2018 (9) TMI 1699 - HC - Income Tax

Validity of Assessment Reopening Notice Upheld Based on Prima Facie Information

LALITKUMAR BABUBHAI PATEL Versus DY. CIT, CIRCLE 4 (2) OR HIS SUCCESSOR

The court upheld the validity of the notice for reopening the assessment beyond four years, citing prima facie information justifying the action based on ... Reopening of assessment u/s 147 - bogus purchases - Held that:- We are not inclined to interfere. According to Assessing Officer, VAS Infrastructure Limited is a shell company and the purchase and sale of shares in such company by investors was only for the purpose of showing profit or loss, which had actually not occurred. There was prima-facie information at the command of the Assessing Officer that the fluctuation in share price was not justified. All these materials were brought to his notice long after the assessment was over. The assessee, therefore, cannot take shelter of having made full and true disclosure. Further, to what exact income had escaped assessment may be open for argument, nevertheless, would not be a ground to quash the notice of reopening. To what extent; if at all the assessee’s income escaped assessment could be, in the present case, ascertained at the time of re-assessment. - Decided against assessee. Issues Involved:1. Validity of the notice for reopening assessment beyond four years.2. Allegation of income escaping assessment due to trading in penny stocks.3. Full and true disclosure by the assessee during the original assessment.4. Computation of income that allegedly escaped assessment.Detailed Analysis:1. Validity of the notice for reopening assessment beyond four years:The petitioner challenged the notice for reopening the assessment for AY 2011-2012 issued beyond the period of four years from the end of the relevant assessment year. The original assessment was completed under Section 143(3) of the Income-tax Act, 1961, on 10th March 2014. The notice for reopening was based on information received from the DDIT (Investigation), Mumbai, indicating that M/s. VAS Infrastructure Ltd was a penny stock used for introducing unaccounted income. The court observed that the Assessing Officer had prima facie information that justified the reopening, despite the notice being issued after four years.2. Allegation of income escaping assessment due to trading in penny stocks:The Assessing Officer received information that M/s. VAS Infrastructure Ltd was a penny stock and the trading in this scrip was suspicious. The company was allegedly used to facilitate the introduction of unaccounted income through exempt capital gains or short-term capital gains/losses. The petitioner was identified as one of the beneficiaries who traded in this scrip during FY 2010-11, with a total traded value of Rs. 24,60,983. The Assessing Officer believed that the assessee had taken accommodation entries to evade tax, leading to underassessment of Rs. 24,60,983.3. Full and true disclosure by the assessee during the original assessment:The petitioner argued that there was no failure on their part to disclose fully and truly all material facts necessary for assessment during the original scrutiny. However, the court noted that the information regarding the suspicious nature of the shares and the unjustified fluctuation in share prices was brought to the Assessing Officer's notice long after the original assessment. Therefore, the assessee could not claim to have made full and true disclosure.4. Computation of income that allegedly escaped assessment:The petitioner contended that the computation of the total value of purchase and sale of shares to arrive at the figure of escaped assessment was incorrect. They argued that both purchase and sale of shares were offered to tax, and thus, there was no escapement of income. The court held that while the exact income that escaped assessment could be debated, it was not a ground to quash the notice for reopening. The precise determination of the escaped income would be ascertained during the reassessment.Conclusion:The court dismissed the petition, upholding the validity of the notice for reopening the assessment. It was observed that the Assessing Officer had sufficient prima facie information to justify the reopening based on the suspicious nature of the trading in M/s. VAS Infrastructure Ltd shares. The court emphasized that the exact income that escaped assessment could be determined during the reassessment process.