Section 148 reassessment notice quashed for penny share transactions after disclosure under IDS 2016 protest

The Bombay HC quashed a reassessment notice u/s 148 regarding penny share transactions. The petitioner had disclosed long-term capital gains under IDS 2016 under protest. The AO arbitrarily deemed 5% commission expenses on share sales without evidence of actual brokerage payments. The court held that relying on IDS declarations violated natural justice principles, and ad-hoc disallowances without specific defects were unacceptable. Since the petitioner had disclosed all material facts during original assessment proceedings and the AO had previously considered the share transactions, the reopening constituted mere change of opinion rather than valid reasons for escaped income assessment.

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Issues involved:
The judgment involves the issues of reopening of assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2014-15 based on alleged escapement of income due to non-disclosure of material facts regarding long term capital gains on shares and assumed brokerage/commission expenses.

Details of the Judgment:

Issue 1 - Reopening of Assessment:
The petitioner, an individual engaged in trading/investments in shares and securities, filed a return of income for AY 2014-15. The assessment order was passed under Section 143(3) of the Act, which included disclosure of long-term capital gains on shares. Subsequently, the petitioner availed the Income Declaration Scheme, 2016 (IDS, 2016) and declared long-term capital gains. Over three years later, a notice was issued under Section 148, alleging an escapement of income regarding the cost of purchase of shares and assumed brokerage/commission expenses. The petitioner challenged the reopening, citing the proviso to Section 147 and arguing that there was no failure to disclose material facts. The court agreed, stating that the reopening was based on a change of opinion and lacked justification.

Issue 2 - Alleged Brokerage/Commission Expenses:
The reasons for reopening mentioned assumed brokerage/commission expenses of 5% of the total sale consideration of shares. The respondent contended that such expenses must have been paid, but failed to provide evidence of actual payment or details of the recipient. The court found the basis for assuming the expenses as speculative and arbitrary, noting the lack of specific defects pointed out. The petitioner had disclosed all relevant details during assessment proceedings and under the IDS, 2016, making the reopening unjustified.

Separate Judgment:
The High Court, comprising K.R. Shriram and Dr. Neela Gokhale, JJ., held that the notice issued under Section 148 of the Act for AY 2014-15 could not be sustained, as the alleged escapement of income was based on a change of opinion by the Assessing Officer. The court further ruled that the rejection of the petitioner's objections could not be upheld, ultimately disposing of the petition in favor of the petitioner.

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