Case Law Details
Vrajeshkumar N. Chokshi Vs ITO (ITAT Ahmedabad)
The decision underscores the importance of a valid basis for reopening assessments, emphasizing that incorrect assumptions can render the entire reassessment process invalid. Tax authorities must exercise diligence in ensuring the accuracy of the information leading to reassessment to avoid unwarranted consequences.
Businesses and individuals facing reassessment should scrutinize the grounds on which it is initiated and challenge it if based on incorrect or non-existent premises. The case sets a precedent for the necessity of a strong foundation in reopening assessments, preventing arbitrary additions to income based on erroneous assumptions.
The assessee, in the present case, is an individual. As per the information received by the Assessing Officer from the Office of the Principal Director of Income-tax (Investigation), Surat, the assessee had entered into certain transactions in shares resulting in Long Term Capital Gain of Rs.7,92,237/-. Since no return of income for the year under consideration was filed by the assessee, the Assessing Officer reopened the assessment and issued a notice under Section 148 of the Income-tax Act (“the Act’ in short) after recording reasons. In response to the said notice, the return of income was filed by the assessee declaring a total income of Rs.1,47,860/-. During the course of assessment proceedings, it was found by the Assessing Officer that the assessee had entered into share transactions through various agencies on Bombay Stock Exchange amounting to Rs.7,92,237/-. According to the Assessing Officer, the said amount represented bogus claim of the assessee on account of Long Term Capital Gain; and, treating the same as undisclosed income of the assessee, he made an addition of Rs.7,92,237/- to the total income of the assessee under Section 69 of the Act in the assessment completed under Section 143(3) r.w.s. 147 of the Act vide order dated 21.12.2016.
It is observed that the entire value of transactions in shares entered into by the assessee for the year under consideration was only Rs.7,92,237/-as accepted by the Assessing Officer himself in the assessment order and this entire amount, therefore, could not give rise to Long Term Capital Gain of Rs.7,92,237/- by any stretch of imagination. As pointed out on behalf of the assessee, the said transaction in fact had given rise to Short Term Capital Loss of Rs.3,61,645/- to the assessee. The very basis of reopening of the assessment as reflected in the reasons recorded by the Assessing Officer thus was unfounded and there being no claim of any Long Term Capital Gain of Rs.7,92,237/- made by the assessee much less a bogus Long Term Capital Gain as believed by the Assessing Officer, the reopening of assessment itself on the basis of such wrong and non-existent premises was bad in law as rightly contended by the learned Counsel for the assessee and the assessment made in pursuance therein under Section 143(3) r.w.s. 147 of the Act is liable to be quashed being invalid. As further contended on behalf of the assessee before there learned CIT(A) as well as before the Tribunal, the entire value of share transactions cannot be treated as unexplained investment by the assessee and that too without giving the assessee an opportunity to explain the exact quantum of investment as well as source thereof and the addition so made by the Assessing Officer and confirmed by the learned CIT(A) on account of such unexplained investment allegedly made by the Assessing Officer is not sustainable on merit also. This appeal of the assessee is accordingly allowed.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
