[2022] 145 taxmann.

com 231 (Delhi)/[2023] 290 Taxman 172 (Delhi)/[2023] 451

ITR 142 (Delhi)[28-09-2022]

INCOME TAX : Where assessee was served with a reassessment notice for
Assessment year 2013-14 within extended period of limitation, first proviso of
section 149(1) (as amended by Finance Act, 2021) would not be attracted

INCOME TAX : Where assessee was sufficiently informed that initiation of

reassessment proceeding was due to fact that Assessing Officer had reasons to
believe that assessee had earned bogus LTCG by trading in penny scrip of 'M',
however, detailed report of Investigation Wing on suspicious trading activity of 'M'
was not provided to assessee, thereby, denying assessee an effective opportunity to
answer findings in report, impugned order passed under section 148A(d) and notice
issued under section 148 were to be set aside

■■■

[2022] 145 taxmann.com 231 (Delhi)

HIGH COURT OF DELHI
Kusum Gupta
v.

Income-tax Officer*
MANMOHAN AND MS. MANMEET PRITAM SINGH ARORA, JJ.
W.P.(C) NO. 13466/2022
CM APPL/ 40955/2022 (FOR STAY)
SEPTEMBER  28, 2022 

Section 149, read with section 148, of the Income-tax Act, 1961 - Income escaping
assessment - Time limit for issuance of notice (Time barred) - Assessment year 2013-14 -
Assessee by way of instant writ petition sought to set aside notice issued under section 148
and order passed under section 148A(d) - Assessee stated that impugned notice was
statutorily time barred vide 1st proviso to section 149(1) (as amended by Finance Act, 2021) -
Whether where assessee was served with a reassessment notice within extended period of
limitation, first proviso of section 149(1) (as amended by Finance Act, 2021) would not be
attracted in facts of this case - Held, yes - Whether since income alleged to have escaped
assessment was more than Rs. 50 lakhs, rigour of section 149(1)(b) (as amended by Finance
Act, 2021) was satisfied - Held, yes [Para 14] [In favour of revenue]
Section 69A, read with sections 10(38) and 148A, of the Income-tax Act, 1961 - Unexplained
moneys (Bogus trading) - Assessment year 2013-14 - Assessee by way of instant writ petition
sought to set aside order passed under section 148A(d) on ground that notice under section
148A(b) and impugned order passed under section 148A(d) did not show any live link
between information received and formation of belief - However, this contention of
assessee could not be accepted as both notice under section 148A(b) and notice under
section 148A(d) specifically identify financial transactions undertaken by assessee in
respect of 'M' a penny scrip - Assessee was sufficiently informed that initiation of
reassessment proceeding was due to fact that Assessing Officer had reasons to believe that
assessee had earned bogus LTCG by trading in penny scrip of 'M' - However, it had come on
record that detailed report of Investigation Wing on suspicious trading activity of 'M' was
not provided to assessee - Whether therefore, assessee having been denied an effective
opportunity to answer findings made in Report, order passed under section 148A(d) and
notice issued under section 148 were to be set aside with a direction to assessee to file its
additional reply within time specified - Held, yes [Paras 15 to 17] [In favour of assessee]
CASES REFERRED TO
 
Mon Mohan Kohli v. ACIT [W.P. (C) No. 4795 of 2022, dated 24-3-2022] (para 3), Union of India v.
Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1 (SC)/2022 SCC Online SC
543 (para 3), Touchstone Holdings (P.) Ltd. v. ITO [2022] 142 taxmann.com 336 (Delhi) (para 8) and
Synfonia Tradelinks (P.) Ltd. v. ITO [2021] 127 taxmann.com 153/281 Taxman 557/435 ITR 642 (Delhi)
(para 11).

Anand Chaudhuri, Adv. for the Petitioner. Puneet Rai, Sr. Standing Counsel, Ms. Adeeba
Mujahid, Jr. Standing Counsel and Nikhil Jain, Adv. for the Respondent.
JUDGMENT
 
Ms. Manmeet Pritam Singh Arora, J. - The present writ petition has been filed seeking setting
aside of the notice dated 30th June, 2022 issued under section 148 of the Income-tax Act, 1961
('the Act'), order dated 30th June, 2022 passed under section 148A(d) of the Act.

2. The learned counsel for the petitioner states that the impugned notice issued with respect to
Assessment Year ('AY') 2013-14 is statutorily time barred vide 1st proviso to section 149(1) of the
Act (as amended by the Finance Act, 2021) and the impugned order is vitiated on account of
absence of information as mandated by 1st proviso to section 148 of the Act (as amended by the
Finance Act, 2021).

3. Learned counsel for the petitioner states that the assessee is an individual tax payer who duly
filed her Return of Income ('ITR') for the subject AY 2013-14, declaring a total income of Rs.
1,20,540/- and the said ITR was processed under section 139(1) of the Act. He states that the
petitioner was served with a Section 148 notice dated 19th April, 2021 seeking to assess the
petitioner under section 147 of the Act and the petitioner in due compliance of the said notice
re-filed her ITR dated 18th May, 2021. He states that the said notice and consequential
proceedings initiated thereon were subsequently quashed by this Court by its judgment dated
24th March, 2022 in W.P.(C) 4795/2022 following its previous decision in Mon Mohan Kohli v. ACIT.
He states that relying upon the judgment of the Supreme Court in Union of India v. Ashish Agarwal
[2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1 (SC)/2022 SCC Online SC 543, the
respondent has issued the petitioner with a notice dated 17th May, 2022 under section 148A(b)
of the Act, alleging the following information/material :

"As per information provided by the Directorate of Investigation through Income-tax Insight
Portal, during the financial year 2012-13 relevant to assessment year 2013-14, you have
entered into financial transactions of Rs. 4,84,52,944/- claimed bogus LTCG/STCL (Sell trades
quantity is higher than buy trades quantity) with penny script namely Mahanivesh (India)
Limited."

4. He states that no documents in support of the aforesaid allegations and no specific details of
the trades undertaken by the petitioner resulting in the said Long Term Capital Gain ('LTCG') has
been provided to the petitioner in contravention of the proviso to section 148 of the Act. He
states that the petitioner vide reply dated 31st May, 2022 and 25th August, 2022 objected to the
issue of the impugned notice dated 30th June, 2022 and initiation of the proceedings under
section 147 of the Act on various grounds including the absence of information against the
petitioner suggesting that the income chargeable to tax has escaped assessment. He states that
the petitioner verily believes that no information exists which expressly links the present
assessee to any enquiry undertaken against Mahanivesh (India) Limited ('Mahanivesh') with
respect to the financial transaction in the latter's scrip.

5. He states that the respondent vide its impugned order has rejected the petitioner's objection
on jurisdictional error and it is silent with respect to the petitioner's objection with respect to
absence of information. He states that since the impugned order passed under section 148A(d)
of the Act is based on no substantial information and the proceedings are time barred, the
notice issued under section 148 along with the consequential proceedings are without legal
jurisdiction.

6. Issue notice. Mr. Puneet Rai, learned Senior Standing counsel for Revenue accepts notice. This
matter was first listed on 16th September, 2022, when the respondent was directed to produce
the information available with it, which forms the basis of the reassessment notice. The learned
counsel produced a copy of the report prepared by the Income-tax Department's Investigation
Wing with respect to Mahanivesh ('Report') on 17th September, 2022, a copy whereof was
handed over to the learned counsel for the petitioner for his perusal and thereafter the matter
was adjourned for today.

7. Learned counsel for the respondent relies upon the Report. He has drawn our attention to
relevant portions of the Report wherein the Investigation Wing has concluded that the share
price of Mahanivesh has been manipulated and bogus profits and losses have been booked in
the names of beneficiary by trading in the scrip. The Report concludes that bogus profits to the
tune of Rs. 26,00,00,000/- have been booked through trading in the scrip and simultaneous
bogus losses amounting to Rs. 70,00,00,000/- have been booked for the said scrip. He states that
the Report specifically identifies the petitioner herein as the seller of 88,508 shares to Allied
Nippon Limited and Lawrence Cold Storage Private Limited, at internal page 36 of the Report. He
states that in the ITR filed by the petitioner for the relevant AY, the LTCG from transactions, as
disclosed in Schedule E-1, evidences that though the assessee earned Rs. 4,76,77,390/-the same
was claimed as an exempt income and it was not offered to tax. He states that the petitioner
earned LTCG of Rs. 4,84,52,944/- through her transactions in the scrip.

8. He states that as per the Report, an analysis of the trading data of the scrip of Mahanivesh
was carried out and it is noted that large scale manipulation of trade and fabricated trading
activity has taken place in the scrip which has led to generation of fictitious profit and loss
derived by various traders which are pre-determined and not genuine. With respect to the
objection of limitation, he relies upon the judgment of this court in Touchstone Holdings (P.) Ltd. v.
ITO [2022] 142 taxmann.com 336 (Delhi).

9. Learned counsel for the petitioner in rejoinder states that this Report was admittedly not
provided to the petitioner along with notice dated 17th May, 2022 issued under section 148A(b)
of the Act and therefore, the petitioner was denied the opportunity to explain the transactions
undertaken by her with the two entities i.e. Allied Nippon Limited and Lawrence Cold Storage
Private Limited. He states that further a perusal of the Report does not in any manner suggest
that the petitioner had any role in either influencing the rigging of the closing price of the scrip
or that she was a party to any bogus transactions.

10. He states that the petitioner has not denied that she traded in the scrip of Mahanivesh but
the petitioner denies that the transactions undertaken by her are bogus.

11. The petitioner further states that paragraph Nos. 6 and 7 of the impugned order dated 30th
June, 2022 passed under section 148A(d) of the Act does not disclose any live link between the
information received and its connection with the petitioner and therefore, the initiation of the
present proceedings is without legal jurisdiction. He relies upon the judgment dated 26th March,
2021 of this court in Synfonia Tradelinks (P.) Ltd. v. ITO [2021] 127 taxmann.com 153/281 Taxman
557/435 ITR 642 (Delhi).

12. We have heard the learned counsel for the parties and have perused the Report produced
by the respondent. The petitioner admits that she has transacted in the scrip of Mahanivesh and
earned LTCG for an amount of Rs. 4,84,52,944/- which was claimed as an exempt income. The AO
in the notice issued under section 148A(b) has categorically asserted that the LTCG earned by
the petitioner through her financial transactions in the shares of Mahanivesh are bogus. The
petitioner in her reply dated 31st May, 2022 had denied the allegations and sought the material
which forms the basis of the said allegations and sought further time of two weeks from the date
of receipt of the said material to file an additional reply.

13. With respect to the issue of limitation, this Court in Touchstone Holdings Pvt. Ltd. (supra) held
as under:

'Consequently, since the time period for issuance of reassessment notice for assessment
year 2013-14 stood extended until 30th June, 2021, the first proviso of Section 149 (as
amended by the Finance Act, 2021) is not attracted in the facts of this case. It would be
relevant to refer to the said proviso, which reads as under:

" Section 149. Time Limit for notice.—(1) No notice under section 148 shall be issued for the
relevant assessment year,-
 (a)   if three years have elapsed from the end of the relevant assessment year, unless
the case falls under clause (b);

(b)   if three years, but not more than ten years, have elapsed from the end of the
relevant assessment year unless the Assessing Officer has in his possession
books of account or other documents or evidence which reveal that the income
chargeable to tax, represented in the form of asset, which has escaped
assessment amounts to or is likely to amount to fifty lakh rupees or more for
that year:

Provided that no notice under section 148 shall be issued at any time in a case for the relevant
assessment year beginning on or before 1st day of April, 2021, if such notice could not have been
issued at that time on account of being beyond the time limit specified under the provisions of clause
(b) of sub-section (1) of this section, as they stood immediately before the commencement of the
Finance Act, 2021: …."
(Emphasis Supplied)

As noted above, the time limit for initiating assessment proceedings for AY 2013-14 stood
extended till 30th June, 2021. The petitioner does not dispute the said facts, consequently,
the reassessment notice dated 29th June, 2021, which has been issued within the extended
period of limitation is not time barred.'

14. In this case as well, the petitioner admittedly was served with a re-assessment notice dated
19th April, 2021 within the extended period of limitation and therefore, the first proviso of
section 149 (as amended by Finance Act, 2021) is not attracted in the facts of this case. Further,
the income alleged to have escaped assessment is more than Rs. 50 Lakhs and therefore, the
rigour of section 149(1)(b) of the Act (as amended by Finance Act, 2021) is satisfied.

15. The learned counsel for the petitioner's sole argument was that the notice under section
148A(b) and the impugned order passed under section 148A(d) does not show any live link
between the information received and formation of belief. We cannot accept this contention of
the assessee as both the notice under section 148A(b) and the notice under section 148A(d)
specifically identify the financial transactions undertaken by the petitioner in respect of
Mahanivesh. The financial value of the transaction is also expressly provided in the notice and
the impugned order. The basis for initiation of the inquiry being that, the scrip of Mahanivesh is
a penny scrip is also stated in the notice dated u/s 148A(b). The petitioner was therefore
sufficiently informed that the initiation of reassessment proceeding was due to the fact that the
AO had reasons to believe that the petitioner has earned bogus LTCG by trading in the penny
scrip of Mahanivesh.

Pertinently, in her reply dated 31st May, 2022, the petitioner has not responded to the allegation
in the notice that Mahanivesh is a penny scrip.

The report sets out detailed facts leading to the conclusion that Mahanivesh is a penny scrip and
the trade was undertaken between limited persons at pre-determined prices.
16. However, it has come on record that the detailed report of the Investigation Wing on the
suspicious trading activity of Mahanivesh was not provided to the petitioner. We are of the
considered view that the AO should have provided this Report in the first instance with the
notice issued under section 148A(b), especially when the assessee had requested for this
information in her reply dated 31st May, 2022. We, therefore, find merit in the submission of the
petitioner that the assessee has been denied an effective opportunity to answer the findings
made in the Report with respect to the transactions undertaken by the assessee with Allied
Nippon Limited and Lawrence Cold Storage Pvt. Ltd.

17. We set aside the order dated 30th June, 2022 issued under section 148A(d) and notice dated
30th June, 2022 issued under section 148 with a direction to the petitioner to file its additional
reply, responding to the findings of the Report within two weeks. The AO shall after considering
the reply of the petitioner pass an order under section 148A(b) within a period of eight weeks
thereafter, in accordance with law.

18. It is clarified that the AO shall decide the matter on its own merits without being influenced
by any observations made in this order except the issue of limitation.

19. With the above directions, the writ petition and application stand disposed of.
JYOTI

*Partly in favour of assessee