In a significant ruling safeguarding taxpayer rights and reinforcing judicial scrutiny over reassessment proceedings, the Calcutta High Court in Vikas Rungta v. ITO quashed the reassessment initiated under Section 148 of the Income Tax Act, 1961. The Court observed that the reopening was based on incorrect information and that the assessee had not claimed any exemption under Section 10(38) for Long-Term Capital Gains (LTCG), contrary to what the Assessing Officer (AO) alleged. The judgment reiterates the need for application of mind by the AO before proceeding with reassessment based on inputs from investigation wings.
Case Details:
Case Title: Vikas Rungta v. Income Tax Officer
Court: Calcutta High Court
Judgment Date: 18 June 2025
Coram: Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya
Factual Background
The petitioner, Vikas Rungta, had filed his return of income for the relevant assessment year disclosing his income, including gains from the sale of listed shares. Crucially, he did not claim any exemption under Section 10(38) of the Income Tax Act (now withdrawn) for LTCG on the sale of listed equity shares.
However, based on information received from the Investigation Wing of the Income Tax Department, the AO issued a notice under Section 148, alleging that the petitioner had claimed LTCG exemption on penny stocks and that the transaction was bogus. The reassessment notice was thus premised on the assumption that the assessee had misused the Section 10(38) exemption provisions, a common claim in cases involving suspected accommodation entries in penny stock transactions.
Contentions of the Petitioner
The petitioner contended the following:
- He had not claimed any LTCG exemption in his ITR.
- The entire transaction was duly disclosed in the return and the computation.
- The AO did not apply his independent mind and merely relied upon incorrect and unverified information received from the Investigation Wing.
- The reassessment proceedings were a result of a mechanical exercise, lacking the jurisdictional pre-condition for reopening under Section 147.
The petitioner prayed for the quashing of the notice and all consequential proceedings.
Findings of the High Court
After examining the materials on record and the submissions of both parties, the Division Bench of the Calcutta High Court made the following key observations:
- No Claim under Section 10(38): The Court noted that the petitioner had not claimed any exemption under Section 10(38), and this fact was evident from the income tax return itself. Hence, the very basis of the AO’s belief that income had escaped assessment was factually incorrect.
- Mechanical Reopening: The Court emphasized that the AO acted on borrowed satisfaction and did not independently examine the return filed by the petitioner. The AO’s failure to verify whether a claim was made under Section 10(38) revealed a lack of due diligence.
- Invalid Assumption of Escapement: Since no exemption was claimed, there could be no case of escapement of income on that ground. The condition precedent for initiating proceedings under Section 147 was, therefore, not satisfied.
- Erroneous and Non-application of Mind: The Court reiterated that reopening of assessments cannot be done casually or based merely on third-party information unless the AO applies his independent mind and forms a reason to believe that income has escaped assessment.
Judgment
The Calcutta High Court held that the reassessment proceedings initiated under Section 148 were invalid in law and based on non-existent facts. Accordingly, the Court quashed the reassessment notice and the entire proceedings stemming from it.
Legal Significance
This ruling serves as an important reminder to revenue authorities that reopening of assessments must be grounded in verified facts and cannot be triggered solely on the basis of suspicion or investigation reports. The decision reinforces judicial oversight to prevent harassment of taxpayers due to careless or mechanical actions by the Assessing Officers.
Furthermore, this case contributes to the evolving jurisprudence that protects the sanctity of finalized assessments and upholds the principle that reasons to believe must be rational, relevant, and based on tangible material, especially in the post-Section 148A regime.
Key Takeaways
- A reassessment notice based on wrong facts is liable to be quashed.
- No LTCG exemption claimed = No escapement of income on that ground.
- AOs must independently verify facts before initiating reassessment.
- Courts will intervene where reassessment is based on mechanical reliance on investigation inputs.
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Taxpayers must ensure that returns and computation sheets clearly reflect transactions to avoid misinterpretation.