Reassessment notice quashed for NSEL transactions after statutory audit confirmed no transactions occurred in relevant year

Gujarat HC quashed reassessment notice issued four years after original assessment regarding NSEL transactions. The court held that the assessing officer acted without jurisdiction and on borrowed satisfaction, ignoring statutory audit report under Section 142A which confirmed no NSEL transactions occurred in AY 2014-15. Since no purchase/sale transactions existed in the relevant year, no stock valuation impact on profit/loss arose. The reopening constituted impermissible change of opinion as the issue was already scrutinized during regular assessment. Full disclosure was made in financial statements showing nil debt to NSEL. Assessee's appeal was allowed.

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Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the order dismissing the objections raised by the petitioner against 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 for Assessment Year 2014-15, arguing that it was based on incorrect presumptions and without proper consideration of facts. The petitioner contended that there were no transactions with the National Spot Exchange Limited (NSEL) during the Financial Year relevant to the Assessment Year 2014-15. The special audit report also confirmed the absence of any stock or transactions pertaining to NSEL for the said period.

The court observed that the reasons recorded for reopening the assessment were contrary to the facts on record. The Assessing Officer had failed to consider the objections raised by the petitioner, including the statutory audit report which categorically stated that there were no purchase or sale transactions during the relevant financial year. The court noted that the assumption of jurisdiction by the Assessing Officer to reopen the assessment was without any basis and contrary to the facts on record.

2. Validity of the order dismissing the objections raised by the petitioner against the notice:

The petitioner also challenged the order dated 14.02.2022 dismissing their objections to the impugned notice. The petitioner argued that the reassessment proceedings were initiated based on incorrect information and that the reasons recorded for reopening the assessment were not true and correct. The court found that the Assessing Officer had not applied his mind and had issued the notice based on borrowed satisfaction without considering the material available on record, including the statutory audit report under Section 142A of the Act.

The court held that the issuance of the impugned notice for reopening the assessment amounted to a change of opinion, as the entire issue had already been scrutinized during the regular assessment. The court also noted that the notice was issued merely because reassessment proceedings for an earlier assessment year had been upheld by higher courts, which was not a valid ground for reopening the assessment for the current year.

Conclusion:

The court concluded that the impugned notice issued under Section 148 of the Act was without jurisdiction and contrary to the facts on record. The court quashed and set aside the notice and the order rejecting the objections raised by the petitioner. The petition was allowed, and the rule was made absolute with no order as to costs.

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