INCOME TAX : Where assessment was sought to be reopened in case of assessee on ground that assessee had done transactions in shares of ‘F’, which was a penny stock company traded in Bombay Stock Exchange, however, there was no allegation at all in reasons recorded for reopening that assessee was mastermind or actively involved in rigging of share price of ‘F’ in stock market and assessee having admitted that it had traded in ‘F’ and even provided documents thereto during assessment, there being no failure to truly and fully disclose material facts, reopening of assessment after four years was not justified
■■■
HIGH COURT OF BOMBAY
Rita Rajkumar Singh
v.
Assistant Commissioner of Income tax*
K.R. SHRIRAM AND N.R. BORKAR, JJ.
WRIT PETITION NO. 1869 OF 2022
APRIL 27, 2022
Section 69, read with section 147, of the Income-tax Act, 1961 – Unexplained investments (Shares) – Assessment year 2013-14 – Assessment was sought to be reopened in case of assessee on ground that its income chargeable to tax had escaped assessment within meaning of section 147 as based on information received from DDIT, assessee had done transactions in shares of ‘F’, which was a penny stock company traded in Bombay Stock Exchange – However, there was no allegation at all in reasons recorded for reopening or in affidavit-in-reply that investigations had revealed that assessee was mastermind or actively involved in rigging of share price of ‘F’ in stock market – Further, in response to a query raised under section 142(1), assessee had also admitted that it had traded in ‘F’ and even provided documents thereto – Issue of capital gains from shares which included shares of ‘F’ was under active consideration before Assessing Officer – Whether therefore, there being no failure to truly and fully disclose material facts, reopening of assessment after expiry of four years was not justified – Held, yes [Paras 6 and 7] [In favour of assessee]
Nishant Thakkar and Ms. Jasmin Amalsadvala for the Petitioner. Suresh Kumar for the Respondent.
ORDER
1. Petitioner is an individual assessed to tax. Petitioner had, for the Assessment Year 2013-2014 filed return of income under section 139 of the Income-tax Act, 1961 (the said Act) on 13th September, 2013 declaring a total income a “Nil”. Petitioner thereafter received a notice dated 12th November, 2015 under section 142(1) of the Act, calling upon Petitioner to produce the accounts and documents mentioned therein. One item which is relevant to the Petition at hand is at serial No. 6 in the said notice and it reads, “During the year you have declared capital gain on sale of shares and claimed the same as exempt. Please furnish the following statement with proof of payment of STT”. By a letter dated 28th December, 2015, Petitioner filed a response to the notice and provided details of long term capital gain on sales of shares claimed as exempt (enclosed as Annexure-5) and attached contract notes showing payment of STT. In these documents to which Mr. Thakkar took us through, Petitioner has disclosed the purchase and sale of shares in Finalysis Credit and Guarantee Company Ltd. (Finalysis). Following this, an assessment order dated 11th February 2016 came to be passed, accepting Petitioner’s income as per the return of income filed. In the assessment order, it is also mentioned notices were issued under sections 142(1) and 143(2) and Petitioner had also submitted all documents including copies of audit report, balance-sheet and profit and loss account.
2. Over four years later, Petitioner received a notice dated 28th March, 2021 under section 148 of the Act alleging that there were reasons to believe that Petitioner’s income chargeable to tax for A.Y. 2013-14 has escaped assessment within the meaning of section 147 of the Act. At Petitioner’s request, reasons recorded for re-opening was also provided vide communication dated 1st July, 2021. As per the reasons recorded, based on information received from DDIT (Inv)-8(1), Mumbai, Petitioner had done transactions in the share of Finalysis which is a penny stock company traded in the Bombay Stock Exchange. The share price of Finalysis moved from a low of Rs.7/- per share in March 2012 to Rs. 180/- in March 2013 and dipped to Rs. 5/- in October 2013. Since the financials of Finalysis for that period did not support such a huge share price move, investigations have been carried out by SEBI on Finalysis. The reasons also mentioned that statements of directors of Finalysis have been recorded and they have admitted that the Company was a paper company. Investigation revealed that Petitioner had sold shares of Finalysis worth Rs. 29,37,208/- during the relevant assessment year and therefore, assessment of the said transactions has escaped assessment. As per the reasons, admittedly Petitioner has disclosed during the assessment proceedings and it is seen that Petitioner has claimed long term capital gain at 10% of Rs. 29,37,208/-. Thus, information received by the DDIT (Inv)-8(1) has live link with the financials of Petitioner. We have to emphasize that in the reasons itself Respondents admit that Petitioner has disclosed during the assessment proceedings that Petitioner had traded in Finalysis.
3. This is a case where the proposed re-opening is after expiry of four years from the end of the relevant assessment year. Admittedly, assessment under section 143(3) has been completed and an assessment order dated 11th February, 2016 has also been passed. In fact, the assessment order is under section 143(3) of the Act. Therefore, the proviso to section 147 of the Act would apply which provides that re-opening of assessment after four years from the expiry of the end of the relevant assessment year is barred unless escapement of income has happened due to failure on the part of assessee to truly and fully disclose material fact for the relevant assessment year. The onus is on Respondents to show that there was such a failure on the part of Petitioner to truly and fully disclose.
4. It is also trite that if during the assessment proceedings a query is raised and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment and it is not necessary that the Assessment Order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Aroni Commercials Ltd. v. Dy. CIT [2014] 44 taxmann.com 304/224 Taxman 13 (Mag.)/362 ITR 403 (Bom.).
5. It is not clear when the investigation was commenced, though Mr. Thakkar states that investigation commenced on Finalysis much before the assessment order in Petitioner’s case was passed. The entire basis of Respondents’ case is that in 2020 Respondent No. 1 got information that Finalysis was a paper company or a penny stock company based on certain investigations. Mr. Suresh Kumar submitted that it came to light during the investigation that Petitioner also had traded in the scrip of Finalysis during A.Y. 2013-2014 and therefore, Respondent was entitled to re-open. Mr. Suresh Kumar submitted that revenue has to go to the root of the matter and take action against those involved in this price rigging and assess people claiming non genuine transactions in its books. We have to note that there is no allegation at all in the reasons recorded for re-opening or in the Affidavit in Reply that investigations have revealed that Petitioner was the master mind or actively involved in rigging of share price of Finalysis in the stock market. Whether trading in Finalysis shares would result in escapement of income is a separate question which we are not dealing with in this matter because, that is not the subject of consideration. Even in the statement of Mr. Bipin Divecha on which reliance has been placed, it does not show anywhere Petitioner was involved.
6. Therefore, what we have to see in this case, since re-opening is proposed after the expiry of four years from the end of the relevant assessment year, whether there has been any failure on the part of Petitioner to disclose truly and fully material facts. As noted earlier the reasons recorded admit that Petitioner had disclosed that it had traded in the shares of Finalysis. To a query raised under section 142(1), Petitioner has also admitted that it has traded in Finalysis and even provided documents thereto. The issue of capital gains from shares which included the shares of Finalysis was under active consideration before the Assessing Officer. That would also show there was no failure to disclose. Therefore, it cannot be stated that Respondents have crossed the threshold or the fetter provided for in the proviso to section 147 of the Act that re-opening after the expiry of four years is permissible only when there is failure to truly and fully disclosed material facts.
7. In these circumstances, in our view, Petitioner should be granted relief in terms of prayer clause (a), which we hereby grant and the same is reproduced hereunder :
“(a) that this Hon’ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226/227 of the Constitution of India calling for the records of the case leading to the issue of the Impugned Notice dated March 22, 2021 (Exhibit E), issuance of Impugned Scrutiny Notice dated June 28, 2021 (Exhibit G), Impugned Sanction dated March 22, 2021 (Exhibit O) and passing of the Impugned Order dated January 29, 2022 (Exhibit M) and after going through the same and examining the question of legality thereof quash, cancel and set aside the Impugned Notice dated March 22, 2021 (Exhibit E), the Impugned Scrutiny Notice dated June 28, 2021 (Exhibit G), the Impugned Sanction dated March 22, 2021 (Exhibit O) and the Impugned Order dated January 29, 2022 (Exhibit M).”
8. Petition disposed accordingly.
About the Author
