2023 (5) TMI 918 - HC - Income Tax

Reassessment under s.148 upheld; s.147 reopening valid due to insider trading prima facie and denial of s.10(38) LTCG exemption

HC upheld AO's s.148 notice and dismissed the challenge to reopening under s.147. The AO had cogent, contemporaneous reasons to believe income had escaped ... Reopening of assessment u/s 147 - reasons to believe that income had escaped tax - subjective satisfaction - Bogus LTCG - Sale of shares of two companies was by the promoters, who was the family members - HELD THAT:- AO found that there was likelihood of the acts and instance of insider trading by the said assessee. The beneficiaries, it was noticed, were the promoters group consisting of family member. The assessee Smt. Paru M. Jaykrishna calculated the long term capital gain and on such transfer, claimed exemption u/s 10(38) - petitioner assessee, it was prima facie found to have earned income to the tune indicated which was chargeable to tax but the same was not shown in the return of income. When on the basis of the above operating facts, the AO harboured reasons to believe that the assessment of the petitioner was required to be reopened, it could be said to be well justified. AO could be said to have formed his opinion on the basis of cogent facts suggesting possibility of escapement of income, though to be probed further in the competent proceedings. Sale of shares of two companies was by the promoters, who was the family members. According to the AO he was satisfied that there was insider trading amongst two family members by which the income which had become chargeable to tax was not shown and had escaped the assessment requiring to exercise powers for reopening of the assessment. There was a strong foundation for invoking reassessment. Challenge to the impugned notice u/s 148 issued by the AO to the petitioner to reopen the assessment in respect of the AY stands merit less. Decided against assessee. Issues Involved:1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.2. Justification for reopening the assessment based on alleged escaped income.3. Assessment of the petitioner's objections and the respondent's reasons for reopening.Summary:1. Validity of the Notice Issued Under Section 148:The petitioner challenged the notice dated 28.3.2021 issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2017-2018. The petitioner argued that the exercise of powers by the Assessing Officer was based on incorrect facts and lacked a legal foundation. The court noted that the petitioner is a family trust that filed its return of income for the Assessment Year 2017-2018, disclosing an income of Rs. 72,750/-. The notice under section 148 was issued based on the Assessing Officer's belief that income chargeable to tax had escaped assessment.2. Justification for Reopening the Assessment:The Assessing Officer recorded that information from the assessment of Smt. Paru M. Jaykrishna indicated that the petitioner trust had engaged in transactions involving the sale of shares of M/s Aksharchem (India) Ltd. and M/s Asahi Songwon Colours Ltd., which were not shown in the return of income. The Assessing Officer concluded that the petitioner had not disclosed taxable income amounting to Rs. 86,53,31,770/-. The petitioner contended that the claimed escaped income was baseless and that there was no connection between the information from Smt. Paru M. Jaykrishna's case and the petitioner's case. The court emphasized that the formation of belief by the Assessing Officer is within his subjective satisfaction and that the prima facie existence of material justified the reopening.3. Assessment of Petitioner's Objections and Respondent's Reasons:The petitioner raised several contentions against the reopening, including that the reassessment was based on wrong facts and lacked a legal foundation. The court observed that the Assessing Officer had reasons to believe that the assessment required reopening based on information from the assessment of Smt. Paru M. Jaykrishna and the transactions involving the sale of shares by the petitioner trust. The court upheld the Assessing Officer's decision, noting that at the stage of issuing the notice, the sufficiency or correctness of the material is not subject to judicial review. The court concluded that the challenge to the impugned notice under section 148 was meritless and dismissed the petition.