AO's reassessment order quashed for failing to examine original assessment and assessee's LTCG explanation from share amalgamation

The Delhi HC set aside a reassessment order where the AO reopened assessment based on information from the Investigation Directorate regarding LTCG from share trading. The assessee had explained purchasing shares in one company that was later amalgamated, resulting in receipt of shares in another company which were subsequently sold. The court found the AO failed to examine the original assessment order and the assessee's explanation, instead relying solely on general information received. The AO demonstrated non-application of mind and borrowed satisfaction, failing to connect the information to any non-disclosure by the assessee. The reassessment was decided in favor of the assessee.

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Issues Involved:
1. Legality of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Validity of the reasons to believe formulated by the Assessing Officer (AO).
3. Application of Section 151 of the Act.
4. Failure to disclose material facts fully and truly by the petitioner.

Summary:

1. Legality of the notice issued under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice dated 28.03.2019 issued under Section 148 of the Income-tax Act for the Assessment Year (AY) 2012-13. The notice was based on the AO's 'reason to believe' that Rs. 1,04,38,000/- had escaped assessment.

2. Validity of the reasons to believe formulated by the Assessing Officer (AO):
The AO's 'reason to believe' was based on information from the Kolkata Investigation Directorate, indicating the petitioner was a beneficiary of bogus long-term capital gains (LTCG) through trading in shares of shell companies. The AO concluded that the petitioner had earned LTCG from manipulated stocks and had not fully disclosed material facts.

3. Application of Section 151 of the Act:
The AO incorrectly referred to Section 151(2) instead of Section 151(1) of the Act. The case fell beyond four years from the end of the relevant AY, necessitating sanction from the Principal Commissioner of Income. The AO's form for recording reasons was later corrected to reflect the appropriate section.

4. Failure to disclose material facts fully and truly by the petitioner:
The AO did not indicate that the petitioner failed to disclose all material facts. The petitioner had already provided details of LTCG from Blue Print Securities Limited during the original assessment. The AO did not consider the original assessment order dated 14.01.2015, leading to non-application of mind and reliance on 'borrowed' satisfaction.

Conclusion:
The reassessment proceedings were initiated without due application of mind by the AO. The impugned notice dated 28.03.2019 issued under Section 148 was quashed. Consequently, the order disposing of the objections dated 12.06.2019 was also quashed. The writ petition was disposed of accordingly.

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