Vinita Ravi Jain Vs ITO (Gujarat High Court)
The Gujarat High Court heard two writ petitions together and disposed of them by a common order, treating Special Civil Application No. 16944 of 2019 as the lead matter. The petitions challenged the notices dated 26.03.2019 issued under Section 148 of the Income-tax Act, 1961, along with the preliminary orders dated 07.09.2019 rejecting the petitioners’ objections. The petitions related to Assessment Year 2012-13.
The petitioner had regularly been assessed to income tax and had filed the return of income for Assessment Year 2012-13 on 12.09.2012. Subsequently, the Assessing Officer issued a notice under Sections 147 and 148 for reopening the assessment. The reasons for reopening were communicated on 26.06.2019, following which the petitioner filed objections on 01.07.2019. Those objections were rejected by the Assessing Officer on 07.09.2019.
The petitioner contended that the reopening was based on incorrect, irrelevant and extraneous information. It was submitted that the Assessing Officer had wrongly assumed jurisdiction under Sections 147 and 148 on the basis that the petitioner had purchased and sold shares of M/s. 21st Century, treated as a penny stock company, and had claimed exempt long-term capital gains. The petitioner asserted that no transaction involving shares of M/s. 21st Century had ever been undertaken during Assessment Year 2012-13 or in any other assessment year. According to the petitioner, the reopening was founded entirely on incorrect facts.
The petitioner further pointed out that the return of income for Assessment Year 2012-13 disclosed long-term capital gains relating to Bagra Partishtan Ltd., for which exemption under Section 10(38) had been claimed, and not from transactions involving M/s. 21st Century.
Opposing the petitions, the Revenue submitted that the notice under Section 148 had been issued after recording reasons and obtaining approval from the competent authority. It was stated that information had been received from the Deputy Director of Income Tax, Kolkata, regarding accommodation entries involving penny stock transactions through exempt long-term capital gains. According to the Revenue, the petitioner had claimed exemption of Rs. 17,62,150 under Section 10(38) on sale of shares, which matched the modus operandi of beneficiaries of accommodation entries involving penny stocks. The Revenue also submitted that since the assessment proceedings were still pending, the petitioner could raise all contentions before the Assessing Officer and thereafter avail the statutory appellate remedies.
After hearing both sides, the High Court examined the reasons recorded for reopening. It observed that the impugned notice specifically alleged that the petitioner had purchased and sold shares of M/s. 21st Century through an entry operator, Mr. Ashok Kumar Kayan, and had sold shares worth Rs. 17,62,150 during the relevant financial year.
The Court noted that in the objections filed on 01.07.2019, the petitioner had categorically denied dealing in shares of M/s. 21st Century or selling such shares through the alleged entry operator. The petitioner had also asserted that the investigation by the Deputy Director of Income Tax proceeded on factually incorrect information.
The High Court further examined the return of income for Assessment Year 2012-13 and found that the exempt income disclosed therein related to long-term capital gains under Section 10(38) arising from transactions in Bagra Partishtan Ltd., with the sale consideration shown at Rs. 17,62,500. The Court observed that this assertion of the petitioner had not been denied by the Revenue and that the reopening was entirely premised on the allegation of transactions in M/s. 21st Century, whereas the petitioner had never dealt in the shares of that company. The company actually reflected in the return of income, namely Bagra Partishtan Ltd., did not find any mention in the reasons recorded for reopening.
The High Court held that the reassessment proceedings were based on a factually incorrect premise. In view of the undisputed facts, the Court held that the petitioner could not be relegated either to participate in further assessment proceedings or to pursue the alternative statutory remedies.
Accordingly, the High Court quashed and set aside the notices dated 26.03.2019 issued under Section 148 of the Income-tax Act, 1961, together with the preliminary orders dated 07.09.2019, and allowed both writ petitions.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. The petitions are taken up for final hearing for final disposal with the consent. Both the petitions are decided by this common order. The Special Civil Application No.16944 of 2019 is treated as lead matter.
2. In the present writ petitions, the petitioners have assailed the impugned notices dated 26.03.2019 issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) along with preliminary orders dated 07.09.2019.
3. Brief facts of the case are that, the petitioner is being regularly assessed to tax by the Income-tax Office. For the Assessment Year (for short `A.Y.’) 2012-13, Return of Income was filed on 12.09.2012.
3.1 The respondent issued a notice under Section 148 read with Section 147 of the Act dated 26.03.2019 for re-opening of the assessment for A.Y.2012-2013.
3.2 The reasons recorded for reopening of assessment under Section 147 of the Act was communicated vide letter dated 26.06.2019.
3.3 The petitioner filed his objections to the reasons recorded for reopening the assessment for A.Y. 2012-13 on 01.07.2019.
3.4 The respondent rejected the objections raised by the petitioner vide letter dated 07.09.2019.
4. Learned advocate Mr.Darshan R. Patel appearing for the petitioner has submitted the notice under Section 148 of the Act is on totally incorrect, irrelevant and inapplicable extraneous information lacking validity of reopening.
4.1 He has submitted that the respondent is in grave error in assuming jurisdiction under Section 147/148 of the Act for reopening the proceedings for A.Y. 2012-13 on incorrect facts.
4.2 He has submitted that the petitioner has never purchased and sold any shares of M/s.21st Century and has not earned any long term capital gain on purchase and sale of shares of company by this name i.e. M/s.21st Century. It is therefore submitted that the reasons recorded are on totally incorrect facts alleging that the petitioner has sold shares of M/s.21st Century which is a penny stock company.
4.3 He has submitted that there is no transaction at all done by the petitioner involving the shares of M/s.21″ Century, neither in A.Y. 201213 nor in any other assessment years. Hence, the reason assigned for reopening of assessment is based on a totally incorrect and irrelevant fact.
4.4 He has also pointed out that return of income filed by the petitioner
for the A.Y. 2012-13 and has submitted that in fact the petitioner has dealt with Bagra Partishtan Ltd., and sought exemption of long term capital gain and not in M/s.21″ Century as alleged by the Assessing Officer. Thus, it is urged that the impugned notices for reopening of the assessment are required to be quashed and set aside.
5. Opposing the present petitions, the learned Senior Standing Counsel Mr. Karan Sanghani while referring to the affidavit-in-reply has submitted that, the notices issued to the petitioner under Section 148 of the Act was issued to the petitioner assessee in the office of the Assessing Officer for A. Y. 2012-13 after recording the reasons and receiving due approval from the competent authority and the notice was duly served upon the assessee through Registered Speed Post as well as through person on 27.03.2019. In this case, information was received from the Dy. Director of Kolkata regarding transaction of accommodation entry of penny stock scrip through claiming exempt Long Term Capital Gain (for short `LTCG’) taken by the assessee during the year under consideration and the same was established by him during the course of enquiry proceedings. Further, it was found from the return of income filed by the petitioner for the year under consideration that assessee has claimed the exemption of LTCG of Rs.17,62,150/- under Section 10(38) of the Act on sale of shares, which is the modus operandi of the beneficiary of accommodation entry of penny stock through claiming exemption of LTCG. Further, it is contended that since the assessment order is still to be passed in this case and if the petitioner has any grievance with regard to the assessment order, then it can be passed after considering the submission made by him during the course of assessment proceedings, and there is also remedy provided under the Act by way of filing Appeal to the Commissioner of Income Tax (Appeals) and thereafter, before the Income Tax Appellate Tribunal.
6. We have heard the learned advocates appearing for the respective parties at length. The petitioner filed his objections for reopening the assessment for A.Y. 2012-13 on 01.07.2019. The contents of the impugned notice issued under Section 148 of the Act reveals that the Assessing Officer has exclusively alleged that the petitioner has indulged in purchase and sale of penny stocks of M/s.21st Century through entry operator Mr.Ashok Kumar Kayan by selling the shares worth Rs.17,62,150/- during the financial year 2011-12 relevant to A.Y. 201213. It is further alleged that the scrips in which the assessee traded were penny stock and were used by brokers/entry operators to provide accommodation entries so as to convert the unexplained cash into legitimate income in the form of LTCG to the beneficiaries. In his reply dated 01.07.2019, the petitioner categorically referred that he has not dealt in the shares of M/s.21st Century and have not sold any share of this penny stock company through Shri Ashok Kumar Kayan and thus urged that the Deputy Director of Income Tax (for short `DDIT’) who has investigated the case has fell in error and the reopening is premised on factually incorrect information.
7. We have also perused the return of income filed by the petitioner for A.Y. 2012-13. In the exempted income the petitioner has categorically referred to the long term capital gain on listed securities under Section 10(38) of the Act and the name of the company disclosed in return of income is Bagra Partishtan Ltd., and the sales price of the securities is referred as Rs.17,62,500/-. This assertion by the petitioner in his objections as well in the writ petition is not denied by the respondents, as the reopening is premised on an incorrect factual aspect of referring the penny stock company. The petitioner never dealt with the shares of M/s.21st Century but in fact has dealt with Bagra Partishtan Ltd., company which does not find place in the impugned notice and hence on this aspect the reopening of the assessment is required to be quashed and set aside as it is premised on a factually incorrect information.
8. In wake of the undisputed facts, the petitioner cannot be relegated either to face further assessment or to avail the alternative remedy. Both the petitions are The impugned notices dated 26.03.2019 issued under Section 148 of the Income Tax Act, 1961 along with preliminary orders dated 07.09.2019 are quashed and set aside.
