Case Law Details
Khushboo Anand Bhayani Vs ITO (Gujarat High Court)
Gujarat High Court heard the petition filed by Khushboo Anand Bhayani challenging the reassessment notice issued under Section 148 of the Income Tax Act, 1961. The petitioner, who earned income from trading in shares, commodities, and derivatives, had declared a profit of ₹59,19,328 from Futures & Options (F&O) transactions in her profit and loss account. However, the Income Tax Department reopened her assessment for the year 2015-16, citing discrepancies between her declared income and trading volumes recorded in the Insight Portal. The petitioner contested the reassessment, arguing that the reopening was based on vague reasons and lacked independent application of mind.
The department justified the reopening based on information received from “Project Falcon,” which flagged coordinated and premeditated trading in illiquid stock options. According to the Assessing Officer (AO), the petitioner had participated in non-genuine transactions and failed to fully disclose material facts. However, the High Court found that the reopening was mechanical and based solely on third-party information without an independent inquiry into the petitioner’s specific transactions. The court noted that the petitioner had already declared her F&O profits in her tax filings, and the AO failed to demonstrate any tangible evidence of income escaping assessment.
Citing judicial precedents, including Harikishan Sunderlal Virmani vs. DCIT (394 ITR 146) and CIT vs. Kelvinator of India Ltd. (123 Taxmann.com 433), the court emphasized that reassessment cannot be initiated merely on a change of opinion. It ruled that the reopening after four years without fresh material violated Section 151 of the Act, which mandates prior approval from higher authorities. The court also noted that reliance on Insight Portal data alone, without independent verification, was insufficient to justify reassessment.
In its final ruling, the Gujarat High Court quashed the reassessment notice, stating that there was no failure on the part of the petitioner to disclose relevant facts. The court reaffirmed that the tax department cannot mechanically reopen cases based on external data without forming an independent opinion. The decision strengthens legal protection for taxpayers against arbitrary reassessment proceedings and reinforces the necessity of procedural compliance in tax investigations.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned Senior Advocate Mr. Tushar Hemani with learned Advocate V.K. Parikh for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for the respondent No.1.
2. Rule returnable forthwith. Mr. Varun Patel, learned Senior Standing Counsel waives service of notice of rule on behalf of the respondent No.1. Since the controversy involved is short, the matter is finally heard and disposed of.
3. This petition is filed under Article 226 of the Constitution of India with a prayer to quash and set aside the impugned notice dated 30.03.2021. Accordingly, the following prayers have been made :-
(a) quash and set aside the impugned notice at “Annexure A” at to this petition.
(b) Pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at Annexure “A” to this petition and stay the further proceedings for the Assessment Year 2015-16.
(c) any other and further relief deemed just and proper be granted in the interest of justice;
(d) to provide for the cost of this petition.
3.2 The brief case of the facts are as under:-
3.2. The Petitioner, during the year under consideration, earned income from trading in shares, commodities, derivatives etc. The Petitioner had also entered into certain transactions in Futures & Options (hereinafter referred to as “F & O” for the sake of brevity) which resulted into profit of Rs.59,19,328/- and such profit is duly reflected in the Profit & Loss account. Such transactions were carried out through the broker namely “(sic) Jhaveri Securities Ltd.”.
3.3. Suddenly thereafter, the Respondent issued the impugned notice dated 30.03.2021 under section 148 of the Act seeking to reopen the case of the Petitioner for the year under consideration.
3.4. The Petitioner, in response to the impugned notice, filed return of income on 04.2021 and further requested the Respondent to supply the copy of reasons for reopening.
3.5. The Respondent supplied the copy of reasons for reopening vide letter/notice dated 01.09.2021 issued under section 143(2) read with section 147 of the Act. Briefly, the case of the Respondent is that information was received from the system (insight portal) as per which, the Petitioner had entered into derivatives transactions of Rs.1,10,20,650/- from (sic) Jhaveri Securities Limited. Accordingly, the Petitioner was required to show income on sale of derivatives. However, on verification of the system, it was seen that the Petitioner has not shown any income from derivatives in the return of income. Also the income offered was not commensurate with the amount shown in the return. Hence, the Respondent was of the view that the Petitioner has not offered the aforesaid income from derivatives for taxation and hence, such income remained unexplained. In view of the same, the Respondent has reason to believe that income of Rs. 1,10,20,650/- has escaped assessment. Hence, the case has been reopened.
The reasons for reopening the assessment as can be found from the notice dated 09.2021 under Section 143(2) of the Act are as under:-
“1. Brief details of the Assess
The assessee is an individual and filed Retum of Income of Rs. NIL for the considering year. The return was processed as per the provisions of the IT Act, 1961.
2. Brief details of information collected / received by the AO:
In this case, information was received from the system (Insight Portal). As per the information the assessee has entered into the securitised (Derivative Trading). During the year under consideration the assessee has traded of Rs. 1,10,20,650/- from the Jhaveri Securities Ltd.
3. Analysis of information collected/received.
The assessee was required to show the income arriving on the sale of the derivative.
4. Enquiries made by the AO as sequel to information collected/received:
On verification of system it is seen that the assessee has not shown any income in the return earned from the derivatives. Also the income offered does not commensurate with amount shown in the return.
5. Finding of AO:
From the above facts it is noticed that assessee has not offered the income of derivatives for the year under consideration, therefore, the income remained unexplained. It is suppression of the facts on the part of the assessee. In this case more than Rs.1,00,000/- is involved. It is suppression of the materials fact on the part of the assessee.
6. Basis of forming reason to believe and details of escapement of income:-
Therefore, I have reason to believe that income of Rs. 1,10,20,650/- which is chargeable to tax has escaped assessment and is considered a fit case for initiation of proceedings under Section 147 of the Income Tax Act, 1961.
3.7. The Petitioner, vide letter dated 06.09.2021, raised her objections against the reopening. In view of the same, the Respondent was requested to drop the reassessment proceedings.
3.8 The Respondent, vide order dated 05.01.2022, disposed off such objections and, inter-alia, held that the reopening is justified.
4.1 Learned Senior Advocate Mr. Hemani submits that the reasons for reopening are absolutely vague and non- specific. No escapement of income chargeable to tax emanates from reasons for reopening and hence, the reopening is not justified. The jurisdictional requirement for reopening the case of an assessee is that the Assessing Officer concerned must have “reason to believe” that any “income chargeable to tax has escaped assessment”. In order to have such reason to believe, it is very much essential that the Assessing Officer concerned must be aware of the very transaction based on which it is sought to be alleged that some income chargeable to tax has escaped assessment.
4.2 The Petitioner further submits that as per section 151 of the Act, no notice shall be issued under section 148 of the Act after the expiry of a period of four years from the end of the relevant assessment year unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing officer, that it is a fit case for the issuance of such notice. Thus, in case of reopening beyond a period of four years from the end of the relevant assessment year, it is mandatory on the part of the Assessing Officer to obtain a sanction from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Such sanction should not be merely mechanical in nature.
5.1 Mr. Varun Patel, learned Senior Standing Counsel appearing for the respondent submitted that the petition is filed at a pre-mature stage, inasmuch as, only a notice u/s 148 read with section 147 of the Income Tax Act (‘the Act’ for short) for A.Y. 2015-16 has been issued. In the event, the petitioner is aggrieved by the reassessment, alternative efficacious remedy is available by way of an Appeal to the CIT(A) and thereafter to the Tribunal as per the provisions of the Act. On this ground alone, learned Senior Standing Counsel Mr. Patel submitted that the petition is devoid of any merits and be summarily rejected.
5.2 He has further submitted that the reopening has been resorted to on the basis of information received under “Project Falcon” from DGIT(Investigation), Mumbai in March, 2021 through Insight Portal regarding coordinated and premeditated trading by brokers on behalf of their clients on the Bombay Stock Exchange by engaging in reversal trades in illiquid stock options resulting in non-genuine business loss/gains to the beneficiary. He has further submitted that the present petitioner is a party to such manipulation through (sic) Jhaveri Securities and is the beneficiary of such fictitious profit and the petitioner had consistently recorded profits for each contract.
5.3 He has further submitted that thus, based on the analysis of trade data and comparing with chief characteristics of reversal trades, the Assessing Officer is of the prima-facie belief that the petitioner has indulged in generating non-genuine profit amounting to Rs. 59,11,328/- by trading in illiquid stock options on the BSE during the year under consideration and such amount has escaped assessment on account of failure on part of the petitioner to disclose truly and fully all material facts necessary for assessment.
5.4 Learned Senior Standing Counsel Mr. Varun Patel for the respondent submitted that the contention of the petitioner that the profits are genuine are merely self serving, inasmuch as, there is coordinated and pre- meditated trading by brokers on behalf of their clients on the Bombay Stock Exchange by engaging in reversal trade in il-liquid stock options resulting in non-genuine business loss/gains to the beneficiary and since the petitioner is one of such beneficiary, their case must be dealt with during the course of reassessment proceedings, strictly on merits.
6. Having heard learned advocates appearing for the respective parties and on perusal of the records, this Court arrives at the following findings :-
(i) It will be seen from the profit and loss account for Assessment Year 2015-16 that the petitioner had shown the profits on futures and Options amounting to 59,19,328/- in the profit and loss account for the relevant year. Based upon such disclosure the assessment proceedings of the petitioner came to be finalized.
(ii) Thereafter, the notice under Section 148 of the Act was issued on 30.03.2021 and the reasons were supplied on 09.2021.
7. We find that the petitioner had categorically responded to the issues raised against the petitioner in respect of the F&O trading profit as under :-
“5.4 On specific facts of the case, attention of your Honor is drawn to the fact that as per the Audited Profit and Loss Account already uploaded on the portal I as mentioned above, the undersigned had effected delivery based sale of shares to the extent of Rs.37,91,761/- apart also from having earned a gross profit of Rs.59,19,328/- from Future and Option Transactions. The undersigned had also earned intra-day, thus speculative profit, on trading in shares aggregating to Rs.30,118/- . All these have very much been credited to this profit and loss account thus translating into the net profit of Rs.44,10,380/-, which has thereafter been transferred to the capital account of the undersigned.”
8. The aforesaid objections were disposed of by order dated 05.01.2022 wherein, the respondent has categorically held as under :-
“4. The Assessee has contended against, all premises used by the AO as being untrue and because of this the proceedings must be dropped. It is to be emphasized here that the department receives information from many sources. After that the AO applies his mind and if there is enough reason to believe that income above Rs 1 lakh has escaped assessment, the case is re- opened. Such information has been received by the department confirming assessee’s trade in FY 2013-14. Further verification of these details and the impact on returned income is part of assessment proceedings. The Assessee’s contention will be duly considered and documents submitted will be perused before passing assessment order. The Assessee’s submission can’t be taken at face value at this stage and hence the objection submitted is not acceptable.”
9. Thus, we find that at no point of time, was there any failure on the part of the petitioner:
“(i) to make a return u/s. 139 or in response to the notice issued under sub-section (1) of section 142 or section 148;
(ii) to disclose fully and truly all material facts necessary for his assessment for that Assessment Year”
10. It cannot be held that the department was justified in reopening the assessment for Assessment Year 2015-16, which, we may add, has been done mechanically without application of mind, in the absence of any tangible material.
11. It also appears from the reasons recorded that no verification of the material on record is made by the respondent and there is no independent opinion that any income has escaped assessment due to any failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment.
12. Moreover, from the reasons recorded it appears that the initiation of reopening proceedings are on borrowed satisfaction as no independent opinion is formed and on bare perusal of the reasons recorded, it emerges that the Assessing Officer, considering the information received from the insight portal, has issued the impugned notice forming his reason to believe that the income has escaped the assessment on the presumption that the petitioner has been involved in creating the non-genuine profit which is already reflected in the return of income which is accepted in the regular course of assessment by passing the order under section 143(3) of the Act.
13. It is also pertinent to note that there is no basis to form reasonable belief for escapement of income except the information made available on the insight portal. The respondent-Assessing Officer has not considered the material on record to come to the conclusion that there is failure on the part of the petitioner to disclose truly and fully all material facts to have reason to believe for escapement of income. Therefore, on the basis of the information received from another agency on insight portal or from the SEBI report, there cannot be any reassessment proceedings unless the respondent, after considering such information/material received from other sources, consider the same with the material on record in the case of the petitioner assessee and thereafter, is required to form independent opinion, that income has escaped Without forming such opinion, solely and mechanically relying upon the information received from the other sources, the respondent- Assessing Officer could not have assumed the jurisdiction to reopen the assessment based on such information. This view is fortified by the decision of this Court in case of Harikishan Sunderlal Virmani vs. Deputy Commissioner of Income Tax reported in 394 ITR 146.
14. Considering the facts the case, we are of the opinion that the respondent-Assessing Officer could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion on the basis of the material on record vis-a-vis the petitioner is concerned.
15. This Court has held in its decision in the case of The Principal Commissioner of Income Tax-1 M/s. Farmson Pharmaceuticals Gujarat Pvt. Ltd. passed in Tax Appeal No. 229 of 2024 following the decision in the case of CIT Vs. The Kelvinator of India Ltd. reported in (123 Taxmann.com 433) as under:-
“9. Respectfully following the above judicial precedents, we have no hesitation in holding that when there is no failure on the part of the assessee in disclosing the income and No new tangible material on record, the reopening of assessment after 4 years period amounts to “change of opinion” only. Therefore the reopening of assessment invalid in law. Thus the finding arrived by the Ld. CITIA) does not require any interference. Therefore the grounds raised by the Revenue is devoid of merits and the same is hereby dismissed.
10. In the result, the appeal filed by the Revenue is hereby dismissed.”
16. In view of the foregoing reasons, this Court is of the opinion that the petitioner had disclosed in its return for the Assessment Year 2015-16 the particulars of the profits under the head of “future and options” which was subsequently accepted by the Department. Therefore, the notice for re-opening the assessment under the head of “derivatives” is based on change of opinion. The assessee cannot be said to have failed to have fully and truly disclosed all materials facts which would warrant the re-opening after a period of four years, anyways. Therefore, this petition succeeds and impugned notice issued under Section 148 of the Income Tax Act, 1961 dated 30th March, 2021 is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.
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