dated 26/12/2018, passed under Section 143(3) read with Section 147 of the Act are quashed. Ground No. 1 raised in the present appeal is allowed, while all the other grounds raised in the present appeal are dismissed as being infructuous.

In result, the present appeal is allowed.

""थ" / The Respondent. 3. आयकर आयु"/ The CIT

"धान आयकर आयु" / Pr.CIT 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.