Reassessment without due application of mind by AO was invalid

Shashi Mohan Garg Vs ITO (Delhi High Court)

Conclusion: Re assessment notice issued under section 148 solely on basis of information received from the Kolkata Investigation Directorate that certain persons, who were based in Kolkata, had incorporated shell companies. and bogus long-term capital gains (LTCG) was provided through accommodation entries without due application of mind was invalid.

Held: AO held that at least Rs. 1,04,38,000/- had escaped assessment in the case of assessee for A.Y. 2012-13 within the meaning of Section 147/148. AO arrived at this conclusion based on the information received from the Kolkata Investigation Directorate that certain persons, who were based in Kolkata, had incorporated shell companies. and bogus long-term capital gains (LTCG) was provided through accommodation entries of trading in shares of shell companies. Assessee was one of the beneficiaries of LTCG from the sale of shares in a penny stock company i.e., Blue Print Securities Limited. AO had reasons to believe that assessee income had escaped assessment under section 147/148. It was held that AO being unable to tie up the information received by him, with the alleged failure on the part of assessee to ^“fully and truly” disclose all material facts, attained criticality in the instant case. There was a non-application of mind by AO. AO appeared to have solely proceeded based on the general information received by him. AO, in a sense, had taken recourse to ^“borrowed” satisfaction. Although, AO noted that LTCG said to have been earned by assessee amounted to Rs. 94,85,883/-, he continued to hold the position that income chargeable to tax which had escaped assessment [which he had tied to LTCG from sale of shares in Blue Print Securities] was Rs. 1,04,38,000/-. There was nothing in the ^“reason to believe” that would show how AO had reached a figure of Rs. 1,04,38,000/-. AO verily believed, for some strange reason, that assessee‟s case was the one which fell within four (4) years, which was why he had adverted to Section 151(2) rather than Section 151(1) Thus, reassessment proceedings were triggered against assessee without due application of mind by AO about the information received by him from the Kolkata Division of the Investigation Directorate. The court quashed the impugned notice issued under Section 148.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. This writ petition concerns Assessment Year (AY) 2012-13.

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