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Facts
The assessee filed an appeal against the order of the CIT(A) which dismissed her appeal against the assessment order. The original assessment order was passed under section 143(3) read with section 147 of the Income Tax Act, 1961. The assessee challenged the reopening of the assessment, claiming that the notice under section 148 was issued prematurely and without tangible material. The assessee also argued that the reasons recorded for reopening demonstrated a lack of application of mind by the Assessing Officer (AO).
Held
The Tribunal held that the AO's reasons for reopening were recorded based on information received from the Director of Income Tax (Investigation), Kolkata, regarding accommodation entries for bogus Long Term Capital Gain (LTCG) and Bogus Short Term Capital Gain (STCG). However, the Tribunal noted that the assessee had not filed any return of income at the time the reasons were recorded. Therefore, the AO's assertion that the assessee had claimed exemption, which was not genuine, demonstrated a non-application of mind.
Key Issues
The primary issue was whether the reopening of the assessment under section 147 read with section 148 was valid, given that the notice was issued before the assessee filed her return of income and allegedly without proper application of mind by the Assessing Officer.
Sections Cited
143(3), 147, 148, 139(1), 139(4), 151, 10(38), 142(1), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI RAHUL CHAUDHARY, JM Shri Prakash Jhunjhunwala, CA
This appeal is filed by Mrs. Reena Rakesh Kothari, Mumbai (the assessee/appellant) for assessment year 2015 – 16 against the appellate order passed by the National faceless appeal Centre, Delhi (the learned CIT – A) dated 31/05/2023 wherein the appeal filed by the assessee against the assessment order dated 29/12/2017 passed under section 143 (3) read with section 147 of the income tax act, 1961 (the act) was dismissed.
The assessee is aggrieved and has preferred appeal raising several grounds of appeal however assessee pressed following two grounds –
2. On the facts and circumstances of the case and in law CIT – A order in confirming the validity of notice under section 148 issued in absence of tangible material and in mechanical manner without obtaining the sanction under section 151 from the correct higher authority.”
3. Facts as noted from the record shows that assessee is an individual, partner in firms and director in companies. Assessee did not file any return under section 139 (1) of the act. She filed her return of income on 19/09/2016 declaring total income of Rs 534270/-
4. Specific information was received with respect to the bogus claim of the assessee on share trading and therefore notice under section 148 of the act was issued on 12/9/2016 after recording the reasons for reopening. Same was served on the assessee.
In response to notice under section 148 of the Act, assessee submitted a letter on 23/9/2016 stating that 2 | P a g e
Aggrieved with the assessment order assessee preferred an appeal before the learned CIT – A. The appellate authority passed an order on 31/05/2023 dismissing the appeal of the assessee. In Appellate proceedings, Assessee challenged reopening of the assessment under section 148 of the act which was issued to the assessee
7. Before us, the learned authorized representative submitted a paper book containing 101 pages and relied upon several judicial precedents and case law compilation of 43 pages. Over and above several other judicial precedents were relied upon.
8. On Ground no 2 , It was the claim of the learned authorized representative that :-
i. The learned authorized representative referred to the reasons recorded placed at page number 3 of the paper book. He submits that the reasons have been recorded in 12/9/2016 wherein the assessing officer has mentioned that assessee has claimed exempt income from long-term capital gain of Rs. 38,158,791. His submission was that when at the time of recording of the reasons there was no return filed by the assessee and therefore there was no claim made by the assessee of either exemption or non exemption. Hence, nothing was available with LD AO to state whether assessee has claimed any exemption. Therefore, assertion made by the learned AO in the reasons recorded that assessee has claimed exemption is devoid of any merit and therefore the reasons recorded without looking at ii. He relies up on several judicial precedents including of Honourable Bombay high court in case of Prashant S Joshi V ITO 324 ITR 154 [BOM] and iii. He submits that approval u/s 151 is also shows non application of mind when reasons states that assessee has claimed exemption but there is no ROI filed, hence, no claim is made.
The learned departmental representative submitted that i. There is a tangible material available with the assessing officer regarding reopening of the assessment that assessee has obtained the accommodation entry with the sole object of obtaining the exemption under section 10 (38) of the act and therefore nothing is wrong in the reasons recorded by the assessing officer.
ii. It is not the fact that assessee has not claimed such exemption even in the return of income filed subsequently. iii. It has solidified the reasons recorded by the AO. The reasons recorded by the AO are perfectly based on information available and there is no infirmity in the order of the learned CIT – A in upholding the action under section 148/147 of the Act.
Sr Particulars Date chart for AY No 2015-16 1 Due date for filing ROI u/s 139 (1) of the Act 31/07/2015 2 Last date for filing of ROI u/s 139 (4) of the 31/03/2017 Act [ Belated Return] 3 Due date for issue of notice u/s 143 (2) of 30/09/2017 the Act 4 Notice issued u/s 148 of the Act 12/09/2016 5 Return of Income filed by assessee u/s 139 19/09/2016 (4) of the Act 6 Reiteration of ROI filed u/s 139 (4) in 23/09/2016 response to notice u/s 148 of the Act 7 Communication of Reason recorded to 06/02/2017 assessee 8 Notice u/s 143(2) and 142 (1) served on 06/02/2017 assessee 9 Objections filed by assessee to reopening of 16/02/2017 assessment 10 Disposal of Objections 03/03/2017
Limited issue on ground 2 raised before us is that reasons recorded by the LD AO is without application of mind.
Reasons Recorded for reopening of assessment as communicated to the assessee as per letter dated 6/02/2017 are as under :-
" To Smt Reena Rakesh Kothari 28-1, Kamnagar Nagar, S.G. Barve Marg, Kurla (East) Mumbai -400 024
Sir,
Sub: Reasons for issuance of notice of reassessment- Assessment in your case for A.Y. 2015-16 – regarding-
Ref: Your letter dated 23.09.2016 ………….. Please refer to the above.
In this regard, it is submitted that perusal of EFS module of ITD computer application of the Department, it is observed that in some cases specific information is received from the Pr. Director of Income Tax (Investigation), Kolkata regarding various syndicates engaged into accommodation entries of bogus Long Term Capital Gain, Bogus Short Term Capital Gain and Bogus Short Term Capital Loss/bogus business loss through trading of shares of penny stocks. Penny stocks are those stocks which trade at very low price and whose market capitalization is very low. The Kolkata Investigation Directorate had undertaken investigation into such 84 penny stocks and has given detailed findings indicating bogus LTCG/STCL entries claimed by various beneficiaries.
As per the information received you are one of the beneficiaries of such transactions classified as non-genuine shares sale/purchase transactions. The total sales to the tune of Rs.3,99,41,823/- were made by you in the scrip Mahavir Advanced Remedies Limited (Scrip Code 531689) on various dates during the F.Y.2014-15 and claimed exempt income from LTCG of Rs.3,81,58,791/-
The above fact shows that the income has escaped assessment by way of accommodation entry of bogus Long Term Capital Gain, in your case for A.Y.2015-16.
Since the reasons for reassessment in your case has been provided by the undersigned, hereinabove, you are requested to comply with the notice u/s.142(1) which is being sent herewith, at the scheduled time.
Yours Faithfully, 11 | P a g e i. As per Para no 4 it is mentioned that assessee has claimed exempt long term capital gain during F Y 2014-15 from LTCG of Rs 3,81,58,791/-. ii. In Para no 6 also ld AO has claimed that transaction entered in to by the assessee resulted in to claim of exempt income from long term capital gains which are not genuine. iii. In Para no 7 also the LD AO has mentioned that income has escaped by way of accommodation entry of bogus long term gain for AY 2015-16. iv. These reasons were recorded on or before 12/09/2016 being the date of issue of notice u/s 148 of the act. v. Assessee has filed her first ROI only on 19/09/2016. It is seven days after the reason recorded. This ROI was filed u/s 139 (4) of the Act i.e. belated ROI. vi. Prior to that no other ROI is filed by assessee. vii. Thus as on the date of recording of reasons of reopening, there is no ROI filed by the assessee. 12 | P a g e ix. Reason recorded by the LD AO repeated referred to claim made by the assessee of exemption despite the fact that there is no claim made by the assessee as No ROI is filed. x. In absence of any ROI filed by assessee no claim of exemption is made by the assessee. But the LD AO repeatedly has mentioned that claim of the assessee is not genuine. Thus it is clearly non application of mind by the LD AO. xi. Further on such reason, approval/ sanction u/s 151 of the act is accorded. Thus, such approval/ sanction are also without application of mind.
Thus no reason to believe can be formed by LD AO with respect to escapement of income prior to the dates for filing of Return of Income. Explanation 2 (a) to section 147 of the Act also does not make any distinction between ROI filed u/s 139 (1) or u/s 139 (4) of the Act.
Thus, in absence of any ROI for the impugned assessment year, LD AO could not have formed such a belief and LD Approving authority also could not have approved such reason for reopening of assessment.
Accordingly, Ground no 2 of the appeal is allowed. 13 | P a g e
In the result, appeal of assessee is allowed.
Order pronounced in the open court on 21.03.2024.