2024 (3) TMI 1075 - AT - Income Tax

ITAT quashes assessment reopening based on SEBI interim order against director lacking independent enquiry

The ITAT Mumbai held that reopening of assessment based solely on SEBI's ex-parte interim order restraining the assessee company's director from trading ... Reopening of assessment - reason to believe or reason to suspect - ex-parte ad interim order passed by the SEBI relied upon against director of assesee company - SEBI had restrained fifty four (54) persons/entities including the director of the assessee company from trading in security market/stock exchange stating that those persons/entities have misused the stock exchange system to generate fictitious profits/losses for the purpose of tax evasion/facilitating tax evasion - HELD THAT:- As rightly pointed out by the assessee the interim ex-parte order of the SEBI against director, which could have triggered “Reasons to Suspect” and not “Reasons to believe escapement of income” which doesn’t satisfy the requirement of law to successfully usurp the jurisdiction to re-open the assessment of the assessee-company, which is a separate legal entity. Therefore, having carefully perused the material on the basis of which AO re-opened the assessment i.e, SEBI ex-parte interim order, we are of the considered opinion that at best it is an adverse information against director of assessee company [Shri Nikil Jalan]; and AO after receiving the same, ought to have conducted preliminary enquiry [since at that stage there was only “Reason to suspect” escapement of income in his hands and collected material and if it was found that it is not the director of assessee company who has misused the stock exchange, instead it was the assessee company which actually misused the stock exchange, in such an event, the AO should have recorded his own reason warrant holding the belief that income chargeable to tax has escaped assessment, which essential requirement of law has not been met in the “reasons recorded” by AO in the instant case to successfully re-open the assessment of assessee company - Decided in favour of assessee. Issues Involved:1. Validity of reopening by AO (jurisdiction) u/s 147 of the Income Tax Act, 1961.Summary:1. Validity of Reopening by AO u/s 147:The assessee challenged the reopening of assessment by the AO u/s 147 of the Income Tax Act, 1961. The legal issue was raised for the first time before the Tribunal, citing the Hon'ble Supreme Court's decision in NTPC Vs. CIT (229 ITR 383) (SC). The AO issued a notice u/s 148 based on an ex-parte ad interim order by SEBI dated 20.08.2015, which did not list the assessee company but included the name of its director. The assessee argued that this could only trigger 'Reason to Suspect' and not 'Reasons to believe, escapement of income.' The AO failed to conduct a preliminary inquiry to ascertain whether to reopen the assessment for the director or the company. The AO's reasons recorded for reopening were based on borrowed satisfaction from SEBI's order, lacking independent application of mind. The Tribunal noted that the SEBI order could only trigger 'Reason to Suspect' and not 'Reasons to believe, escapement of income,' and the AO did not meet the essential requirement of law for reopening. Consequently, the notice u/s 148 and the reassessment order were quashed.Conclusion:The appeal of the assessee was allowed on the legal issue, rendering other grounds of appeal academic. The Tribunal quashed the notice issued u/s 148 and the reassessment framed, declaring them null in the eyes of law.