TaxTMI 
TaxTMI 
2026 (9) TMI 1890
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....ted that this Court has placed reliance on the decision of the Bombay High Court on an identical issue and accordingly it is submitted that in view of the decision of two High Courts the reopening of the assessment is required to be quashed and set aside. 3. It is submitted that the petitioner is embroiled in the assessment proceedings by alleging that the petitioner has in connivance with one J.M. Financial Asset Management Ltd., had manipulated the accounting method by claiming fictitious loss so as to artificially inflate distributable surplus and in the process, has violated the Security and Exchange Board of India guidelines. 4. It is submitted that accordingly on issuance of the notice under Section 148A(a) of the Income-tax Act, 1961 (for short 'the Act') dated 04.03.2023 the petitioner vide letter dated 07.03.2023 furnished all the details to the respondents including details pertaining to the investments in mutual funds controlled by the J.M. Financial Asset Management Ltd. 5. It is submitted that in fact the petitioner had also claimed loss of Rs. 65,13,535/- on redemption of units of mutual funds controlled by the J.M. Financial Asset Management Ltd., however th....
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....sed merely on information allegedly received from the DDIT (Inv)-3(1), Mumbai, and petitioner's implication in the matter is purely based on conjectures and surmises. Fourthly, the information provided in the notice is ambiguous and does not establish any live link with evidence that income of assessee has escaped assessment. Lastly, the jurisdictional pre-conditions have not been satisfied, rendering the reassessment proceedings, illegal and bad in law. Mr. Thacker thus, seeks quashing of the notice and order impugned herein. 12. Mr. Singh defended the reopening of assessment by placing the onus of demonstrating that the dividend income and capital loss shown in his income tax return from the investment made in JM Financial Mutual Fund is not a result of a sham transaction undertaken by the said JM Financial Mutual Fund completely on petitioner. Mr. Singh contended that the information available with the Assessing Officer is in light of the findings from the survey action under Section 133A of the Act on JM Financial. Mr. Singh further stated that petitioner is not eligible to claim exempt dividend income under Section 10(35) of the Act and also not eligible to adjust....
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....en 28th December 2015 to 30th June 2016 there was a further inflow of Rs. 4698.28 Crores into the mutual fund. In this, petitioner's investment was only Rs. 1,10,00,000/- on 17th June 2015 and Rs. 6,00,00,000/- on 25th August 2015. 16. It is thus clear that petitioner is only a small fry in the larger scheme of things and in fact himself a victim of the alleged fraud of JM Financial and again being victimised by the Assessing Officer. Even in the order where it is mentioned that statement of the key management personnel of the mutual fund was recorded, there is nothing to indicate that petitioner was part of the alleged sham mutual fund. Infact in paragraph 7.4 of the impugned order referred to by Mr. Singh, in the statement of Mr. Suvendu Rakshith, it is recorded that the sales team had been passing on the hints to the distributors about the prospective dividend distribution, much in advance, "to lure" the prospective clients. Admittedly petitioner was not a distributor and was only a client. 17. In the notice issued under Section 148A(b) of the Act, it is alleged that petitioner was one of the persons who claimed fictitious short-term capital loss. There is noth....
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....before insertion of Section 94(7) vide Finance Act, 2001 w.e.f. 1.4.2002. With regard to such cases we may state that on facts it is established that there was a "sale". The sale-price was received by the assessee. That, the assessee did receive dividend. The fact that the dividend received was tax-free is the position recognized under Section 10(33) of the Act. The assessee had made use of the said provision of the Act. That such use cannot be called "abuse of law". Even assuming that the transaction was pre-planned there is nothing to impeach the genuineness of the transaction. With regard to the ruling in McDowell & Co. Ltd. v. Commercial Tax Officer [154 ITR 148(SC)], it may be stated that in the later decision of this Court in Union of India v. Azadi Bachao Andolan [263 ITR 706 (SC)] it has been held that a citizen is free to carry on its business within the four corners of the law. That, mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even by the judgment of this Court in McDowell & Co. Ltd.'s case (supra). Hence, in the cases arising before 1.4.2002, losses pertaining to exempted income cannot be disallowed. However, af....
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....or the formation of the belief that there has been escapement of income must have a rational connection with or relevant bearing on the information. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and his view that there has been escapement of income of the assessee from assessment in the particular year. It is settled law that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched which would suggest escapement of the income of the assessee from assessment. The powers of the Income Tax Officer to reopen assessment, though wide, are not plenary. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The live link or close nexus should be there between the information before the Income Tax Officer and the belief which he has to prima facie form an opinion regarding the escapement of the income of the assessee. The relevant paragraphs of Income Tax Officer V/s. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) read as under : As stated earlier, the re....
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....xus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs. (emphasis supplied) It is also trite law that while the Court cannot investigate into the adequacy or sufficiency of the reasons, which have weighed with the Income Tax Officer in coming to the belief, the Court can certainly examine whether the reasons are relevant and have a bearing on the matter in regard to which the Assessing Officer is req....