HC quashes reassessment order for denying detailed Investigation Wing report on bogus LTCG penny stock transactions

Delhi HC set aside reassessment order u/s 148A(d) and notice u/s 148 in case involving alleged bogus LTCG from penny stock trading. Court found petitioner was sufficiently informed about reassessment basis regarding Mahanivesh scrip transactions, but AO failed to provide detailed Investigation Wing report despite petitioner's request. HC held this denied effective opportunity to respond to findings about transactions with Allied Nippon Limited and Lawrence Cold Storage Pvt. Ltd. Matter remanded with direction for petitioner to file additional reply within two weeks, and AO to pass fresh order u/s 148A(b) within eight weeks thereafter.

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Issues:
1. Validity of notice dated 30th June, 2022 under Section 148 of the Income Tax Act, 1961.
2. Legality of the order dated 30th June, 2022 passed under Section 148A(d) of the Act.

Analysis:
Issue 1: The petitioner challenged the notice dated 30th June, 2022, issued under Section 148 of the Income Tax Act, 1961, as being time-barred under the 1st proviso to Section 149(1) of the Act. The petitioner contended that the notice lacked necessary information as mandated by the proviso to Section 148 of the Act. The petitioner argued that the proceedings initiated were without legal jurisdiction due to the absence of substantial information linking the petitioner to the alleged financial transactions.

Issue 2: The respondent relied on a report from the Income Tax Department's Investigation Wing, which concluded that the petitioner had engaged in financial transactions involving a penny stock, resulting in bogus profits and losses. The report specifically identified the petitioner as a seller of shares to certain entities. The respondent asserted that the LTCG earned by the petitioner through these transactions was bogus. The petitioner denied the allegations but admitted to trading in the stock. The court noted that the AO should have provided the detailed report to the petitioner along with the notice, as requested by the petitioner.

Judgment: The court held that the notice issued under Section 148A(b) and the subsequent order under Section 148A(d) did establish a link between the information received and the formation of belief regarding the petitioner's transactions. However, the court found merit in the petitioner's argument that the detailed report should have been provided initially. The court set aside the order dated 30th June, 2022, and the notice dated 30th June, 2022, directing the petitioner to file an additional reply responding to the findings of the report within two weeks. The AO was instructed to consider the reply and pass an order under Section 148A(b) within eight weeks, emphasizing a fair decision-making process without influence from previous observations except on the issue of limitation.

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