ACIT Vs Shiv Kumar Gupta (ITAT Delhi)
Delhi ITAT Quashes Penny Stock Reopening: Mere Investigation Wing Alert Is Not ‘Reason to Believe’
The Delhi ITAT quashed a reassessment initiated against an assessee who had claimed exempt LTCG under Section 10(38), holding that a generic alert from the Investigation Wing regarding penny stock transactions cannot justify reopening unless there is a live nexus between the material and the alleged escapement of income.
The reassessment was triggered on the basis of information received from the Investigation Wing that certain penny stocks were allegedly used for booking bogus LTCG/STCL entries. Relying on this information, the Assessing Officer reopened the assessment and alleged escapement of income of about ₹1.01 crore. However, the assessee pointed out that all share transactions had been duly disclosed in the original return and were executed through a recognized stock exchange.
The Tribunal noted that the reasons recorded by the AO merely reproduced the investigation report and contained general allegations regarding manipulation in penny stocks. There was no material demonstrating how the assessee’s disclosed transactions represented undisclosed income, nor was there any direct connection between the information received and the alleged escapement of income.
Relying on the Supreme Court judgment in ITO v. Lakhmani Mewal Das (103 ITR 437), the ITAT emphasized that there must be a direct nexus or live link between the material available with the AO and the formation of belief that income has escaped assessment. Vague, remote or generalized information cannot satisfy the statutory requirement of “reason to believe.”
Since the assessee had already disclosed the share transactions and the reasons recorded failed to establish any rational connection between the information and escapement of income, the Tribunal held the notice issued under Section 148 to be invalid and bad in law. Consequently, the entire reassessment proceeding was quashed. With the reassessment itself being annulled, the Revenue’s appeal became infructuous and was dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The Revenue has filed the instant appeal and Assessee has filed the Cross Objection and both are arising out of the order of the Ld. Commissioner of Income Tax(Appeals)/National Faceless Appeal Centre (NFAC), Delhi (in short CIT(A)) dated 16.04.2024 passed in Appeal No. NFAC/2012-13/10132370, pertaining to assessment year 2013-14. The assessment was framed by the Assessing Officer/National Faceless Assessment Centre, Delhi on 29.3.2022. Since the revenue’s appeal as well as assessee’s cross objection are inter-connected, hence, the same were heard together and disposed of by this common order for the sake of convenience, by dealing first with Assessee’s Cross objection.
