2025 (11) TMI 1775 - HC - Income Tax

Reassessment under Section 147 quashed where reopening based on incorrect info, mere suspicion, no independent verification or SEBI material

Principal Commissioner of Income-Tax-19, Mumbai Versus Ashok Jasraj Jain, HUF.

HC upheld the ITAT's decision quashing reassessment proceedings initiated on alleged manipulation in penny stocks. It held that the Assessing Officer ... Reopening of assessment - manipulation in penny stocks - whether assessment was reopened on the basis of suspicion? - HELD THAT:- Admittedly, this is a case of reassessment. Therefore, if we were to agree with the Tribunal that this was not a fit case for reopening of the assessment, then there would be no occasion to consider the other questions formulated in paragraph 5 of the Appeal memo. Unless this jurisdictional threshold is crossed, no occasion would arise to consider the matter on the merits. Regarding the reopening of the assessment, the ITAT has found several deficiencies in compliance with jurisdictional parameters. ITAT has found that the reopening was based upon patently incorrect information. The Assessing Officer, without independent verification or independent application of mind, proceeded to reopen the assessment based upon the information received. The patent errors are set out in paragraph 8.1 of the ITAT’s impugned order. Assessing Officer has referred to the SEBI’s suspension of trading in certain shares. However, there was no material, and in any event, the Assessing Officer has not adverted to any material suggesting that trading in the shares of MKEL, [with which we are concerned], was indeed suspended by the SEBI. Tribunal has recorded that this was a case in which the assessment was sought to be reopened solely on suspicion. This aspect has been discussed in some detail in paragraphs 8.3 to 8.8 of the Tribunal’s impugned Judgment and Order. The Tribunal has also relied on decisions of this Court holding that the assessment cannot be reopened merely on suspicion. This Court has held that the jurisdictional parameter for reopening of assessment is “reason to believe” and not “reason to suspect”. We see no error in the Tribunal's reasoning when it faults this entire exercise of reopening the assessment. Accordingly, question 5(b), as proposed by Mr Chandrashekhar, will have to be decided against the Revenue. Once this is decided against the Revenue, there would be no need to address the remaining questions in this Appeal. Appeal dismissed. The appeal concerned reassessment proceedings initiated in a case involving alleged 'manipulation in penny stocks' (MKEL) and a supposed 'planned modus operandi to rig the price of the scrip to claim LTCG.' The Revenue's substantial question 5(b) challenged the Income Tax Appellate Tribunal's finding that the reassessment was invalid as being based on mere suspicion. The High Court treated the reassessment issue as a jurisdictional threshold: if reopening was invalid, no other questions on merits would arise. It upheld the ITAT's conclusion that jurisdictional parameters for reopening were not satisfied. The reassessment was founded on 'patently incorrect information,' with the Assessing Officer reopening the assessment without 'independent verification or independent application of mind.' Reference to SEBI's suspension of trading was unsupported by any material showing suspension of MKEL shares. The Tribunal had held, and the Court affirmed, that the reopening was based 'solely on suspicion,' contrary to settled law that reassessment requires 'reason to believe' and not 'reason to suspect.' Finding no error in the Tribunal's reasoning, the Court decided question 5(b) against the Revenue and dismissed the appeal.