2023 (9) TMI 157 - AT - Income Tax

Tribunal rules in favor of assessee on assessment and share transactions

M/s. Seema Holding Pvt. Ltd. Versus I.T.O. Ward-15 (2), Kolkata [Now, ACIT, Central Circle-1, Guwahati], ACIT, Central Circle-1, Guwahati

The Tribunal ruled in favor of the assessee on both issues presented. Regarding the legality of re-opening the assessment under the Income Tax Act, the ... Validity of reopening of assessment u/s 147 - reopening beyond period of four years - reasons to believe - HELD THAT:- As in the case of Hindustan Lever Ltd.[2004 (2) TMI 41 - BOMBAY HIGH COURT] wherein as held that the notice was clearly beyond the period of four years. The reasons recorded by the AO nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence the AO had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed. As the reopening is bad in law, in view of the Proviso to section 147 as the reopening is beyond 4 years from the original assessment u/s 143(3) of the Act. As, we have discussed and decided the legal issue in favour of the assessee and the re-assessment order u/s 147 r.w.s. 144 of the Act, itself has attained nullity, the grounds on merits are only academic in nature and the same are not dealt with. Issues Involved:1. Legality of re-opening of assessment under Section 148 read with Section 147 of the Income Tax Act.2. Disallowance of loss on account of bogus share transactions.Summary:Issue 1: Legality of Re-opening of Assessment (ITA No. 69/GTY/2023 for AY 2015-16)The assessee challenged the re-opening of assessment under Section 148 read with Section 147 of the Income Tax Act, arguing that the re-opening was initiated after four years without any new evidence. The original assessment was completed under Section 143(3) on 27/12/2017, and the re-opening notice was issued on 31/03/2021. The Tribunal found merit in the assessee's contention that re-opening beyond four years requires satisfaction of conditions laid down in the proviso to Section 147, which mandates that the assessee must have failed to disclose fully and truly all material facts necessary for assessment. The Tribunal noted that the Assessing Officer (AO) did not demonstrate such failure in the recorded reasons for re-opening. Citing precedents from the Bombay High Court and the Supreme Court, the Tribunal held that the re-opening was invalid and thus, the re-assessment order was nullified. Consequently, the appeal was allowed.Issue 2: Disallowance of Loss on Account of Bogus Share Transactions (ITA No. 67/GTY/2023 for AY 2014-15)The assessee contested the disallowance of a loss of Rs. 2,02,55,160/- on account of alleged bogus share transactions. The AO had disallowed the loss based on information from the Investigation Wing, which indicated that the assessee had received accommodation entries for bogus losses. Despite the assessee providing contract notes, DMAT accounts, and bank statements to substantiate the transactions, the AO dismissed these as manipulated. The Tribunal, however, found that the transactions were conducted through registered brokers and documented adequately. It referenced decisions from the Bombay and Orissa High Courts, which supported the genuineness of such transactions when properly documented. The Tribunal also noted conflicting judgments from the Calcutta High Court but chose to follow the interpretation favorable to the assessee, as per the Supreme Court's principle in CIT v. Vegetable Products Ltd. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the appeal, directing the AO to allow the loss.Issue 3: Identical Issue in ITA No. 68/GTY/2023 for AY 2015-16The issue in ITA No. 68/GTY/2023 was identical to the one in ITA No. 67/GTY/2023. The Tribunal applied the same reasoning and allowed the appeal.Conclusion:In conclusion, all appeals filed by the assessee were allowed, with the Tribunal ruling in favor of the assessee on both the legality of re-opening of assessment and the disallowance of loss on account of bogus share transactions. The judgments were pronounced on 1st September 2023.