Failure to Provide Reopening Reasons Renders Reassessment Void: ITAT:

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that reassessment proceedings are invalid where the Assessing Officer fails to furnish the recorded reasons for reopening despite a specific request by the assessee. The Tribunal further deleted the addition made under Section 68 in respect of long-term capital gains earned from the sale of listed shares of Shreenath Commercial & Finance Ltd. A Bench comprising Judicial Member Sandeep Gosain and Accountant Member Girish Agrawal allowed the appeal filed by Karuna Anil Goyal for AY 2011-12.

The Assessing Officer had reopened the assessment under Section 147 and treated the sale proceeds of Rs 2.65 crore arising from the sale of listed shares as unexplained cash credits under Section 68 after rejecting the assessee’s claim of exemption under Section 10(38). The Commissioner of Income Tax (Appeals) upheld both the validity of the reassessment proceedings and the addition.

Before the Tribunal, the assessee contended that despite making a written request, the Assessing Officer never supplied the reasons recorded for reopening the assessment. It was argued that such non-compliance violated the procedure laid down by the Supreme Court in GKN Driveshafts (India) Limited and rendered the reassessment proceedings void.

The Tribunal noted that the assessee had specifically requested a copy of the recorded reasons after receipt of the notice under Section 148. However, the Assessing Officer proceeded with the reassessment without furnishing the reasons. “Non-supply of the reasons recorded, despite a specific request by the assessee, is a jurisdictional defect.”

Relying on the decisions of the Supreme Court in GKN Driveshafts (India) Ltd. and several Bombay High Court rulings, including Videsh Sanchar Nigam Ltd., Trend Electronics and IDBI Ltd., the Tribunal held that failure to provide the recorded reasons vitiated the entire reassessment proceedings. Accordingly, the reassessment order was held to be unsustainable in law.

The assessee furnished contract notes, demat statements, bank statements, broker confirmations, share allotment documents and other supporting evidence. The Tribunal observed that neither the Assessing Officer nor the CIT(A) had disputed the authenticity of these documents.

“Neither the Securities and Exchange Board of India (SEBI) nor any other authority framed any adverse charge against the assessee or the stock broker to establish the assessee’s involvement in price manipulation.”

Following various judicial precedents involving the same script, Shreenath Commercial & Finance Ltd., the Tribunal held that the long-term capital gain claim could not be rejected merely because of a sharp rise in the share price. Consequently, it directed the Assessing Officer to delete the addition made under Section 68 and allowed the appeal of the assessee.