ITAT Quashes Reassessment as Reopening Was Based Solely on Borrowed Satisfaction

Rajvi Shah Vs ITO (ITAT Ahmedabad)

The assessee appealed against the order of the Commissioner of Income-tax (Appeals) for AY 2015-16. In addition to challenging an addition of ₹69,84,821, the assessee raised an additional legal ground contesting the validity of reopening of assessment under Section 147 of the Income-tax Act, 1961. Since the issue went to the root of the assessment proceedings, the Tribunal admitted the additional ground for adjudication.

The assessee had originally filed a return of income on 30.09.2015 declaring total income of ₹5,64,040, and the assessment was completed under Section 143(3). Subsequently, information was received through the Insight Portal alleging that the assessee had entered into fictitious profit/loss transactions in equity and derivative trading amounting to ₹69,84,821 involving the scrips of Looks Healthcare Services Ltd. and Wagend Infra Venture Ltd. Based on this information, the Assessing Officer issued a notice under Section 148 on 31.03.2021 and reopened the assessment. Thereafter, an assessment under Sections 147 read with 144 was completed on 29.03.2022, treating the transactions as fictitious profit/loss transactions and making an addition of ₹69,84,821.

The Commissioner (Appeals) upheld the action of the Assessing Officer. Before the Tribunal, the assessee contended that the reopening was invalid because it was based solely on information received from the Investigation Wing/Insight Portal without any independent verification or enquiry by the Assessing Officer. It was argued that the reasons recorded merely reproduced the information received and did not demonstrate any independent application of mind or formation of belief regarding escapement of income.

The Revenue argued that the Assessing Officer possessed tangible material suggesting escapement of income and had therefore validly initiated reopening proceedings. It was also submitted that the assessee had failed to establish the genuineness of the transactions.

After examining the reasons recorded for reopening, the Tribunal observed that the Assessing Officer had relied entirely on information received through the Insight Portal and Investigation Wing regarding alleged fictitious profits in equity and derivative trading. The reasons recorded reproduced the information received and then concluded that income had escaped assessment.

The Tribunal found that no independent enquiry, verification, analysis, or application of mind had been carried out by the Assessing Officer before recording satisfaction for reopening the assessment. It held that reopening under Section 147 cannot be based merely on borrowed satisfaction and that the Assessing Officer must independently apply his mind to the material before assuming jurisdiction.

According to the Tribunal, apart from reproducing the information received from the Investigation Wing, the Assessing Officer had not brought any independent analysis or nexus on record to demonstrate formation of belief based on his own satisfaction. Consequently, the Tribunal held that the jurisdiction assumed under Section 147 was not legally sustainable and quashed the reassessment proceedings.

As a result, the appeal of the assessee was allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “CIT(A)” for short) dated 24.01.2025, passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for Assessment Year (AY) 2015-16.

2. The assessee has raised following grounds of appeal :-

“That the Ld. CIT(A) erred in law and in the facts of the case in confirming the order of the Assessing Officer in making addition of Rs.69,84,821/- being bogus profit u/s 68 of the Act.”

3. The assessee has also raised an additional ground of appeal which reads as under:-

“That the Ld. AO erred in law and in the facts of the case in reopening the case of the appellant u/s 147 of the Act.”

4.Since the additional ground raised by the assessee is legal in nature and goes to the root of the assessment proceedings, the same is admitted for adjudication in view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT.

5. In this case, the assessee filed return of income for the year under consideration on 30.09.2015 declaring total income of Rs.5,64,040/-. The original assessment was completed under Section 143(3) of the Act. Subsequently, information was received through Insight Portal alleging that the assessee had entered into fictitious profits/losses in equity/derivative trading amounting to Rs.69,84,821/- in the scrips namely Looks Healthcare Services Ltd. and Wagend Infra Venture Ltd. Based on the said information, the Assessing Officer reopened the assessment by issuance of notice u/s 148 dated 31.03.2021. Thereafter, assessment u/s 147 r.w.s. 144 of the Act was framed vide order dated 29.03.2022 making addition of Rs.69,84,821/- u/s 69 of the Act treating the transactions as fictitious profit/loss transactions.

6. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who confirmed the action of the Assessing Officer.

7. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before us.

8. Before us, the Ld. AR submitted that the reopening is invalid in law since the Assessing Officer merely acted upon borrowed satisfaction on the basis of information received from the Investigation Wing/Insight Portal without conducting any independent verification or enquiry. The Ld. AR also submitted that the reasons recorded do not disclose any live nexus or independent formation of belief by the Assessing Officer regarding escapement of income. The Ld. AR further submitted that the issue is squarely covered by the decision of the Coordinate Bench of the Tribunal in the case of Jhaveri Trading and Investment Pvt. Ltd. Vs. DCIT, wherein, relying on in a group case i.e. Vicky Rajesh Jhaveri Vs. ITO in ITA No. 462/Ahd/2023 involving identical facts and circumstances, similar additions were deleted. The Ld. AR also submitted that supporting evidences including stock summary, ledger account, item register and profit and loss account were furnished during appellate proceedings and a copy which was also placed on record before us.

9. The Ld. DR, on the other hand, relied upon the orders of the lower authorities and submitted that the Assessing Officer had tangible material in possession suggesting escapement of income and therefore reopening was validly initiated. The Ld. DR also submitted that the assessee failed to establish genuineness of the transactions and therefore the addition was rightly made.

10. We have heard rival submissions and perused the material available on record. Validity of Reopening u/s 147 of the Act :-

10.1 On perusal of the reasons recorded, we find that the reopening has been initiated solely on the basis of information received from the Insight Portal/Investigation Wing alleging fictitious profits/losses in equity and derivative trading. The reasons recorded by the Assessing Officer merely reproduce the information received and thereafter conclude that income chargeable to tax has escaped assessment. For the sake of ready reference, the reasons recorded by the Assessing Officer are reproduced hereunder:-

“Issues as per reasons recorded for reopening

1. Brief details of the assessee In this case, the assessee has filed return of income for the A.Y. 2015-16 on 30.09.2015 declaring total income of Rs. 5,64,040/-.

2. Brief details of Information collected/ received by the AO: In this case, information was reflected on Insight Portal. As per information uploaded, the following transaction was taken place by Shah Rajvi Jayendra during the F.Y. 2014-15.

3. Basis of forming reasons to believe and details of escapement of income:

On perusal of the details furnished and the information uploaded it is very clear that transaction of Fictitious Profits in Equity/Derivative Trading of Rs. 69,84,821/- was carried out By Shah Rajvi Jayendra during the F. Y. 2014-15 relevant to A. Y. 2015-16.

4. Applicability of the provisions of section 147/151 to the facts of the case:

After analyzing the above information provided by Investigation Wing the data made available in the ITS details of the assessee and since, the assessee has filed the return of income for A. Y. 2015-16 prima facie, I have reason to conclude that the assessee had failed to disclose fully and truly all the particulars of his income and income chargeable to tax has escaped assessment by an amount of Rs. 69,84,821/-. While forwarding the above information, Investigation Wing had also provided the relevant portion of Investigation.

In view of the above, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the I.T. Act for A.Y. 2015­16 by an amount of more than Rs. 1 lakh and I am satisfied that this is a fit case for re-opening the assessment for A.Y. 2015-16.”

From a plain reading of the reasons recorded, it is evident that the reopening has been initiated solely on the basis of information received from the Insight Portal/Investigation Wing. No independent enquiry or verification has been conducted by the Assessing Officer before recording satisfaction for reopening the assessment. It is well settled law that reopening under Section 147 cannot be based merely on borrowed satisfaction. The Assessing Officer must independently apply his mind to the material available before assuming jurisdiction under Section 147 of the Act. In the present case, except reproducing the information received from the Investigation Wing, no independent analysis or nexus has been brought on record by the Assessing Officer to demonstrate formation of belief based on his own satisfaction. Hence, we hold that the jurisdiction assumed by the Assessing Officer u/s 147 of the Act is not legally sustainable in the eyes of law, resulting in the quashing of reassessment proceedings.

11. In the result, the appeal of the assessee is allowed.

The order pronounced in the open Court on 27.05.2026