Second Reassessment Quashed for Non-Application of Mind: Bombay HC

Samiksha Gour Vs ITO (Bombay High Court)

Summary: Bombay High Court quashed the second reassessment proceedings initiated against Samiksha Gour for Assessment Year 2016-17, finding total non-application of mind by the Assessing Officer as well as the PCCIT granting approval under Section 151. The assessee had earlier received a reassessment notice concerning purchase and sale of penny-stock shares, culminating in an assessment order dated 22 May 2023. While those proceedings were still pending, another notice dated 2 March 2023 under Section 148A(b) was issued. The material accompanying the second notice referred only to alleged fictitious LTCG benefit of Rs.38,93,386 relating to Mangalam Industrial Finance Ltd. However, the subsequent Section 148A(d) order additionally included purchase of shares of Rs.14,47,771 and sale of shares of Rs.17,17,372.

The Court noted that these first two items were absent from the information supplied with the second notice and had already formed part of the earlier reassessment. Revenue also confirmed that Rs.17,17,372 included the purchase amount of Rs.14,47,771. The Court held that these circumstances clearly demonstrated non-application of mind by the AO and the PCCIT who granted Section 151 approval. Without deciding the separate question whether a second reopening could be initiated while the first reopening proceedings were pending, the Court quashed the order dated 24 March 2023 and consequently the notice/order under Section 148.

Cases Discussed

• Siemens Financial Services Private Limited Vs. Deputy Commissioner of Income Tax & Ors. (Bombay High Court), (2023) 457 ITR 647 (Bom.) — Revenue submitted that the first reopening notice itself was barred by limitation in view of this decision; the Court recorded that the petitioner could raise that issue in the pending appeal.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Mentioned out of turn.

2. Rule. By consent, Rule made returnable forthwith.

3. Petitioner, an individual, received a notice dated 14th June 2021 issued under Section 148 of the Income Tax Act, 1961 (“the Act”) alleging escapement of income for Assessment Year (“AY”) 2016-17 and that Petitioner has indulged in sale and purchase of shares of Penny Stock Company/shell companies and calling upon to show cause why a sum of Rs.17,17,370/- be not assessed to tax in the hands of Petitioner. Admittedly, Petitioner was a non-filer of return of income (“ROI”). Paragraphs 8 & 11 of the original order under Section 148A(d) of the Act passed on 29th July 2022 read as under:

“8. The submission of the assessee was carefully perused and considered but found not acceptable. In her submission, the assessee has stated that she has sold the shares at total consideration of Rs.17,17,370/- against the total purchase consideration of Rs. 14,47,767/- and in information provided to the assessee purchase and sales consideration both were clubbed. However, the assessee has not furnished any supporting documentary evidences i.e. copy of bank account statement, copy of contract notes, copy of transaction statement etc. in support of her claim. The assessee has not furnished any documentary evidences with respect to the purchase consideration of the shares. The assessee has further claimed that she has sold shares of the above said scripts within 3-4 days and claimed STCG amounting to Rs. 2,69,603/-. Even if the contention of the assessee is accepted, it is found that the assessee has not offered the said STCG amounting to Rs. 2,69,603/- for taxation, as the assessee has failed to furnish any supporting documentary evidences to substantiate the claim of chapter VIA deduction. The assessee is a non filer of income tax and also failed to furnish the source of investment of Rs. 14,47,767/-in shares with supporting documentary evidences as claimed by the assessee. The assessee has claimed that she has not hold the shares for 12 months but sold the shares within 3-4 days thus the allegation of taking accommodation entry by trading in the shares of above scripts is not correct. In this regard, it is stated that for taking accommodation entry, it is not required to hold the shares for 12 months as claimed by the assessee. Holding the shares for more than 12 months is required only for LTCG purpose.

11. In view of the above facts, it is found that the assessee has made transactions in the shares of the above companies and the assessee has failed to furnish the source of investment in shares amounting to Rs. 14,47,767/- and also failed to offer STCG amounting to Rs. 2,69,603/- as claimed by the assessee. Considering the above facts and discussion, it is clear that there is information with this office which suggests that the income chargeable to tax amounting to Rs. 17,17,370/- has escaped assessment for the F.Y. 2015-16 relevant to A.Y. 2016-17.”

Simultaneously, a notice under Section 148 of the Act was also issued and an assessment order dated 22nd May 2023 was passed under Section 147 read with Section 144B of the Act. Counsel, Mr. Ashok Kumar Gupta states that this order has been challenged in an appeal filed before the Commissioner of Income Tax (Appeals) [CIT(A)].

4. During the pendency of this reassessment proceedings, Petitioner received another notice dated 2nd March 2023 under Section 148A(b) of the Act, once again, alleging escapement of income. The enclosure referred to in the notice is not annexed to the Petition and counsel stated that perhaps Petitioner never received the enclosure. The enclosure is at Exhibit G to the affidavit in reply filed through one Jignesh B. Anand, Income Tax Officer and affirmed on 19th March 2024. The enclosure which is an extract from the case related information detail of Insight Portal, refers to only one information. It says Primary Source Name Mangalam Industrial Finance Limited and the information value is given as Rs.38,93,386/-. In the notice, though Petitioner’s name is given in ‘Related Person Detail’, there is no explanation as to how there is any escapement of income. The Insight information says ‘Packet Source Description – Fictitious LTCG Benefit by Manipulation in Share Price’ but does not say whether there was any sale or who manipulated and how was the manipulation. It is not even alleged how Petitioner could have manipulated the share price. Be that as it may, admittedly, no objection was filed to this notice and the impugned order dated 24th March 2023 for AY 2016-17 under Section 148A(d) of the Act came to be passed. In this order, paragraph 2 reads as under:

“2. As per the information which was shared with the department it was revealed that the assessee has carried out the following transaction as given below during the given financial year.

5. The Insight portal, which is relied upon as an enclosure to the notice dated 2nd March 2023, does not refer to first two items from the table quoted above, i.e., (i), Purchase of shares by related PAN of penny stock of EML and GBFL Limited amounting to Rs.14,47,771/- and (ii) Sale of shares by related PAN of penny stock of EML and GBFL Ltd amounting to Rs.17,17,372/-. Moreover, Item at Sr.No.2 (i.e., Rs.17,17,372/-) is the same figure, and Mr. Harnesha confirmed, is the escapement of income mentioned in the reassessment order dated 22nd May 2023, which Petitioner has separately impugned by way of an appeal as noted above. Mr. Harnesha also had to agree that the amount of Rs.17,17,372/- includes the amount Rs.14,47,771/- mentioned as towards purchase of shares. Therefore, if these two items are already included in the reassessment order dated 22nd May 2023, certainly, they could not form part of fresh order of Section 148A(d) of the Act. This is the submission that Mr. Ashok Kumar Gupta made without prejudice to his first submission that the second reassessment proceedings could not have been initiated when the first reopening assessment proceedings were pending. Mr. Ashok Kumar Gupta submitted that the second reopening notice under Section 148A(d) of the Act was dated 2nd March 2023 whereas the reassessment order based on the first notice of reopening dated 27th May 2022, was passed only on 22nd May 2023. Mr. Harnesha infact submitted that the first reassessment order dated 22nd May 2023 could not have been passed as held by this Court in Siemens Financial Services Private Limited Vs. Deputy Commissioner of Income Tax & Ors.¹, as the first reopening notice dated 27th May 2022 itself was barred by limitation. Mr. Ashok Kumar Gupta could take this point in the appeal, i.e., lodged by Petitioner.

6. In view of what is noted above about the absence of information in the notice issued under Section 148A(b) of the Act with regard to the first two items mentioned in the order under Section 148A(d) of the Act and the fact that assessment orders have already been passed with regard to those two items and item 2 includes item 1 mentioned above, also clearly indicates total non-application of mind by the Assessing Officer (“AO”) as also by the Principal Chief Commissioner of Income Tax (“PCCIT”), who has granted the approval under Section 151 of the Act. In paragraph 7 of the impugned order dated 24th March 2023, it is stated by the AO as under:

“7. …….On the contrary, the information received in accordance with the Risk Management Strategy itself suggests that the transaction was undertaken by the assessee involving Purchase of Shares by related PAN of penny stock of penny stock of EML & GBFL Ltd. of Rs. 14,47,771/-, Sale of Shares by related PAN of EML.& GBFL Ltd. of Rs. 17,17,372/-, and Others (Fictitious LTCG benefit by manipulation in penny stock) of Mangalam industrial finance Ltd. Rs. 38,93,386/- and the records reveal that the assessee is a non filer for the given year and has therefore not offered the income arising out of the said transactions to taxes, thereby suggesting that income chargeable to tax represented in the form of assets which has escaped assessment, is exceeding rupees fifty lakhs. Therefore, in the backdrop of this information, I am satisfied that the assessment/re-assessment proceedings are required in this case. Thus, I am satisfied that it is a fit case for issue of Notice u/s 148.”

Such an order has been passed without referring to first two items in the notice that was issued under Section 148A(b) of the Act.

7. In the circumstances, without even going into the issue as to whether an assessment can be reopened when the first reopening proceedings are going on, we hereby quash and set aside the impugned order dated 24th March 2023. Consequently, the order passed under Section 148 of the Act is hereby quashed and set aside.

¹ (2023) 457 ITR 647 (BOM)