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AO Triggered Reassessment without due Application of Mind: Delhi HC Quashes Notice Issued u/s 148 of Income Tax Act [Read Order]

The Delhi High Court quashed the Re assessment notice under section 148 of the Income Tax Act, 1961 triggered by the Assessing Officer (AO)without due application of mind.   Shashi Mohan Garg, the petitioner/assessee has laid a challenge to the notice dated 28.03.2019 issued under Section 148 of the Income-tax Act, 1961 [“Act”].  According to the impugned notice, objections filed by the petitioner were disposed of by the Assessing Officer (AO). The impugned notice was founded on the “reason to believe” formulated by the AO for triggering the reassessment proceedings against the petitioner.  The AO concluded that, at least, Rs. 1,04,38,000/- has escaped assessment in the case of the petitioner/assessee for A.Y. 2012-13 within the meaning of Section 147/148 of the Act. The AO arrived at this conclusion based on the information received on 16.03.2016 from the Kolkata Investigation Directorate. A piece of information got that certain persons, who were based in Kolkata, had incorporated shell companies.

These shell companies were being operated by one Ashish Kumar Agarwal. Furthermore, the information claimed that two persons i.e, Ashok Kumar Kayan and Sushil Kumar Kayan, sharebrokers at the Calcutta Stock Exchange (CSE) and Bombay Stock Exchange (BSE), were providing bogus long-term capital gains (LTCG) through trading in shares of shell companies. The information also revealed that a survey was conducted on the premises of Ashok Kumar Kayan, which disclosed that Ashok Kumar was providing accommodation entries in the form of LTCG, in cahoots with entry providers and promoters of scrips at CSE.  Ashok Kumar Kayan has provided the names of penny stock companies listed on BSE and CSE that were used for providing accommodation entries.

It was viewed that there is a reference to Section 151(2) of the Act, a provision that covers cases where no scrutiny assessment has been made either under Sections 143(3) or 147 of the Act. However, in this case, scrutiny assessment under section 143(3) was completed via the assessment order dated 14.01.2015.  There is nothing in the “reason to believe” that would show how the AO has reached a figure of Rs. 1,04,38,000/-.

The only clue concerning that figure is in the information that he had received from the Kolkata Division of the Investigation Directorate.  It was found by the court that the AO verily believed, for some strange reason, that the petitioner’s/assessee’s case was the one which fell within four (4) years, which is why he had adverted to Section 151(2) rather than Section 151(1) of the Act.  A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that the reassessment proceedings were triggered against the petitioner/assessee without due application of mind by the AO about the information received by him from the Kolkata Division of the Investigation Directorate. The court quashed the impugned notice issued under Section 148 of the Act.

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