2024 (7) TMI 443 - HC - Income Tax

AO cannot reopen assessment under section 147 for share trading profits already disclosed and taxed during original scrutiny

Deepak Natvarlal Pankhiyani (Huf) Versus Assistant Commissioner of Income Tax Circle 3 (1) (1) & Anr.

Gujarat HC quashed reopening notice u/s 147 where AO treated share trading profits as unexplained credit u/s 68. Court held petitioner had fully disclosed ... Validity of reopening of assessment u/s 147 - profit earned by the petitioner by carrying out trading in shares treated as unexplained credit u/s 68 - HELD THAT:- Petitioner has disclosed truly and fully all material facts including the derivatives (future transactions) which are referred to in the reasons recorded in the books of accounts and after scrutinizing the same, AO has passed the order u/s 143 (3) assessing total income for the Assessment Year 2015-16. Though the assessee has offered to tax the profit in its return of income which was already assessed during the regular course of assessment, the petitioner has also filed additional affidavit placing on record the profit and loss account to demonstrate that the petitioner has already offered profit earned from the 09 transactions referred in the reasons recorded in the profit and loss account. Therefore, it cannot be said that the income of the assessee on profit earned by the petitioner by carrying out trading in shares is not reflected and has escaped the assessment. It appears that the Assessing Officer without verification of the record has blindly relied upon the information received and picked up the 09-transaction entered into by the petitioner in BSE F&O Segment. Respondent No. 1 has not even co-related such information with the material available with on the record, more particularly, when the said issue has been thoroughly scrutinized in the regular assessment. It is also apparent that the petitioner has provided all the information and thereby disclosed truly and fully all material facts during the regular course of assessment. Therefore, the impugned show-cause notice is without jurisdiction and contrary to the provision of the Act and is liable to be quashed and set aside as there is no fresh tangible material available on record with the AO to have reasonable belief that the income has escaped assessment. The impugned notice for reopening is issued on merely change of opinion in respect of the fact of that the entire profit is offered to tax by the petitioner in the books of accounts and the same is reflected in the return of income filed by the petitioner which was scrutinized and the assessment order u/s 143 (3) of the Act was passed. Decided in favour of assessee. Issues Involved:1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.2. Alleged failure to disclose material facts fully and truly by the petitioner.3. Whether the reopening of assessment was based on a change of opinion.4. Jurisdiction and application of mind by the Assessing Officer in issuing the notice.Detailed Analysis:1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:The petitioner challenged the notice dated 27.03.2021 issued under section 148 of the Income Tax Act, 1961, as well as the order dated 10.01.2022 rejecting the objections filed by the petitioner. The petitioner contended that the notice was beyond the permissible period of four years and was issued without jurisdiction. The petitioner argued that all material facts were disclosed during the original assessment, and therefore, the notice was invalid.2. Alleged Failure to Disclose Material Facts Fully and Truly by the Petitioner:The petitioner provided detailed submissions and evidence that all relevant details regarding derivative transactions were disclosed during the original assessment. The petitioner highlighted that the Assessing Officer had scrutinized these details and passed the assessment order under section 143(3) on 30.12.2017. The petitioner argued that there was no failure to disclose material facts, and the income was already assessed during the regular course of assessment.3. Whether the Reopening of Assessment was Based on a Change of Opinion:The petitioner contended that the reopening of the assessment was merely a change of opinion, as the issue of trading in shares and stock was thoroughly examined during the original assessment. The petitioner argued that the Assessing Officer had formed an opinion based on the details provided, and the attempt to reopen the assessment was without any fresh tangible material. The petitioner relied on legal precedents to support the argument that reopening based on a change of opinion is not permissible.4. Jurisdiction and Application of Mind by the Assessing Officer in Issuing the Notice:The petitioner argued that the notice for reopening was issued without independent application of mind and was based on borrowed satisfaction from information received from a third party. The petitioner emphasized that the Assessing Officer did not correlate the information with the material available on record and blindly relied on the information received. The petitioner asserted that the Assessing Officer failed to consider the explanation and details already provided during the original assessment.Respondent's Arguments:The respondent contended that the petitioner had an alternative remedy to prefer an appeal before the CIT(A) against the assessment order. The respondent argued that the impugned notice was issued after recording reasons and obtaining requisite sanction based on information received, indicating that the petitioner failed to disclose material facts fully and truly. The respondent relied on legal precedents to support the argument that the Assessing Officer had the jurisdiction to reopen the assessment based on specific and relevant information received subsequent to the original assessment.Court's Findings:The court found that the petitioner had disclosed all material facts during the original assessment, and the Assessing Officer had scrutinized these details before passing the assessment order under section 143(3). The court observed that the reasons recorded by the Assessing Officer for reopening the assessment were based on information received without verification of the record. The court held that the impugned notice was issued without jurisdiction and contrary to the provisions of the Act, as there was no fresh tangible material to justify the belief that income had escaped assessment. The court concluded that the reopening was based on a change of opinion, which is not permissible.Conclusion:The court allowed the petition and quashed the impugned notice dated 27.03.2021 issued under section 148 of the Act and the order dated 10.01.2022 rejecting the objections raised by the petitioner. The court held that the notice was without jurisdiction and contrary to the provisions of the Act, as the petitioner had disclosed all material facts during the original assessment, and there was no fresh tangible material to justify the reopening of the assessment.