SUSHEEL KUMAR GOVINDRAM SARAFF,MUMBAI V. ITO, INTERNATIONAL TAXATION WARD-4(2)(1), MUMBAI

ITA 631/MUM/2023

AI Insights

The case involves Susheel Kumar Govindram Saraff, who appealed against the final assessment order for the assessment year 2017-18, which was based on a reassessment initiated under section 148 of the Income Tax Act, 1961. The reassessment was triggered by information from the Investigation Wing regarding alleged manipulation of share prices, leading to unreported long-term capital gains. The Tribunal examined the legality of the reassessment process, particularly the timing and manner of the recording of reasons for reopening the assessment. The Tribunal concluded that the reassessment was invalid due to procedural lapses, including the recording of reasons after the issuance of the reopening notice and beyond the statutory time limit.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473735 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2017-2018
• Other Referred Cases: National Thermal Power Co. Ltd. Vs. CIT, Jute Corporation of India Ltd. Vs. CIT, Sri Krishna Pvt. v. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: RUTUJA PAWAR SAIYAMI SHAH
• Keywords: Difference of opinion; Change of opinion; Reassessment proceedings; Capital Gains; Bogus
• Section: 147; 148; 143(3); 142(1); 143(2); 153; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SHRI RENU JAUHRI (ACCOUNTANT MEMBER) I.T.A. No. 631/Mum/2023 Assessment Year: 2017-18 Susheel Kumar Govindram Saraff 1349 62 Saichol Mansion Tower B, Banglumpoolang Klongsan, 22F Charoennakorn Road, Bangkok, Thailand PAN: AAJPS1334A Vs. Income Tax Officer, Int Tax Ward 4(2)(1),Mumbai 1708, 17th Floor, Air India Building, Nariman Pooint, Mumbai-400021 (Appellant) (Respondent) Appellant by Ms. Rutuja Pawar/Ms. Saiyami Shah Respondent by Shri. Krishna Kumar, SR. D.R. Date of Hearing 20.02.2025 Date of Pronouncement 28.02.2025 ORDER Per: Smt. Beena Pillai, J.M.: The Present appeal is filed by the assessee against the final assessment order dated 06/01/2023 passed by Lerner and ITO ward 4(2)(1), Mumbai’s for assessment year 2017-18 on following grounds of appeal: 2 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff “1. In the facts and circumstances of the Appellant's case and in law, the order dated 06.01.2023 passed by the Ld. Assessing officer under provisions of section 147 r.w.s. 144C(13) of the Income-tax Act, 1961 is barred by limitation in view of provisions of section 153 of the Act and is, therefore, bad in law and illegal. 2. In the facts and circumstance of the Appellant's case the directions issued by Dispute Resolution Panel u/s 144C(5) of the Income-tax Act 1961 are bad in law. 3. Without prejudice to Ground 1 & 2 above, order u/s. 143(3) r.w.s 147 passed by the learned assessing officer is bad in law, and in facts, as the reasons recorded for reopening are erroneous, ambiguous and vague and no income had escaped assessment. 4. Ld. AO grossly erred in concluding assessment proceedings without providing reasonable opportunity to cross examine the witness, not providing underlying material relied upon by the Ld. AO for forming an opinion on the involvement of the Appellant. 5. Ld AO grossly erred in making addition of income u/s 68 of the Act in respect of short-term capital gains earned by the Appellant on transfer of listed equity shares. In doing so, Ld. AO failed to appreciate the evidences produced by appellant. The Appellant craves leave to add, alter, amend or delete all or any of the ground(s)/sub-ground(s) of appeal before or during the course of hearing.” Brief facts of the case are as under: 2. The assessee e-filed its return of income during the year under consideration on 27.02.2018 declaring total income of Rs.3.42,67,505/. The same was processed u/s.143(1) of the Act. Subsequently, the Ld.AO received certain information from the Investigation Wing. As per the investigation report of the 3 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff DGIT(Inv.), Ahmedabad unit, price of Kushal scrip was rigged at unusual high price without supportive financials and fundamental of the company. It was informed that the assessee received LTCG of Rs.1,17.29.585/- while trading in Kushal Ltd script on various dates during F.Y 2016-17, however it was not offered to tax in the return of income. Accordingly, notice u/s. 148 of the Act was issued on 31.03.2021. 2.1 In response to the same, the assessee filed its return of Income on 17.04.2021 declaring total income at Rs.3,29,65,010/- after claiming deduction under chapter VI-A of Rs.13,02,500/-, Accordingly notice u/s 143(2) of the Act was issued to the assessee on 03/12/2021. The assessee was issued the reasons recorded along with notice under section 143(2) on 03/12/2021. 2.2 Subsequently the assessee filed its objection for reopening of assessment u/s.148 of the Act on 31/12/2021. The same was disposed off by this office on 03/02/2022. 2.3 Accordingly, notice u/s. 142(1) r.w.s. 129 of the Act was issued to assessee on 26/02/2022 calling for necessary compliance/submission to examine the issue for which case of the assessee was re-opened. In response to the notices issued from this office, the assessee submitted the explanation/details electronically through e-proceedings from time to time and the same are verified. 2.4 After perusal of submissions by the assessee, the Ld.AO observed and held as under: 6.3.24 Therefore, considering the facts of the assessee's case and the preponderance of probabilities against the assessee, we are of the view that the entire capital gains of Rs.2,93,90,510/- disclosed as short term capital gain chargeable @ 15% by the assessee in the return of Income 4 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff has to be treated as fictitious and bogus more particularly when the assessee has not furnished cogent evidence to explain how the shares of the company jumped up in no time and such fantastic sale price was not at all possible when there was no economic or financial basis to justify the price rise. Accordingly, the addition of Rs.2,93,90,510/- to the total income of the assessee is confirmed. 3. On receipt of the draft assessment order, a city raised objections before the DRP. 3.1 The DRP rejected all the grounds and objections raised by the assessee and confirmed the addition proposed in the hands of the assessee. 3.2 On receipt of the DRP directions, Ld.AO passed the assessment order by making addition in the hands of the assessee. Aggrieved by the final assessment order passed, assessee is in appeal before the Tribunal. 4. At the outset, the Ld.AR submitted that, the assessee raised various legal grounds challenging validity of issuance of notice under section 148, to be bad in law, as well as consequential assessment order passed, being without following principles of natural justice in the original ground of appeal. He submitted that, assessee also filed Application seeking admission of following additional grounds vide application dated 13/07/2024 challenging reasons recorded by the assessing officer to be based on change of opinion. “1. That on the facts and in the circumstances of the case of the appellant and in law Ld. Assessing Officer has failed to adhere that the original assessment order passed u/s. 143(3) of the Act in the case of the appellant has already considered the issue of short-term capital gain in the scrip of M/s. Kushal Limited and thereupon accepted the return of income so filed by the appellant. 5 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff 2. That on the facts and in the circumstances of the case of the appellant and in law, Ld. Assessing Officer has erred in upholding the re-opening u/s. 147 of the Act which is based upon mere \"change of opinion\". 3. That on the facts and in the circumstances of the case of the appellant and in law, Ld. Assessing Officer has ignored and is silent on the search date carried out at M/s. Kushal Limited being prior to the date of original assessment order.” 4.1 The Ld.AR submitted that, the issue raised in additional grounds goes to the root cause of the case, and no new records needs to be looked into for disposing off the issue raised herein. 4.2 It has been submitted that no new facts needs to be considered in order to dispose of the additional grounds raised by the assessee. It is submitted that, the additional grounds raised do not require verification of any new facts. The Ld.AR, thus prayed for the admission of additional grounds so raised by assessee. 4.3 The Ld.DR though could not object to the submissions of the assessee, did not support the admission of additional ground. We have perused the submissions advanced by both sides in the light of records placed before us. 5. We note that the issue raised by assessee in the additional grounds are legal issue challenging that reasons recorded is not by the same officer who issued notice under section 148 of the Act. It is thus submitted by the Ld.AR that that the reasons recorded are subsequent to issuance of reopening and therefore the entire re- assessment is bad in law. 6 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff On the contrary, the Ld.DR though opposed admission of the additional grounds, could not bring anything on record which would challenge such a right available to assessee under the Act. 5.1 We upon perusal of the additional grounds find that these are directly connected with the validity of reassessment proceedings and no new facts needs to be investigated for adjudicating the same. Issues alleged by the assessee are a legal issue that does not require investigation of any new facts. 5.2 Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Respectfully following the above, we admit the additional grounds raised by assessee in both the years under consideration. Accordingly, the additional grounds filed by assessee stand admitted. 6. The Ld.AR’s submitted that notice under section 148 reopening the assessment was issued on 31/03/2021. It is submitted that, the assessee admittedly filed its return of income in response to notice under section 148 on 17/04/2021. The Ld.AR contested that assessee was not provided with actual copy of the reasons recorded by the Ld.AO, but a mere reproduction of the same as Annexure, along with notice under section 143 (2) issued on 03/12/20215. According to the Ld.AR, reasons are recorded beyond 31/03/2015 and therefore same is beyond the timeline prescribed for reopening the assessment. The Ld.AR submitted that, assessment was thus framed without supplying the reasons within six years from the end of the relevant assessment year, therefore, same deserve to be quashed. 7 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff 6.1 The Ld.AR submitted that, assessing officer recorded the reasons subsequently after issuance of notice under section 148 of the act. He placed reliance on page 174 of the paper book wherein the notice under section 148 is placed. He also referred to page 175 wherein the reasons recorded are placed along with notice under section 143(2) of the act. He submitted that admittedly, both these notices are issued by different officers and therefore the reasons are recorded after the issuance of notice under section 148 of the act. He thus vehemently opposed to such procedure adopted by the assessing officer to the contrary to the principles laid down by various Hon’ble High Courts and Hon’ble Supreme Court 6.2 On the contrary the Ld.DR relied on orders passed by the authorities below. We have perused submissions advanced by both sides in the light of records placed before us. 7. In our opinion before the Assessing Officer is satisfied to act under the provisions relating to reassessment, he must have to record in writing, as to why, in his opinion or why he holds the belief that income has escaped assessment. Reasons for holding such belief must be reflected from the record of reasons made by the Assessing Officer. Recording of reasons therefore is very important factor, to be taken care of by the assessing officer. Section 148(2) stipulates that, the Assessing Officer shall before issuing notice u/s 148 of the Act, record the reasons for doing so. Which means before issuing notice u/s 148 of the Act, recording of reason is mandatory and prerequisite to assume jurisdiction by the Assessing Officer to initiate reassessment proceedings u/s.147. 8 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff 7.1 Even when no return of income was filed, the basic requirement of recording reasons must be fulfilled. The department’s contention that since the assessee had not filed return of income and this was not a case of reassessment, the recording of reasons was not required was not acceptable. 7.2 In the present facts of the case, we are of the opinion that, the power of reopening was not exercised in a fair manner. Admittedly, the reasons were issued by an officer who completed the reassessment by issuing notice under section 143(2), is different from the officer who initiated reassessment proceeding by issuing notice under section 148 of the Act. The revenue placed nothing on record to show any thing contrary to the observation by this Tribunal. Thus the officer who issued notice under section 148 had not recorded reasons prior to its issuance and therefore did not validly assume jurisdiction to reopen the assessment. Further, the reasons recorded are post 31/03/2021, is beyond the period of 6 years and is therefore barred by limitation. 7.3 At this juncture, we place reliance on the decision of Hon’ble Supreme Court in Sri Krishna Pvt. v. ITO reported in (1996) 221 ITR 538 wherein Hon’ble Court held that, the power conferred u/s 147 can not be an unbridled one. It is protected with several safeguards in the interest of eliminating room for abuse of this power by the Assessing officer. 7.4 We therefore agree with the contentions raised by the Ld.AR in the additional Ground no.2 and therefore quash the reassessment notice issued under section 148 of the Act to be 9 ITA No.631/Mum/2023; A.Y. 2017-18 Susheel Kumar Govindram Saraff bad in law. As the notice issued u/s. 148 is quashed, consequential reassessment order also stands quashed. Accordingly additional Ground no.2 stands allowed. 8. As we have quashed the assessment order, the issue raised by the assessee on merits of the addition becomes academic at this stage. In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 28/02/2025 Sd/- Sd/- (RENU JAUHRI) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 28/02/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai "