Jurisdiction assumed u/s 148 on borrowed satisfaction without any live link between information and material on record – Supreme Court declined to entertain Department
In a recent judgment, Hon’ble Supreme Court declined to interfere with High Court order quashing notice under section 148 when Assessing Officer assumed jurisdiction on the basis of borrowed satisfaction of Investigation Wing without there being any live link between the information and the material on record.
ABCAUS Case Law Citation:
4554 (2025) (05) abcaus.in SC
Important Case Laws relied upon by Parties:
Principal Commissioner of Income Tax (Central) vs. Affluence Commodities (P) Ltd
Shashi Mohan Garg vs Income Tax Officer
Jainam Investments vs. Assistant Commissioner of Income Tax
Rita Rajkumar Singh vs. Assistant Commissioner of Income Tax
The respondent assessee filed return of income for Assessment Year 2014-15. The return was processed and the case of the petitioner was selected for scrutiny. A detailed scrutiny was undertaken by the Assessing Officer by issuing notice under section 142(1) of the Income Tax Act, 1961 (the Act) requiring the assessee to furnish various details relating to the capital gain earned during the year under consideration along with documentary evidence.
The assessee filed detailed reply furnishing requisite details. The Assessing Officer passed the assessment order under section 143(3) of the Act and assessed income without making any addition.
Thereafter notice under section 148 was issued. The assessee filed return of income in compliance of the notice and also sought for copy of reasons recorded for reopening of the assessment.
As per the reasons recorded, the on the basis of the information received from the DDIT Investigation Unit, the assessee was one of the beneficiary member of one penni stock company to laundered money in garb of long term capital gain.
The Assessing Officer rejected the objection of the assessee to the reopening. Against the order disposing the objections, the assessee preferred a Writ Petition before the Hon’ble High Court challenging issuance of notice under section 148.
It was submitted that the impugned notice was without jurisdiction as the petitioner had disclosed fully and truly all the material facts at the time of filing of the return and during the course of regular assessment by providing the details of purchase and sales of the shares under question.
It was further submitted that during the course of regular assessment, Assessing Officer had made inquiry with regard to details of long term capital gain of the petitioner which is claimed as exemption and the assessee had duly replied disclosing the entire transaction of the purchase and sale of the shares.
It was further submitted that re-opening was done for fishing inquiry for purchase and sale of the shares on the basis of the information received from Investigation Wing without there being any live nexus or any tangible material for assuming the jurisdiction under section 147 of the Act.
On the contray, the Department submitted that there was no change of opinion as no opinion was formed during the course of regular assessment in absence of the information by the then Assessing Officer and therefore, once there is prima facie conclusion that there is escapement of income on the basis of the independent reasoning and the information in possession of the Assessing Officer, no interference may be made.
The Hon’ble High Court observed that there was no dispute that the assessee acquired the shares through initial public offer (IPO) by investing through banking transaction. The assessee was allotted equity shares of the said Company in IPO and the said shares were dematerilized and credited to the DEMAT Account of the assessee.
The Hon’ble High Court further noted that during the course of the regular assessment, the Assessing Officer had called for information with regard to the long term capital gain which claimed as exempt and the requisite details was provided by the assessee along with reply. The assessee also submitted bills of shares sold during the year under consideration and break up of the capital gain along with the ledger account of the said company.
The Hon’ble High Court also observed that the reasons recorded also it was apparent that on the basis of the information received from DDIT Investigation Unit, the Department had formed a prima facie belief that there is escapement of income as the petitioner has earned substantial amount of long term capital claiming the same as exemption under section 10(38) of the Act.
However, the Hon’ble High Court noted that reasons recorded did not disclose any live link or fresh material to connect the transaction entered into by the assessee with the information in possession of the Assessing Officer. Therefore, it was clear that the Assessing Officer had assumed the jurisdiction on the basis of the borrowed satisfaction without there being any live link between the information and the material on record. It was therefore, apparent that the impugned notice under section 148 of the Act was issued for making a fishing inquiry which was not permissible under the law.
In view of the above reasons, the High Court allowed the Petition and quashed and set aside the notice under section 148 of the Act.
Not satisfied, the Income Tax Department challenged the order of the Hon’ble High Court before the Hon’ble Supreme Court by filing a Special Leave Petition (SLP).
However, the Hon’ble Supreme Court dismissed the SLP of the Department observing as under,
“Heard the learned Additional Solicitor General appearing for the petitioners. Delay condoned. No case for interference is made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed. Pending application, if any, also stands disposed of.”
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