By TIOL News Service

NEW DELHI, SEPT 22, 2018: THE ISSUE IN THE PRESENT CASE WAS - Whether re-assessment proceedings are valid when the material on record reveals that the grounds for re-opening assessment were recorded on a date subsequent to the date on which the Revenue claims to have recorded them. NO is the answer.

The Bench also expressed its strong displeasure at what it termed to be subterfuge and directed the Chief Commissioner of Income Tax to launch an inquiry to look into such misconduct and initiate disciplinary proceedings against the officers found guilty of such misconduct.

Facts of the case

The assessee, an individual filed returns for the relevant AY, declaring income of about Rs 18 crores. Of this figure, Rs 60 lakhs were taxable at normal rates while the balance income arose from Long Term Capital Gains. The income from LTCG was sub-divided into two parts, with one part arising from sale of units in various mutual funds and the other from sale of bonus shares. While the LTCG from such sale of shares was about Rs 18.5 crores but upon claiming losses & brought forward losses, the net income offered for taxation was about Rs 6.84 crores. Later, the AO issued notices proposing to re-open the assessment for the relevant AY. The AO noted that the assessee had acquired shares having face value of Rs 10/- at a premium of Rs 130/-. The AO also noted that the assessee sold some shares to his father at Rs 25/- each and declared a loss. The AO thus opined that such transaction had been entered into to evade payment of tax and to offset other income. The AO also observed regarding another transaction that it could not possibly result in legitimate capital gain. As the assessee's objections to such re-assessment were brushed away, the present writ petitions were filed.

In writ, the High Court held that,

++ a plain look at the documents and file notings produced by the Revenue in the digital form on 02.04.2018, it is discernable that the reasons which it claims were to be recorded on 28.05.2007 do not seem to have been so recorded on that date, i.e. 28.05.2007, but were recorded subsequently, much later. This is evident from the ensuing facts. The refund of Rs 91,41,462/- and Rs 3,26,4801- were issued on 3 1.05.2007 and 6.11.2007 and an order under Section 154 of the Act dated 22.08.2007 was passed. This order undeniably was been made after 28.05.2007. A copy of the order passed under Section 154 of the Act on 22.08.2007. Furthermore, in terms of the order passed on 22.08.2007, a refund of Rs 94,67.942/- was been computed (by that order which includes a refund of Rs 91,41,4621/-. This refund cheque was apparently sent to the assessee on 08.06.2007; and a cheque of Rs 3,26,480/- was sent on 08.11.2007. Thus the total amount was Rs 94,67,9421-, as referred to in the order under section 154 of the Act and is dated 22.08.2007. The assessee has produced photocopies of cheques dated 31.05.2007 and 06.11.2007;

++ the assessee also highlights that other similar documents placed in the digital form show that new numbers were assigned to the old page numbers in order to manipulate the placement of the documents. If initial (old) numbers are reckoned, it would be seen that reasons had not been recorded before the issue of the notice on 28.05.2007 and were recorded only after 5 November 2008, when the same were handed over to the assessee on 11.11.2008 and not before despite repeated request. Also, the asssessee points out that the pages/file notes prior to original page 213 are documents which had been filed by the assessee before the AO in the course of proceedings initiated by him under section 148 of the Act and these also establish that such reasons had not been recorded prior to the issue of notice, because were they so then immediately after the return of income was filed, such reasons would have been in the file and numbered appropriately. These facts also corroborate the circumstance that the reasons were not recorded as alleged on 28.05.2007;

++ it goes without saying that whilst the "reasons" shown to the court and the assessee may ipso facto not be faulted, yet the file tells a different story; they were not recorded before the notice was issued. In fact, the Revenue played a subterfuge, in trying to cover up its omission, and in ante dating the record, in the attempt to establish that such reasons existed, and this court's interference was not called for. In these circumstances, this court hereby directs the Chief Commissioner concerned to cause an inquiry to be conducted as to the involvement of the officials or employee in the manipulation of the record in this case, and take strict disciplinary action, according to the concerned rules and regulations. This inquiry should be in regard to the conduct of the concerned AO posted at the time, who issued the notice under Section 147/148 as well as the officers who filed the affidavits in these proceedings. The investigation and consequential action shall be completed within four months.

++ hence The writ petition is allowed in the above terms; the reassessment notice and all subsequent orders, made pursuant thereto are hereby quashed. The matter shall be listed for the Revenue to report its action, to the court, in the form of an Action taken Report, on or before second Tuesday of January, 2019. The matter shall be listed before the court on January 15, 2019 for considering the said report.

(See 2018-TIOL-1955-HC-DEL-IT)