Reassessment fails where notice rests on incorrect penny-stock factual premise

5-Second Takeaway

The reopening was unsustainable because it rested on a mistaken factual premise: the assessee had disclosed exempt long-term capital gain on Bagra Partishtan Ltd., not dealings in the penny-stock company alleged by the Assessing Officer. The revenue did not deny that the reassessment was based on that incorrect identification.

The Delhi High Court considered a reassessment notice issued on the footing that the assessee had entered into purchase and sale of penny-stock shares of 21st Century through an entry operator. The department alleged that the transactions were accommodation entries used to convert unexplained cash into exempt long-term capital gain.

In her objections and in the writ petition, the assessee stated that she had not dealt in 21st Century shares at all. She pointed out that her return disclosed exempt long-term capital gain under section 10(38) from listed securities of Bagra Partishtan Ltd., and the sale value recorded was Rs. 17,62,500.

That factual assertion was not denied by the revenue. The Court held that the reassessment was founded on an incorrect factual basis because the company named in the reopening material did not match the company disclosed in the return.

Accordingly, the reassessment could not stand on the stated reason to believe, and the notice was invalid.