Penny-stock long-term capital gains flagged as bogus: reopening under ss. 147/148 upheld; challenge to "reasons to believe" dismissed

Reopening under ss. 147/148 was challenged on the ground that the Assessing Officer (AO) lacked valid "reasons to believe" where information from the Investigation Wing indicated the assessee's transactions in a penny-stock scrip used to generate bogus exempt long-term capital gains, and the underlying company was prima facie a shell entity. The HC held that at the notice stage, the sufficiency or adequacy of reasons cannot be examined; it is enough that tangible material exists to form a prima facie belief of income escapement. Since the AO relied on specific investigative inputs and recorded belief accordingly, the reopening was upheld and the writ petition was dismissed.

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Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment can be based solely on information from the Investigation Wing.
3. Adequacy and sufficiency of reasons for reopening the assessment.

Summary:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged a notice dated 26.03.2019 under Section 148 of the Income Tax Act, 1961, for the assessment year 2012-13. The petitioner argued that the notice was invalid as it was based on incorrect facts and without independent verification by the Assessing Officer. The respondent contended that the notice was issued after recording reasons to believe that income had escaped assessment and with necessary approval from the Competent Authority.

2. Whether the reassessment can be based solely on information from the Investigation Wing:
The petitioner objected that the reassessment was based solely on information from the Investigation Wing without the Assessing Officer forming an independent opinion. The court noted that the respondent had relied on a detailed investigation report and the statement of Mr. Anil Kumar Khemka, which indicated that the petitioner had traded in penny scrips and received accommodation entries. The court distinguished the present case from the cited cases of Surani Steel Tubes Limited and Principal Commissioner of Income Tax-12 v. Smt. Krishna Devi, stating that in those cases, the reopening was based on borrowed satisfaction without independent verification.

3. Adequacy and sufficiency of reasons for reopening the assessment:
The court emphasized that at the stage of reopening, the sufficiency or adequacy of the reasons is not required to be examined. The court referenced the cases of Purviben Snehalbhai Panchhigar and Pushpa Uttamchand, which held that if the Assessing Officer has cause to believe that income has escaped assessment based on relevant material, the reopening is justified. The court found that the respondent had sufficient material to form a belief of income escapement and had followed due procedure, including obtaining necessary approvals.

Conclusion:
The court dismissed the Special Civil Application, upholding the validity of the notice under Section 148 and the reopening of the assessment based on the information and material available to the Assessing Officer.

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