2009 (3) TMI 14 - HC - Income Tax

Court sets aside notice under Income Tax Act, ruling against tax evasion claims.

The court ruled in favor of the petitioner, setting aside the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment ... Reopening of assessment u/s 148 – income escaping assessment – speculation profit - from the reasons recorded, it is seen that there is no material to hold that any income chargeable to tax has escaped assessment - entire case of the revenue is based only on conjectures - it is not evident that there is any failure on the part of the assessee to disclose fully and truly all material facts - impugned notice being beyond four years from the end of the relevant assessment year, is quashed Issues:Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment year 2001-02.Analysis:1. The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the year 2001-02. The petitioner, a sub-broker, had engaged in transactions for the purchase and sale of shares on behalf of its customers, earning speculation profit. The assessment for the year in question was initially determined as a loss, but the notice aimed to reassess the speculation profit.2. The reasons for reopening the assessment were based on a survey conducted to verify the genuineness of share trading transactions with a specific entity, Camelot Enterprises Pvt. Ltd. The revenue contended that the transactions were fictitious, alleging that the petitioner transferred its profit to Camelot through colorable devices. The revenue highlighted discrepancies such as the absence of margin money charged, abnormal volume of shares traded, and the use of a client code from another entity.3. The petitioner objected to the reopening, arguing that there was no basis to suggest income had escaped assessment. The court emphasized that mere factors like the absence of margin money, high profits from a single client, or unusual trading volumes were insufficient to conclude tax evasion. The court also noted that the petitioner had disclosed material facts, and the revenue had not challenged Camelot's existence or the assessment of speculation profit in Camelot's hands.4. The court distinguished a prior Supreme Court decision cited by the revenue, emphasizing that the present case involved a reassessment under Section 143(3) beyond the four-year limit, requiring strict adherence to the conditions for reopening. As the court found no failure on the petitioner's part to disclose relevant facts, it quashed the notice dated 27-3-2008, ruling that the prerequisites for reopening the assessment were not met.5. Ultimately, the court ruled in favor of the petitioner, setting aside the notice without costs, concluding that the revenue's contentions lacked merit and did not justify reopening the assessment for the specified year.