2025 (1) TMI 1287 - AT - Income Tax

Reassessment under section 147 invalid for long-term capital gains without independent inquiry or direct evidence

Sujit Madan Versus DCIT, Central Circle-01, New Delhi

The ITAT Delhi ruled in favor of the assessee regarding validity of reassessment under section 147 concerning alleged bogus long-term capital gains on ... Validity of reassessment u/s 147 - Bogus LTCG on shares - HELD THAT:- Lower authorities brushed aside the submissions and all the documents filed during the course of the respective proceedings and merely relied upon the information received through CRIU module of insight portal and failed to conduct an independent inquiry against the claim of the assessee. Absolutely, there is no direct or indirect evidence against the assessee which has been brought on record by the lower authorities to justify the addition by denying the claim of exemption under section 10(38) for the assessee. The lower authorities had merely relied on third party information in this regard. It is pertinent to note that the transaction of purchase of shares made by the assessee in this regard has been accepted and no doubts or adverse inference has been drawn on the same. These investments in shares were made in September 2012. The payments for the same had been made by account payee cheque out of the disclosed bank account by the assessee. These shares were duly dematerialized and were held by the assessee for more than three years. These shares were admittedly sold through a recognized, through a registered share broker in the recognized stock exchange in the open market after duly suffering STT. Hence, there is absolutely no reason for the lower authorities to doubt the transaction carried out by the assessee. No case made out by the revenue for justifying the denial of exemption under section 10(38) - Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment pertain to the validity of reassessment proceedings under section 147 of the Income-tax Act, 1961, and the legitimacy of the addition of Rs 76,21,459 made by the Assessing Officer (AO), which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. Specifically, the issues include:1. Whether the reassessment proceedings initiated under section 147 of the Act were valid.2. Whether the addition of Rs 73,99,475 as bogus Long Term Capital Gains (LTCG) and Rs 2,21,984 as unexplained expenditure under section 69C of the Act was justified.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reassessment Proceedings under Section 147 of the ActRelevant Legal Framework and Precedents: Section 147 of the Income-tax Act allows for the reopening of an assessment if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The reopening must be based on tangible material and not mere suspicion.Court's Interpretation and Reasoning: The Tribunal noted that the AO had relied on information from the CRIU module, which indicated that the assessee was a beneficiary of accommodation entries for bogus LTCG. However, the AO failed to conduct an independent inquiry or provide substantial evidence against the assessee.Key Evidence and Findings: The Tribunal observed that the AO did not dispose of the objections raised by the assessee against the reopening in a separate speaking order initially, although this was later rectified. The Tribunal found that the reliance on third-party information without independent verification was insufficient to justify reopening.Application of Law to Facts: The Tribunal emphasized the necessity of conducting an independent inquiry and the inadequacy of relying solely on third-party information to reopen assessments.Treatment of Competing Arguments: The Tribunal considered the arguments of the Revenue, which relied on the information from the CRIU module and a SEBI order. However, these were deemed insufficient to substantiate the reassessment.Conclusions: The Tribunal concluded that the reassessment proceedings were not justified due to the lack of independent inquiry and substantial evidence.2. Legitimacy of Additions Made by the AORelevant Legal Framework and Precedents: Section 10(38) of the Act provides exemption for LTCG from the sale of equity shares subject to certain conditions. Section 69C deals with unexplained expenditure.Court's Interpretation and Reasoning: The Tribunal scrutinized the evidence provided by the assessee, including bank statements, DEMAT statements, and contract notes, which supported the genuineness of the transactions.Key Evidence and Findings: The assessee had purchased shares of Anax Com Trade Ltd, which later merged with Yamini Investment Company Ltd. The shares were sold in the open market, and the transactions were supported by documentary evidence.Application of Law to Facts: The Tribunal applied the principles of independent verification and evidence-based assessment, finding that the AO's reliance on general information and third-party data was inadequate.Treatment of Competing Arguments: The Tribunal addressed the Revenue's reliance on the SEBI order, which did not implicate the assessee or the share broker. The Tribunal also considered the decision in the case of Aakruti Ketan Mehta vs ITO, which was not directly applicable.Conclusions: The Tribunal determined that the addition of Rs 73,99,475 as bogus LTCG and Rs 2,21,984 as unexplained expenditure was unwarranted, given the lack of evidence against the assessee.SIGNIFICANT HOLDINGSCore Principles Established: The Tribunal reinforced the necessity for independent inquiry and substantial evidence in reassessment proceedings and the importance of considering all relevant documentary evidence before making additions.Final Determinations on Each Issue: The Tribunal allowed the appeal in part, holding that the reassessment proceedings were not valid and the additions made by the AO were not justified.In conclusion, the Tribunal emphasized the need for a thorough and evidence-based approach in reassessment proceedings and the evaluation of claims for exemptions under the Income-tax Act. The decision underscores the importance of independent inquiry and the reliance on credible evidence in tax assessments.