Reassessment Notice Premised On Factually Incorrect Scrip Name Is Invalid And Liable To Be Quashed

By | July 25, 2026
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Reassessment Notice Premised On Factually Incorrect Scrip Name Is Invalid And Liable To Be Quashed

Reassessment Notice Premised On Factually Incorrect Scrip Name Is Invalid And Liable To Be Quashed

Issue

  • Validity of Reassessment Premised on Factually Incorrect Information: Whether a reopening notice issued under Section 148 read with Section 147 is legally sustainable when the recorded reasons allege accommodation entries in a penny stock company (M/s 21st Century) with which the assessee never traded, rather than the actual company (Bagra Partishtan Ltd.) disclosed in the return of income.

Facts

  • Return Disclosures: For AY 2012–13, the assessee-petitioner filed its return of income claiming tax-exempt long-term capital gains under Section 10(38) on the sale of listed shares of Bagra Partishtan Ltd. amounting to approximately Rs. 17.62 lakhs.

  • Reassessment Notice: Subsequently, the Assessing Officer (AO) issued a notice under Section 148 read with Section 147 to reopen the assessment for AY 2012–13.

  • Incorrect Scrip Allegation in Reasons Recorded: The reasons recorded by the AO relied on intelligence from Kolkata regarding penny stock accommodation entries. The notice explicitly alleged that the assessee traded in shares of M/s 21st Century through an entry operator to claim bogus Section 10(38) exempt gains of Rs. 17.62 lakhs.

  • Factual Discrepancy: The petitioner had never dealt in shares of M/s 21st Century. The actual entity traded was Bagra Partishtan Ltd., which was completely omitted from the AO’s recorded reasons.

Decision

  • Reassessment Notice Quashed (In favor of Assessee): Held YES. The reopening of the assessment was premised entirely on a factually incorrect assumption regarding the identity of the penny stock company. [Para 7]

  • Absence of Valid Reason to Believe: Since the recorded reasons suffered from a fundamental factual error, the jurisdictional foundation for issuing the notice under Section 148 was absent, rendering the reassessment notice invalid and liable to be set aside. [Para 7]

Key Takeaways

  • Factual Accuracy in Recorded Reasons: Reassessment proceedings under Section 147/148 require strict factual accuracy. If the “reason to believe” rests on incorrect material or a mistaken entity name, the notice lacks jurisdiction.

  • Non-Application of Mind: Citing a completely wrong scrip or company name in the recorded reasons demonstrates a lack of independent application of mind by the Assessing Officer, rendering the reopening void ab initio.

HIGH COURT OF GUJARAT
Vinita Ravi Jain
v.
Income-tax Officer
A.S. Supehia and Ms. VAIBHAVI D. NANAVATI, JJ.
R/SPECIAL CIVIL APPLICATION NOs. 16944 and 16945 of 2019
JUNE  29, 2026
Darshan R Patel for the Petitioner. Karan G Sanghani for the Respondent.
ORDER
A. S. Supehia, J.- The petitions are taken up for final hearing for final disposal with the consent. Both the petitions are decided by this common order. The Special Civil Application No.16944 of 2019 is treated as lead matter.
2. In the present writ petitions, the petitioners have assailed the impugned notices dated 26.03.2019 issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) along with preliminary orders dated 07.09.2019.
3. Brief facts of the case are that, the petitioner is being regularly assessed to tax by the Income-tax Office. For the Assessment Year (for short ‘A.Y.’) 2012-13, Return of Income was filed on 12.09.2012.
3.1 The respondent issued a notice under Section 148 read with Section 147 of the Act dated 26.03.2019 for re-opening of the assessment for A.Y.2012-2013.
3.2 The reasons recorded for reopening of assessment under Section 147 of the Act was communicated vide letter dated 26.06.2019.
3.3 The petitioner filed his objections to the reasons recorded for reopening the assessment for A.Y. 2012-13 on 01.07.2019.
3.4 The respondent rejected the objections raised by the petitioner vide letter dated 07.09.2019.
4. Learned advocate Mr.Darshan R. Patel appearing for the petitioner has submitted the notice under Section 148 of the Act is on totally incorrect, irrelevant and inapplicable extraneous information lacking validity of reopening.
4.1 He has submitted that the respondent is in grave error in assuming jurisdiction under Section 147/148 of the Act for reopening the proceedings for A.Y. 2012-13 on incorrect facts.
4.2 He has submitted that the petitioner has never purchased and sold any shares of M/s.21st Century and has not earned any long term capital gain on purchase and sale of shares of company by this name i.e. M/s.21st Century. It is therefore submitted that the reasons recorded are on totally incorrect facts alleging that the petitioner has sold shares of M/s.21st Century which is a penny stock company.
4.3 He has submitted that there is no transaction at all done by the petitioner involving the shares of M/s.21st Century, neither in A.Y. 201213 nor in any other assessment years. Hence, the reason assigned for reopening of assessment is based on a totally incorrect and irrelevant fact.
4.4 He has also pointed out that return of income filed by the petitioner for the A.Y. 2012-13 and has submitted that in fact the petitioner has dealt with Bagra Partishtan Ltd., and sought exemption of long term capital gain and not in M/s.21st Century as alleged by the Assessing Officer. Thus, it is urged that the impugned notices for reopening of the assessment are required to be quashed and set aside.
5. Opposing the present petitions, the learned Senior Standing Counsel Mr. Karan Sanghani while referring to the affidavit-in-reply has submitted that, the notices issued to the petitioner under Section 148 of the Act was issued to the petitioner assessee in the office of the Assessing Officer for A. Y. 2012-13 after recording the reasons and receiving due approval from the competent authority and the notice was duly served upon the assessee through Registered Speed Post as well as through person on 27.03.2019. In this case, information was received from the Dy. Director of Kolkata regarding transaction of accommodation entry of penny stock scrip through claiming exempt Long Term Capital Gain (for short ‘LTCG’) taken by the assessee during the year under consideration and the same was established by him during the course of enquiry proceedings. Further, it was found from the return of income filed by the petitioner for the year under consideration that assessee has claimed the exemption of LTCG of Rs.17,62,150/- under Section 10(38) of the Act on sale of shares, which is the modus operandi of the beneficiary of accommodation entry of penny stock through claiming exemption of LTCG. Further, it is contended that since the assessment order is still to be passed in this case and if the petitioner has any grievance with regard to the assessment order, then it can be passed after considering the submission made by him during the course of assessment proceedings, and there is also remedy provided under the Act by way of filing Appeal to the Commissioner of Income Tax (Appeals) and thereafter, before the Income Tax Appellate Tribunal.
6. We have heard the learned advocates appearing for the respective parties at length. The petitioner filed his objections for reopening the assessment for A.Y. 2012-13 on 01.07.2019. The contents of the impugned notice issued under Section 148 of the Act reveals that the Assessing Officer has exclusively alleged that the petitioner has indulged in purchase and sale of penny stocks of M/s.21st Century through entry operator Mr.Ashok Kumar Kayan by selling the shares worth Rs.17,62,150/- during the financial year 2011-12 relevant to A.Y. 201213. It is further alleged that the scrips in which the assessee traded were penny stock and were used by brokers/entry operators to provide accommodation entries so as to convert the unexplained cash into legitimate income in the form of LTCG to the beneficiaries. In his reply dated 01.07.2019, the petitioner categorically referred that he has not dealt in the shares of M/s.21st Century and have not sold any share of this penny stock company through Shri Ashok Kumar Kayan and thus urged that the Deputy Director of Income Tax (for short ‘DDIT’) who has investigated the case has fell in error and the reopening is premised on factually incorrect information.
7. We have also perused the return of income filed by the petitioner for A.Y. 2012-13. In the exempted income the petitioner has categorically referred to the long term capital gain on listed securities under Section 10(38) of the Act and the name of the company disclosed in return of income is Bagra Partishtan Ltd., and the sales price of the securities is referred as Rs.17,62,500/-. This assertion by the petitioner in his objections as well in the writ petition is not denied by the respondents, as the reopening is premised on an incorrect factual aspect of referring the penny stock company. The petitioner never dealt with the shares of M/s.21st Century but in fact has dealt with Bagra Partishtan Ltd., company which does not find place in the impugned notice and hence on this aspect the reopening of the assessment is required to be quashed and set aside as it is premised on a factually incorrect information.
8. In wake of the undisputed facts, the petitioner cannot be relegated either to face further assessment or to avail the alternative remedy. Both the petitions are allowed. The impugned notices dated 26.03.2019 issued under Section 148 of the Income Tax Act, 1961 along with preliminary orders dated 07.09.2019 are quashed and set aside.