Case Law Details
PCIT Vs Nikunj Dhanuka (Supreme Court of India)
SC Dismisses Revenue’s Appeal Because Reopening Was Based on Factually Incorrect Information; SC Affirms That Section 147 Reopening Cannot Stand Without Accurate Material Supporting Exemption Allegations; SC Refuses to Interfere Because No Exemption Under Section 10(38) Was Claimed in Disputed Scrip; SC Backs ITAT and High Court Because Revenue Could Not Establish Basis for Penny Stock Reopening
The Supreme Court of India dismissed the Special Leave Petition (SLP) filed by the Revenue against the judgment of the Calcutta High Court in a case concerning reopening of assessment under Section 147 of the Income Tax Act based on alleged bogus long-term capital gains arising from transactions in the shares of VMS Industries Ltd. The Supreme Court condoned the delay but, after hearing the Revenue’s counsel, declined to interfere with the impugned judgment and dismissed the SLP. All pending applications were also disposed of.
Read HC Judgment in this case: No Evidence of Penny Stock Exemption Claim, Calcutta HC Quashed Reassessment
The Calcutta High Court had earlier examined the Revenue’s appeal filed under Section 260A against the order of the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, for Assessment Year 2012-13. The Revenue had questioned the Tribunal’s deletion of additions made under Sections 68 and 69C and had argued that the assessee had generated bogus exempt long-term capital gains through penny stock transactions involving VMS Industries Ltd. The Revenue also contended that the assessee had failed to produce evidence establishing the genuineness of the transactions.
The Tribunal had allowed the assessee’s appeal and set aside the assessment order dated 27 December 2017 as well as the ex parte order of the first appellate authority. The dispute related to reassessment proceedings initiated under Section 147 of the Act. According to the assessment order, reopening was based on information allegedly received from the Principal Directorate of Income Tax (Investigation), Mumbai, stating that the assessee had claimed exemption under Section 10(38) amounting to Rs.90,95,000 in respect of gains arising from the shares of VMS Industries Ltd.
The High Court noted that the Tribunal had carefully examined the facts and found that the very information forming the basis of reassessment was factually incorrect. The assessee’s return of income had originally been processed under Section 143(1). The records showed that the assessee had disclosed long-term capital gains of Rs.41,98,896 after adjustment of long-term capital losses of Rs.4,62,646, and exemption under Section 10(38) had been claimed only in relation to those gains.
The High Court observed that the Assessing Officer had reopened the assessment on the premise that the assessee had claimed exemption of Rs.90,95,000 under Section 10(38) relating to VMS Industries Ltd. However, there was no material on record indicating the source from which such information had been obtained. According to the assessee, the amount referred to by the Assessing Officer represented short-term capital gains of Rs.57,46,787, which had already been offered to tax in the original return.
The Court further found that the records clearly established that the assessee had not earned any long-term capital gains from transactions in the shares of VMS Industries Ltd. Consequently, the allegation that exempt long-term capital gains had been claimed in respect of that scrip was factually unsustainable. Since the assessee had not claimed exemption under Section 10(38) in relation to VMS Industries Ltd., the very foundation for reopening the assessment under Section 147 ceased to exist.
In these circumstances, the High Court held that the Tribunal was justified in allowing the assessee’s appeal and in setting aside both the reassessment order and the order of the first appellate authority. The Court concluded that no question of law, much less any substantial question of law, arose from the Tribunal’s order that warranted consideration under Section 260A of the Act. Accordingly, the Revenue’s appeal was dismissed, and the connected stay application was also rejected.
The Supreme Court, after considering the matter, found no reason to interfere with the judgment of the High Court. By dismissing the SLP, the Supreme Court allowed the High Court’s decision to stand, thereby affirming that the reassessment proceedings initiated on the basis of factually incorrect information regarding an alleged exempt long-term capital gain claim could not be sustained.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Having heard Mr. V C Bharathi, learned counsel appearing for the petitioner(s), we are not inclined to interfere with the impugned judgment/order(s). The Special Leave Petition is, accordingly, dismissed.
3. Pending application(s), if any shall stand disposed of.
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