Case Number: ITA 1524/DEL/2019
Appellant: Gopal Chand Mundhra, New Delhi
Respondent: ITO Ward-55(5), New Delhi
Assessment Year: 2011-12
Case Filed On: 25th February 2019
Order Type: Final Tribunal Order
Date of Order: 21st August 2019
Date of Pronouncement: 21st August 2019
The appeal filed by Gopal Chand Mundhra pertains to the assessment year 2011-12. The case involves the reopening of the assessment by the Income Tax Officer (ITO), Ward 55(5), New Delhi. The appellant, Gopal Chand Mundhra, challenged the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
Gopal Chand Mundhra, an individual, filed his return of income on 24th September 2011, declaring a total income of Rs. 6,89,494. Subsequently, the Assessing Officer recorded reasons for reopening the assessment under Section 147 of the Act, citing information received from the Investigation Wing of the Income Tax Department. The information indicated large-scale manipulation in the market price of shares of SPLASH MEDIA, allegedly to provide tax-exempt long-term capital gains (LTCG) to the appellant.
Based on this information, the ITO issued a notice under Section 148 of the Act on 19th August 2016, after obtaining necessary approval under Section 151 of the Act. The case was later transferred to New Delhi in pursuance of an order dated 19th July 2017.
During the reassessment proceedings, the Assessing Officer observed that the appellant had shown income from house property, short-term capital gain, and income from other sources. The appellant also claimed an exempt long-term capital gain of Rs. 21,16,676 on the sale of shares of Splash Media & Infrastructure Ltd. (also known as Luharuka Media & Infra Ltd.). The Assessing Officer inferred that the LTCG was arranged and not genuine, referring to an investigation conducted by the Directorate of Investigation, Calcutta. Consequently, the AO brought the LTCG to tax under Section 68 of the Act and added Rs. 1,04,900 as commission for earning such bogus LTCG under Section 69C of the Act as unexplained expenditure.
Gopal Chand Mundhra challenged the validity of the reassessment proceedings and the additions made by the AO before the Commissioner of Income Tax (Appeals) [CIT(A)]. However, the CIT(A) upheld the validity of the reassessment proceedings and sustained the additions on merit.
Aggrieved by the order of the CIT(A), Gopal Chand Mundhra filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The grounds of appeal included the validity of the reassessment proceedings, the addition under Section 68 and 69C of the Act, and procedural lapses.
The ITAT heard the case and examined the rival contentions. The Tribunal observed that the approval for reopening the assessment was given mechanically without due application of mind by the approving authorities. The ITAT referred to various judicial decisions, including those of the Hon’ble Delhi High Court, which held that reopening of assessment based on borrowed satisfaction and mechanical approval is not sustainable in law.
The ITAT also noted that the Assessing Officer had recorded reasons based on vague information without establishing a clear link between the information and the formation of belief that income had escaped assessment. The Tribunal found that the reassessment proceedings were initiated on borrowed satisfaction of the Investigation Wing, without independent application of mind by the Assessing Officer.
In conclusion, the ITAT quashed the reassessment proceedings, holding that the approval for reopening the assessment was given mechanically and without application of mind. The Tribunal allowed the appeal of Gopal Chand Mundhra, challenging the validity of the reassessment proceedings. As a result, the addition made by the Assessing Officer under Section 68 and 69C of the Act was set aside.
The decision was pronounced in the open court on 21st August 2019.
Judge: R.K. Panda, Accountant Member
This case highlights the importance of independent application of mind by the Assessing Officer and the approving authorities when initiating reassessment proceedings. The decision reinforces the principle that mechanical approval based on borrowed satisfaction is not sustainable in law.
The Tribunal also heard and decided similar appeals filed by other assessees on the same grounds, including:
In all these cases, the reassessment proceedings were quashed due to mechanical approval and lack of independent application of mind by the approving authorities.
The ITAT relied on various judicial precedents while deciding the case, including:
These precedents emphasize that reopening of assessment must be based on tangible material and independent application of mind by the Assessing Officer.
The following legal principles were established through this case:
This case sets a significant precedent in taxation law, reinforcing the need for due process and independent application of mind in reassessment proceedings. It ensures that taxpayers’ rights are protected against arbitrary and mechanical reopening of assessments.
Gopal Chand Mundhra vs. ITO Ward 55(5) – Appeal Against Reopening of Assessment for AY 2011-12
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