Court Upholds Reopening of Assessment for Penny Stock LTCG Claim

Get the full picture - access the original judgement of the court order here

Case Name

Nishant Vilaskumar Parekh vs. Income Tax Officer (High Court of Gujarat)

R/Special Civil Application No. 21929 of 2019

Date: 13th May 2021

Key Takeaways

• Reopening Valid: The court confirmed that reopening an assessment under Section 147 (of Income Tax Act, 1961) is valid if the Assessing Officer (AO) has specific information and forms an independent belief that income has escaped assessment.
• No Change of Opinion: The principle of “change of opinion” does not apply if new information comes to light after the original assessment.
• Reason to Believe: The AO does not need to conclusively prove escapement of income at the reopening stage—just a reasonable cause or justification.
• Sanction Requirement: Proper sanction from the Principal Commissioner was obtained as required under Section 151 (of Income Tax Act, 1961) for reopening after four years.
• Affidavit Clarifications: The revenue can clarify or elaborate on reasons in court affidavits, but cannot introduce entirely new grounds.

Issue

Was the reopening of the taxpayer’s assessment under Section 147 (of Income Tax Act, 1961), based on information about penny stock transactions, legally valid?

Facts

• Who: Nishant Vilaskumar Parekh (the taxpayer/assessee) vs. Income Tax Officer (the tax department).
• What happened: The taxpayer filed his return for AY 2012-13, declaring income and claiming a large Long Term Capital Gain (LTCG) as exempt under Section 10(38) (of Income Tax Act, 1961) after selling 40,000 shares of Tuni Textiles Ltd.
• Initial Assessment: The case was originally scrutinized under Section 143(3) (of Income Tax Act, 1961), and the LTCG claim was accepted.
• Reopening: Later, the AO received information via the AIMS module (from the Investigation Wing) that the shares were “penny stocks” and likely part of a money-laundering scheme. The AO made further inquiries and believed the LTCG was bogus.
• Notice: The AO issued a notice under Section 148 (of Income Tax Act, 1961) to reopen the assessment, citing “reason to believe” that income had escaped assessment.
• Objections: The taxpayer objected, arguing lack of proper sanction, no new material, and that it was a mere change of opinion.
• Court Proceedings: The taxpayer filed a writ petition to quash the reopening notice.

Arguments

Taxpayer’s Side

• No New Material: Claimed all facts were already disclosed during the original assessment.
• Change of Opinion: Argued the AO was just changing his mind on the same facts, which is not allowed.
• No Independent Application of Mind: Alleged the AO just relied on information from the Investigation Wing (“borrowed satisfaction”).
• Sanction Issue: Claimed proper sanction under Section 151 (of Income Tax Act, 1961) was not obtained.
• No Live Nexus: Argued there was no direct link between the information and the belief that income escaped assessment.
• Cited Cases: Relied on several precedents, including “Principal Commissioner of Income Tax vs. Smt. Krishna Devi,” “Prashant S. Joshi vs. Income Tax Officer,” and others.

Tax Department’s Side

• New Information: Pointed out that the AO received new, specific information about the penny stock transactions after the original assessment.
• Independent Enquiry: The AO made his own inquiries and formed an independent belief.
• No Change of Opinion: Since the information was not available earlier, it’s not a case of change of opinion.
• Proper Sanction: Sanction from the Principal Commissioner was obtained as required.
• Cited Cases: Relied on “Purvi Snehalbhai Pachhigar vs. Asst. Commissioner of Income Tax” and others.

Key Legal Precedents

• Aayojan Developers vs. ITO [335 ITR 234]: Clarified that affidavits can explain or clarify reasons for reopening, but cannot introduce new grounds not found in the recorded reasons.
• Central Provinces Manganese Ore Co. Ltd. (191 ITR 662 SC): Defined “reason to believe” as cause or justification, not final proof.
• Praful Chunilal Patel vs. M.J. Makwana vs. CIT [236 ITR 832]: The AO’s belief need not be based on final legal evidence, just reasonable grounds.
• Purvi Snehalbhai Pachhigar vs. Asst. Commissioner of Income Tax (2019) 101 Taxman.com.393: Upheld reopening in similar penny stock LTCG cases.

Judgement

• Decision: The High Court dismissed the taxpayer’s writ petition.
• Reasoning: The court found that the AO had specific information about the penny stock transactions, made independent inquiries, and formed a reasonable belief that income had escaped assessment. The AO’s actions were not just a change of opinion, and the required sanction was properly obtained.
• Orders: The reopening of the assessment was upheld as valid. The taxpayer’s challenge was rejected, and the notice under Section 147 (of Income Tax Act, 1961)/148 stands.

FAQs

Q1: Can the tax department reopen an assessment just based on information from another wing?

A: Yes, if the AO receives specific information and independently applies his mind to form a belief that income has escaped assessment, reopening is valid.

Q2: Does the AO need to conclusively prove income escaped assessment at the reopening stage?

A: No, the AO only needs a reasonable cause or justification (“reason to believe”), not final proof at this stage.

Q3: What if all facts were already disclosed in the original assessment?

A: If new information comes to light after the original assessment, reopening is allowed. The “change of opinion” principle does not apply in such cases.

Q4: Is proper sanction required for reopening after four years?

A: Yes, and in this case, the court found that the required sanction from the Principal Commissioner was obtained.

Q5: Can the revenue add new reasons in court affidavits?

A: No, affidavits can clarify or elaborate on the recorded reasons, but cannot introduce new grounds not found in the original reasons.

1. This writ application was notified for hearing before this Bench on 15th March, 2021 along with the allied writ applications filed by the very same writ applicant. We may clarify that the only distinguishing feature in the present writ application and the other Batch of the writ applications is that the present matter relates to scrutiny assessment under Section 143(3) (of Income Tax Act, 1961), whereas the other matters are with respect to Section 143(1) (of Income Tax Act, 1961). The present writ application was not to be disposed of along with the other writ applications having regard to the distinguishing feature noted above. However, inadvertently, the very same order as passed in the other cognate writ applications was transferred in the computer. The concerned stenographer was confronted in this regard and he offered his explanation stating that inadvertently the order in the present writ application also came to be transferred and that too without obtaining the signatures of the judges on the order. It appears that since the order came to be inadvertently transferred, the Revenue also obtained the certified

copy of the same.

2. In fact, the present writ application was to be reheard on certain issues and when the same came to be notified once again for rehearing, the aforesaid fact came to our notice.

3. In such circumstances, referred to above, the present writ application was once again notified for hearing on 11th May, 2021and was heard for some time. Thereafter, it was once again ordered to be notified today, i.e, on 13th May, 2021. We once again gave an opportunity of hearing to Mr. Tushar Hemani, the learned senior counsel appearing for the writ applicant and Mr.

M.R. Bhatt, the learned senior counsel appearing for the Revenue and concluded the hearing.

4. By filing this writ application under Article 226 of the Constitution

of India, the writ applicant, seeks to challenge the Notice dated 26.03.2019, issued by the respondent under Section of the Income Tax Act, 1961 (‘the Act’ for short), seeking to reopen the writ applicant’s income tax assessment for the A.Y. 2012­13.

5. The writ applicant being individual assessee, filed return of

income on 25.03.2013, declaring total income of Rs12,26,170/­.

The assessee sold 40,000/­ shares of Tuni Textiles Limited and

earned long term capital gain of Rs.35,72,261/­ and claimed it as

‘exempt income’ under Section 10(38) (of Income Tax Act, 1961). The case of the

assessee was selected for scrutiny assessment and after

considering the various details furnished by the assessee, the

Assessing Officer had passed assessment order under Section 143 (of Income Tax Act, 1961)

of the Act, vide order dated 30.10.2014.

6. The Assessing Officer, reopened the assessment under Section 147 (of Income Tax Act, 1961)

of the Act by issuing impugned notice dated 26.03.2019 under

Section 148 (of Income Tax Act, 1961). The writ applicant filed return of income in

response to the notice and requested the respondent to supply

copy of the reasons for reopening and same was supplied vide

communication dated 22.04.2019. The writ applicant vide letter

dated 13.05.2019, raised objections and same came to be disposed

of by the revenue vide order dated 11.10.2019.

7. The Assessing Officer before issuing the notice has recorded the

following reasons for reopening of the assessment. “Reasons recorded :

1. Brief details of the Assessee: Assessee has filed the Return of

income for A.Y. 2012­13 declaring gross total income at Rs 1226170/­on 25­03­2013.

2. Brief details of information collected/received by the AO:The

information in respect of the penny stock transaction made in FY

2011­12 was made by the assessee as per AIMS module ITS/ITBA

data available with this office. The said scrips are found to be penny

stocks and has been used by beneficiaries (seller of shares) to launder

money in the garb of LTCG while claiming the exemption u/s.10(38) (of Income Tax Act, 1961)

of the I.T. Act.

3. Analysis of information collected/ received :As per the penny

stock transaction data available with this office, the assessee has sell

40000 penny stock shares of TUNI TEXTILE Ltd (scrip code 531411)

and as per AIMS module in ITS data worth Rs. 3540000/­ during

F.Y.2011­12 relevant to A.Y.2012­13. The assessee has claimed

exempt LTCG of Rs.3438816/­ in the return of income. The share

price movement in the captioned scrip was seen from public domain

and observed that there is share price rise which is prima facie not

supported by financial fundamentals of the scrip. Normally, the price

manipulation is done by creating a syndicate by the promoters,

brokers, managers, controllers etc. and the price of such shares is

raised abnormally high to show fictitious LTCG.

4. Enquiries made by the AO as sequel to Information collected/

received : As per AIMS module in ITS/ITBA data available with this

office, the assessee has made penny stock transaction in FY 2011­12

and sell TUNI TEXTILE Ltd (scrip code ­531411) and the assessee has

declared gross total income return of income at Rs. 1226170/­ only.

Assessee has claimed Exempt income of LTCG at Rs.348816/­ but no

transaction details have been furnished which shows that the assessee

has availed accommodation entry to the tune of sale consideration

received on sale of such shares by way of entering into dubious

transactions in penny stock scrip. In view of the facts discussed above,

I have reason to believe that income of Rs. 3540000/­ chargeable to

tax has escaped assessment, within the meaning of section 147 (of Income Tax Act, 1961) of the

I.T. Act, 1961 for A.Y.2012­13 by reason of failure on the part of the

assessee to disclose fully and truly all material facts relevant to the

assessment.

5. Findings of the AO:Assessee has filed the Return of income for

A.Y.2012­13 declaring gross total income at Rs. 1226170/­ and as

per AIMS module the assessee has made transaction of penny stock.

Accordingly, the only requirement to Initiate proceeding u/s.147 (of Income Tax Act, 1961) is

reason to believe which has been recorded above paras.

6. Basis of forming reason to believe and details of escapement

of income :As the transaction is of penny stock of Rs 3540000/­ and

the assessee has filed return of income for year under consideration

but no assessment as stipulated u/s.2(4) (of Income Tax Act, 1961) was made and the

return of Income processed only u/s. 143(1) (of Income Tax Act, 1961). Hence, I

have reason to believe that income chargeable to tax of Rs.

3540000/­ has escaped assessment within the meaning of section

147 of the I.T. Act. Hence It is fit case for re­opening the assessment

under section 147 (of Income Tax Act, 1961) for the A. Y. 2013­14.

In view of the above, the provisions of clause (b) of Explanation 2 to

Section 147 (of Income Tax Act, 1961) are applicable to facts of this case and the assessment

year under consideration, it deemed to be a case where Income

chargeable to tax has escaped assessment.

7. Escapement of Income chargeable to tax :The transaction is of

penny stock of Rs 3540000/­ and the assessee has filed return of

income for year under consideration but no assessment as stipulated

u/s.2(4) (of Income Tax Act, 1961) was made and the return of Income was processed

only u/s. 143(1) (of Income Tax Act, 1961) of the IT. Act. Hence, I have reason to believe that

income chargeable to tax of Rs. 3540000/­ has escaped assessment

within the meaning of section 147 (of Income Tax Act, 1961) of the I. T. Act. Hence It is fit case

for reopening the assessment under section 147 (of Income Tax Act, 1961),

1961 for the A. Y. 2013­14. In view of the above, the provisions of

clause (b) of Explanation 2 to Section 147 (of Income Tax Act, 1961) are applicable to fact of

this case and the assessment year under consideration is deemed to be

a case where income chargeable to tax has escaped assessment.

8. Applicability of the provisions of section 147 (of Income Tax Act, 1961)/151 of the facts of

the case:NA

In this case more than four years have lapsed from the end of

assessment year under consideration. Hence necessary sanction to

issue notice u/s. 148 (of Income Tax Act, 1961) has been obtained separately from Principal

Commissioner of Income ­tax as per the provisions of section 151 (of Income Tax Act, 1961) of

the Act.”

8. The writ applicant raised the objections against the issuance of

impugned notice and initiation of the reassessment proceedings,

mainly on the following grounds :

i. Lack/absence of valid sanction under Section 151 (of Income Tax Act, 1961) of the

Act.

ii. The reasons for reopening factually incorrect;

iii. No ‘reason to believe’ that income chargeable to tax has

escaped assessment;

iv. No live nexus between the information received and

material gathered from the different sources.

v. Reopening is not permissible for proving and/or fishing

inquiry or investigation without their being a specific

findings as to escape of income;

vi. Reopening is based on borrowed satisfaction.

vii. Reopening is beyond a period of 4 years and there is no

failure on the part of the writ applicant as to full and

true disclosure

viii. Reopening based on change of opinion.

9. Being aggrieved by the order of disposal of the objections,

against the notice for reopening of the assessment, the writ

applicant has come up before this Court by filing the present writ

applicant.

10. We have heard learned Senior Counsel Mr. Tushar Hemani,

assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for

the writ applicant and Mr. Manish Bhatt, the learned Senior

Counsel assisted Mr. Karan Sangani, the learned advocate

appearing for the revenue.

11. Mr Tushar Hemani, the learned Senior Counsel appearing

for the writ applicant, raised the following contentions:

a. It was submitted that the impugned notice is bad in law and

without jurisdiction because the conditions precedent for

reopening under Section 147 (of Income Tax Act, 1961) are not satisfied;

b. It was submitted that, reasonable belief as contemplated under

Section 147 (of Income Tax Act, 1961) /148 of the Act must be that of an honest and

reasonable person based upon reasonable ground and it should

not be based on some suspicious and vague reason. Whereas, in

this case, the reasons are vague and do not reveal any income

having escaped assessment and furthermore, reasons recorded

made it clear that, this is a case of borrowed satisfaction without

any independent application of mind.

c. It was further submitted that, in case of reopening beyond period

of 4 years, it is mandatory to obtain sanction from the competent

Authority as provided under Section 151 (of Income Tax Act, 1961). Whereas, in

this case, the sanction as required under Section 151 (of Income Tax Act, 1961)

before issuance of the notice was not obtained by the Assessing

Officer. Thus, the impugned notice on this ground required to be

quashed and set aside.

d. It was submitted that, there is no independent application of mind

on the part of the Assessing Officer while recording the reasons for

reopening and that merely placing reliance on the materials

provided by the Investigation Wing for recording the reasons is

impermissible. In this case, the Assessing Officer failed to record

an independent finding as to how income has escaped assessment

on a proper application of mind.

e. It was submitted that there was no link between the information

received and formation of opinion that the income has escaped

assessment.

f. It was further submitted that, the affidavit­in­reply filed by the

revenue, the revenue seeks to supplement the reasons recorded by

the Assessing Officer which cannot sustainable in law.

g. It was submitted that the Assessing Officer has merely presumed

that the transactions entered into by the writ applicant in the scrip

in question is a penny stock transaction, which cannot be a legal

ground to reopen the assessment for the year under consideration.

h. It was contended that at the time of framing the assessment under

Section 143(3) (of Income Tax Act, 1961) all the necessary particulars had been

furnished to Assessing Officer, who while issuing notice under

Section 142(1) (of Income Tax Act, 1961), had specifically called upon the writ

applicant to furnish the details in respect of alleged transaction.

Under the circumstances, the Assessing Officer has framed the

original assessment and did not make any addition with regard to

long term capital gain. Thus, in view of the aforesaid facts, now it

is not open for the Assessing Officer to change that opinion and

take a different view based on the very same set of facts and

information.

12. In view of the aforesaid contentions, the learned counsel

submitted that reopening of the assessment is, therefore, without

jurisdiction and hence, the impugned notice deserves to be

quashed and set aside.

13. In support of the aforesaid submissions, the learned Senior

Counsel Mr. Tushar Hemani has relied upon the following

decisions:

i. Principal Commissioner of Income Tax Vs. Smt. Krishna

Devi (Delhi High Court, ITA 125 of 2020 decided on

15.01.2021)

ii. Prashant S. Joshi Vs. Income Tax Officer (2010) 189,

taxmann 1(Bom)

iii. Gujarat Lease Finance Ltd. Vs. Deputy Commissioner of

Income Tax (2013) 36 taxmann.com.359 (Guj)

iv. Krishna Metal Industries Vs. HM Algotar (1997) 225

ITR 853, Gujarat

v. N.B. Bhatt Inspecting Asst. Commissioner of Income Tax

Vs. I.B.M. World Trade Corporation (1995) 216 ITR

811, Bom.

vi. Hindustan Lever Limited Vs. R.B. Wadkar (2004) 137

taxman.479 (Bom) Krupesh Ghanshyambhai Thakkar

Vs. Dy. Commissioner of Income Tax, (2017) 77

taxmann.com. 293 (Guj.)

14. On the other hand, learned Senior Counsel Mr. Manish

Bhatt, vehemently opposed the writ application, contending that

the Assessing Officer was in receipt of information from the

Investigation wing I&CI wing through AIMS Module of the ITBA,

that the writ applicant had sold 40,000 penny stock shares of Tuni

Textiles Ltd., worth of Rs.35,72,261/­ during A.Y 2012­13 and

after in depth investigation into the transaction of the scrip of

Tuni Textiles Ltd., it was found that the transaction was penny

stock and the assessee had availed accommodation entry to the

tune of sale consideration received on sale of such shares by way

of entering into dubious transactions in penny stock scrip. In this

background of the facts, the writ applicant is the beneficiary of the

accommodation entries of long term capital gain on penny stock

transactions and therefore, the Assessing Officer has reasons to

believe that the income chargeable to tax has escaped assessment.

Mr. Bhatt placed reliance upon the decision of this Court in the

case of Purvi Snehalbhai Pachhigar Vs. Asst. Commissioner of

Income Tax, (2019) 101 Taxman.com.393, to submit that, in a

similar set of facts, this Court had dismissed the petition

challenging the notice issued under Section 148 (of Income Tax Act, 1961).

It was submitted by the learned counsel Mr. M.R. Bhatt that

the principle of change of opinion would not be applicable as the

information with regard to transactions being received after

assessment proceedings and same was not available at the stage of

previous proceedings.

15. Mr. Manish Bhatt, learned Senior Counsel for the revenue

submits that there being no merits in the writ application, the

same deserves to be dismissed.

16. Having heard the learned counsel for the respective parties

and having gone through the materials on record, the only

question falls for our consideration is that, whether the revenue is

justified in reopening the assessment for the year under

consideration?

17. It is settled position of law that Section 147 (of Income Tax Act, 1961)

empowers the Assessing Officer, if he has reasons to believe that,

any income chargeable to tax has escaped assessment, to assess or

reassess such income or recompute any allowance. This power is

subject to the provisions of Section 148 (of Income Tax Act, 1961) to 153 of the Act.

18. A plain reading of reasons recorded reveals that, the case of

the assessee is reopened under Section 147 (of Income Tax Act, 1961), since the

information was received as per AIMS module that as per the

penny stock transaction data, the assessee had sold 40000 shares

of Tuni Textile Ltd., for the consideration of Rs.35,72,261/­. After

receiving the information, the Assessing Officer made enquiries

and gathered the information of the assessee and noticed that, the

shares sold by the assessee are penny stock. The Assessing Officer

has observed that, the transactions with the Tuni Textile Ltd.

being a penny stock transactions, he has reason to believe that the

income of Rs.35,40,000/­ chargeable to tax has escaped

assessment. While forming the opinion with regard to income has

escaped assessment, the Assessing Officer has noticed that the

price rise in the share of Tuni Textiles Ltd., for the relevant year

had not been supported by financial fundamental of scrip and

there was a manipulation by group of syndicate like promoters,

brothers and controllers who played major role in rising the price

for fictitious long term capital gain and the assessee has availed

accommodation of entry to the tune of sale consideration received

on sale of such shares by way of entering into dubious transaction

in penny stock scrip.

19. It appears that, in the affidavit in reply filed by the revenue,

it has been stated that, Principal Director of Income Tax (Inv)

Kolkata, had undertaken the accommodation entry of long term

capital gain, and identified large number of beneficiaries who had

availed huge amount of bogus entries of LTCG and identified

64811 beneficiaries involving bogus LTCG amounting Rs.38000

crores. In reply affidavit, the revenue has highlighted the modus

operandi of the business of penny stocks and further pointed out

that the company involved in this case i.e. Tuni Textile Ltd., was

having market price of share around Rs.32/­ on 26.09.2011 and

thereafter, by rigging the price was reached upto Rs.268.75 ps in

13 months and was again fall down at Rs.23/­ in mid March, 2013.

20. The learned counsel appearing for the writ applicant raised

the contention that, the facts mentioned in the affidavit in reply

clearly proves that, the respondent seeks to supplement the

reasons recorded by the Assessing Officer, which is not permissible

in law. On the other hand, the learned counsel for the revenue

would submit that, the attempt on the part of the revenue is to

make further clarification of the information received by the

Assessing Officer and it is permissible in law. We have examined

the reasons recorded as indicated above for reopening of the

assessment. It appears that, the Assessing Officer has made

reference of the information received from the concerned

investigation wing with regard to bogus accommodation entries of

long term capital gain provided by the certain entities. Though,

full details of the information and enquiry conducted by Kolkata

wing having not been reflected in the reasons recoded, but a

specific reference made in the reasons recorded by the Assessing

Officer that, the transactions made by the assessee is penny stock.

In this context, we may place reliance on the decision of this Court

in the case of Aayojan Developers Vs. ITO, [335 ITR 234],

wherein, this Court after referring the decision of the Calcutta

High Court in the case of East Cost Commercial Com. Ltd., [128

ITR 324], held that, the income tax officer in his affidavit filed in

the Court could explain or elaborate or clarify the reasons

recorded by him, but he could not thereby introduce new grounds

or new reasons or new materials which were not to be found in

the recorded reasons, either expressly or by implication.

21. Applying the aforesaid principles of law, in the case of

Aayojan Developers (supra) to the facts of the present case, we are

of the view that, the facts mentioned in the affidavit by the

revenue could not be termed as “new ground” or “new reasons” to

supplement the reasons recorded by the Assessing Officer.

Therefore, the contention raised by the learned counsel for the

writ applicant that, by way of affidavit in reply, the revenue has

improved the reasons recorded, has no any merit and cannot be

accepted to hold that, the exercise to reopen the assessment is

without jurisdiction.

22. The principal argument of Mr. Hemani, the learned Senior

Counsel for the writ applicant is that the reopening of the

assessment cannot be permissible on the basis of the change of

opinion by the Assessing Officer. A bare perusal of the reasons

recorded, it appears that the Assessing Officer was in receipt of

information that the scrip TUNI Textiles was penny stock, used

by the beneficiaries (seller of shares) to launder money in the garb

of LTCG. We are of the view that the aforesaid information and

subsequent outcome of the enquiry made by the Assessing Officer,

were not previously disclosed during the assessment proceeding.

Thus, when the information came into knowledge of the Assessing

officer, which was not on record and available at the time of

assessment order, the principle of change of opinion would not

apply. Therefore, the contention raised by the learned Senior

counsel with regard to principle of applicability of change of

opinion in the present case is not acceptable.

23. The next contention is that, the Assessing Officer failed to

record an independent finding as to how the income has escaped

assessment. Under such facts and circumstances, it is vehemently

contended that, the Assessing Officer while recording the reasons

for reopening the assessment did not have any valid reasons to

believe that, the income earned by the assessee by way of long

term capital gain has escaped assessment.

24. A bare perusal of the reasons recorded and further

clarification of the information made by the revenue by way of

affidavit in reply would make it clear that, the company Tuni

Textile Ltd., was used in providing bogus accommodation entries

of long term capital gain by certain entities like broker etc.

Undisputedly, the assessee had purchased 40000 shares on

04.08.2010 at a total cost of Rs. 88,445/­ and sold it on

22.03.2012, for total consideration of Rs. 35,72,261/­. It further

appears that, on the basis of information received from the

concerned wing, the Assessing Officer made independent

enquiries and applied his mind to the information and upon due

satisfaction and the materials gathered during the enquiries,

finally formed a belief that, the income has escaped assessment. At

the stage of issuing the notice, the court cannot investigate into

adequacy or sufficiency of the reasons. When no scrutiny

assessment made under section 143(1) (of Income Tax Act, 1961), the requirement

for reopening is only reason to believe. Considering the facts of

the present case, the Assessing Officer has caused of justification

that, the alleged transaction of penny stock, claiming amount of

long term capital gain has escaped assessment. We may place

reliance on the case of Central Prominces Mangnese Ore

Company ltd. (191 ITR 662 SC), wherein the Apex Court

interpreted the word “reason to believe”. It was held that, the

word “reason” in the phrase “reason to believe” in Section 147 (of Income Tax Act, 1961),

would means cause or justification. If the assessing officer has

cause or jurisdiction to know or suppose that income has escaped

assessment he can be said to have reason to believe that income

has escaped assessment. The expression cannot be read to mean

that the assessing officer should have finally ascertained the fact

by legal evidence or conclusion.

25. In Praful Chunilal Patel Vs. M.J.Makwana Vs. CIT, [236

ITR 832], this court while interpreting the term 'reason to believe',

held that, the word “reason to believe“ cannot mean that the

Assessing Officer should have finally ascertained the facts by legal

evidence. They only mean that he forms a belief from the

examination he makes and, if he likes, from any information that he

receives. If he discovers or finds or satisfies himself that the taxable

income has escaped assessment, it would amount to saying that he

had reason to believe that such income had escaped assessment. The

justification for his belief is not to be judged from the standards of

proof required for coming to a final decision. A belief though justified

for the purpose of initiation of the proceedings under Section 147 (of Income Tax Act, 1961)

may ultimately stand altered after the hearing and while reaching

the final conclusion on the basis of the intervening enquiry. At the

stage where he finds a cause or justification to believe that such

income has escaped assessment, the Assessing Officer is not required

to base his belief on any final adjudication of the matter". And,

".....His formation of belief is not a judicial decision but an

administrative decision. It does not determine anything at the initial

stage, but the Assessing Officer has a duty to proceed so as to obtain,

what the taxpayer was always bound to pay if the increase is

justified at all. The decision to initiate the proceedings is not to be

preceded by any judicial or quasi­judicial enquiry. His reasoning

may be the result of official information or his own investigation or

may come from any source that he considers reliable. His reason is

not to be judged by a Court by the standard of what the ideal man

would think. He is the actual man trusted by the legislature and

charged with the duty of forming of a belief for the mere purposes of

determining whether he should proceed to collect what is strictly due

by law, and no other authority can substitute, its standard of

sufficient reason in the circumstances, or his opinion or belief for his.

Unless the ground or material on which his belief is based, is found

to be so irrational as not to be worthy of being called a reason by

any honest man, his conclusion that it constitutes a sufficient reason,

cannot be overridden. What is, therefore, to be ascertained is,

whether the alleged reason really existed, and if it did, whether it

was so irrational as to be outside the limits of his administrative

discretion with which the Assessing Officer is invested so as to be

really in disregard of the statutory condition......." Evidently, the

Assessing Officer purporting to exercise powers under Section 147 (of Income Tax Act, 1961) of

the Act, is not a party who has to not only state but establish before

anyone the so­called jurisdictional facts.

26. In view of the settled principles of law as propounded by

the Apex Court as well as by this court and considering the

contention of the reasons recorded for reopening and further

clarification of the information made by the revenue, we are of the

view that, the Assessing Officer himself was satisfied with regard

to the information and other materials on record, he formed an

opinion that, the income has escaped assessment. Therefore, when

the information was specific with regard to transactions of penny

stock entered into by the assessee with the TUNI Textiles Ltd., and

the Assessing Officer had applied his independent mind to the

information and upon due satisfaction, led to form an opinion

that, the amount of claim of LTCG claimed by the assessee is

chargeable to tax has escaped assessment, which facts suggests

that, there is live link between the material which suggested

escapement of income and information of belief. Under the

circumstances, we are satisfied that, there was enough material

before the Assessing Officer to initiate proceedings under Section

147 of the Act.

27. In the discussions made hereinabove, we do not agree with

the contention that, merely on the information, the Assessing

Officer has recorded the reasons and on the basis of borrowed

satisfaction, he formed an opinion with respect to the income

chargeable to tax has escaped assessment.

28. We have examined the issue of valid sanction as raised by

the learned counsel for the writ applicant. We take the notice of

the fact that, the copy of the approval has been provided to the

assessee at the stage of passing the order of disposing the

objections raised by the assessee. Therefore, it is evident that, in

the instant case, the authorities concerned have given approval

after due application of mind and expressed their satisfaction with

regard to the reasons recoded for reopening of the assessment.

29. In view of the foregoing reasons and considering the facts

and circumstances of the present case, we have no hesitation to

hold that it could not be said to have that there was no material or

grounds before the Assessing Officer and the assumption of

jurisdiction on the part of the Assessing Officer under Section 147 (of Income Tax Act, 1961)

of the Act to reopen the assessment by issuing impugned notice

under Section 147 (of Income Tax Act, 1961) is without authority of law, which

render into the notice unsustainable. Therefore, the assessee failed

to make out a case.

30. In the result, the writ application deserves to be dismissed

and is hereby dismissed. No order as to costs.