The appeal has been filed by the assessee, Vrajeshkumar N. Chokshi, before the Income Tax Appellate Tribunal (ITAT), Ahmedabad against the order of the Commissioner of Income-Tax (CIT). The ITAT held that reopening of assessment on ground that assessee had earned LTCG from the entire value of share transactions is liable to be quashed.
The assessee, in the present case, is an individual. As per the information received by the Assessing Officer from the Office of the Principal Director of Income-tax (Investigation), Surat, the assessee had entered into certain transactions in shares resulting in Long Term Capital Gain of Rs.7,92,237/-. Since no return of income for the year under consideration was filed by the assessee, the Assessing Officer reopened the assessment and issued a notice under Section 148 of the Income-tax Act after recording reasons. In response to the said notice, the return of income was filed by the assessee declaring a total income of Rs.1,47,860/-.
During the course of assessment proceedings, it was found by the Assessing Officer that the assessee had entered into share transactions through various agencies on Bombay Stock Exchange amounting to Rs.7,92,237/-. According to the Assessing Officer, the said amount represented bogus claim of the assessee on account of Long Term Capital Gain; and, treating the same as undisclosed income of the assessee, he made an addition of Rs.7,92,237/- to the total income of the assessee under Section 69 of the Act in the assessment completed under Section 143(3) and 147 of the Act.
The Commissioner of Income Tax (CIT) proceeded to uphold the validity of the assessment made by the Assessing Officer under Section 143(3) and 147 of the Act and also confirmed the addition of Rs.7,92,237/- made therein by treating the alleged bogus claim of Long Term Capital Gain as undisclosed investment of the assessee.
P.M. Jagtap, Vice-President observed “The very basis of reopening of the assessment as reflected in the reasons recorded by the Assessing Officer thus was unfounded and there being no claim of any Long Term Capital Gain of Rs.7,92,237/- made by the assessee much less a bogus Long Term Capital Gain as believed by the Assessing Officer, the reopening of assessment itself on the basis of such wrong and non-existent premises was bad in law as rightly contended by the learned Counsel for the assessee and the assessment made in pursuance therein under Section 143(3) r.w.s. 147 of the Act is liable to be quashed being invalid.”
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