Case Law Details
Kedia Carbon Pvt. Ltd. Vs DCIT (ITAT Kolkata)
The Income Tax Appellate Tribunal (ITAT), Kolkata, allowed the assessee’s appeal by quashing the reopening of the assessment under Sections 147 and 148 of the Income-tax Act for Assessment Year 2009-10. The Tribunal first admitted the additional legal grounds challenging the jurisdiction of the Assessing Officer (AO), holding that they raised purely legal issues requiring no further factual investigation and could be raised for the first time before the appellate authority.
The assessee’s case arose from the reopening of its completed assessment following a search conducted on the Kedia group. The AO reopened the assessment on the basis that the assessee had received share capital and share premium amounting to ₹15,11,35,000 through alleged accommodation entries from shell companies. The reassessment ultimately added the entire amount as unexplained cash credit under Section 68, and the Commissioner of Income-tax (Appeals) affirmed the addition on merits.
Before the Tribunal, the assessee challenged the validity of the reopening itself. It contended that the AO had acted solely on information received from the Investigation Wing without independently verifying the facts or applying his own mind. The assessee submitted that the reasons recorded for reopening contained several factual errors. According to the audited financial statements, the company had issued 15,90,000 equity shares of ₹10 each and had collected only ₹1,59,00,000, whereas the AO incorrectly recorded that shares were issued at a premium of ₹90 per share and referred to amounts that did not exist in the books of account. The assessee also argued that certain companies named in the reasons had never been allotted shares. It further submitted that the statements of alleged entry operators did not establish that they had provided accommodation entries to the assessee. Relying on judicial precedents, the assessee argued that reopening based on incorrect facts and borrowed satisfaction was invalid.
The Department contended that complete factual verification was not required at the stage of reopening and that the reopening merely initiated the investigation process.
After examining the record, the Tribunal found that the reasons recorded by the AO were based on incorrect and inconsistent facts. It observed that the AO had wrongly stated that the assessee issued shares at a premium of ₹90 and had collected amounts far exceeding the actual share capital raised. The Tribunal also noted that the AO incorrectly referred to certain investor companies from whom, according to the record, no share capital had been received. It held that these factual inaccuracies demonstrated lack of application of mind while recording reasons for reopening. Referring to judicial precedents, including the decisions in Tata Sons Ltd. and ITO v. Arti Khatter, the Tribunal observed that a reassessment notice founded on incorrect facts or conclusions cannot be sustained and that reopening based solely on information from the Investigation Wing without independent verification amounts to borrowed satisfaction, which is impermissible under the Act. Consequently, the Tribunal quashed both the reopening of the assessment and the consequential reassessment order.
The Tribunal also considered the Revenue’s reliance on the statement of one of the directors recorded during the search. It agreed with the assessee that reopening could not be sustained merely on the basis of such a statement. Referring to CBDT Circular No. F. No. 286/2/2003-IT (Inv.) dated 10 March 2003 and CBDT Circular No. F. No. 286/98/2013-IT dated 18 December 2014, the Tribunal noted that the Board had instructed tax authorities to focus on collection of evidence during search and survey proceedings rather than obtaining confessional statements, and that confessions unsupported by credible evidence should not form the basis of assessment.
Having quashed the reassessment proceedings on the first additional ground, the Tribunal held that examination of the remaining grounds had become unnecessary and left them open. Accordingly, the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Kolkata-27(hereinafter referred to as the “Ld. CIT(A)”] dated 07.01.2026 for the AY 2009-10.
2. At the outset, we note that the assessee has raised additional grounds of appeal vide letter dated 25.09.2026, which are extracted below:-
“1. That on the facts and in the circumstances of the case and in law, the Id. AO erred in reopening the case of the assessee u/s 148 of the Act on incorrect reasons recorded without any verification of the actual facts and thus entire reopening on incorrect facts cannot be sustained in the eyes of law.
2. That on the facts and in the circumstances of the case and in law, the Id. AO erred in reopening the case of the case based on reason to suspect and borrowed satisfaction without any independent verification of his own which is not permitted u/s 147 of the Act, hence the entire reopening is bad in law and liable to be quashed.
3. That on the facts and in the circumstances of the case and in law, the Id. AO erred in reopening the case of the assessee based on a mere change of opinion when the issue of raise in share capital during the year was duly considered by the preceding learned AO in the original assessment proceedings.”
2.1. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised the above additional ground of appeal challenging the jurisdiction of the AO to make addition. In our opinion the issued raised in the additional ground is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts are required from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely covered by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT in 187 ITR 688 , ii) National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 and also by the decision of Hon’ble Calcutta High Court in PCIT vs. Britannia Industries Ltd. [2017] 396 ITR 677 (Cal). Therefore, we are inclined to admit the same for adjudication.
3. The issue raised in the first additional ground is in relation to the reopening of assessment u/s 148 of the Act on wrong reasons recorded without any verification of actual facts and thus, the entire reopening on wrong facts is bad in law and nullity.
3.1. The facts in brief are that the assessee is engaged in the business of manufacturers of Coal Tar Pitch and its bye products. The assessee filed the return of income on 18-09-2009, showing total income at 195,36,905/-. The assessment was also framed under Section 143(3) of the Act vide order dated 28.11.2011, assessing the total income at 11,04,57,610/-. A search action under Section 132(1) of the Act, was conducted on 06-10-2015 on the Kedia group of companies and assessee was also covered in the said search. Consequent to the search, the Ld. AO reopened the assessment under Section 147 of the Act by issuing notice under Section 148 of the Act, on 25-10-2016. The assessee did not file any return of income in compliance thereto. The AO noted on the basis of search material that assessee had taken share of capital / share premium from various entities by issuing share of face value at 110 at a premium of Rs. 90. The details of subscribers , number of shares issued and amount received of 15,11,35,000 are given in a table which is extracted by the AO in page no. 2 para 6 of the assessment order. It was also noted in the second para of the reasons recorded that the Director of Investigation, Kolkata, has taken statement of entry operators during various survey and search proceedings. It was further stated that some of the Jamakarchi/shell companies were operated by key operators. It was noted that share allotments in the assessee company matched with the well-known entry operators. It was also stated that during the search, Shri Mahesh Kedia and Shri Vedang Kedia, the key persons of Kedia group also admitted that they had taken accommodation entries in the form of share capital/ share premium through shell companies. Finally, the AO formed the reason to believe that income of 15,11,35,000/- has escaped assessment. The Id. AO based on the said reasons added the said share capital / share premium of 15,11,35,000 to the income of the assessee as unexplained cash credit in the assessment framed u/s 147/ 144(3) of the Act.
3.2. The learned CIT (A) affirmed the same on merit.
3.3. The learned AR submitted that reopening of assessment has been made invalidly by the AO on the basis of information received from the Investigation Wing, as the AO has not recorded his own satisfaction and relied on the satisfaction recorded by the Investigation Wing which is borrowed satisfaction. Thus, the AO has reopened the case without application of mind on the wrong facts. The learned AR submitted by referring to the audited balance sheet that during the course assessee has issued only 15,90,000 equity shares of face value at t10 each thereby collecting 11,59,00,000 against the allotment of shares. The learned AR submitted that the observations. As a matter of fact, the shares were never issued at a premium of 190 and thus the said satisfaction of the AO is based on wrong facts. The learned AR referred to the balance sheet to explain that opening balances of reserve and surplus and submitted that opening and the closing balances remained same. Thereafter, the Id. AR referred to the reasons recorded by the Id. AO that share allotted match with the well-known entry operator collect amounting to 12,09,00,000/- and submitted that the same is also imaginary and based on the presumption of the Id. AO as there is no such amount appearing in the books of accounts of the assessee or collected from any quarter. Thereafter, the Id. AR referred to the statements recorded of entry operators Shri Abhishek Chokani, Amit Dalmia, Anand Sharma/ Janardhan Chokhani, Krishna MurariNaita, Sanjoy Drolia & Manish Surekha, Shiv Kumar Khemka, Shiv Kumar Khemka/ Shiv Shanker Banka, shri Praveen Agarwal, Vishal Bhuwania etc. and submitted that they never ever accepted that they provided accommodation entries provided in the form of share capital to the group companies in lieu of commission. No money was received from these companies ever by the assessee. The learned AR therefore, submitted that reopening of assessment on the basis of wrong facts is invalid and may be quashed as the learned AO has not applied his mind to the information received from the investigation wherein, he acted as on the borrowed satisfaction and wrong facts. The Id. AR in defense of his argument relied on the decision of Principal Commissioner of Income-tax vs. Emote Wealth (P.) Ltd. [2025] 176 taxmann.com 169 (Calcutta)[01-07-2025], Tata Sons Ltd. vs. Deputy Commissioner of Income-tax [2022] 137 taxmann.com 414 (Bombay)/[2022] 286 Taxman 587 (Bombay)[03-02-2022]. The learned AR therefore prayed that the reopening may be quashed.
3.4. The Id. AR also submitted that reopening cannot be made merely on the statement of the directors of the assessee company. The learned AR in defense of his argument referred to the CBDT Circular No. F. No. 286/2/2003-IT (Inv.) dated 10-3-2003&CBDT vide Circular No. F. No. 286/98/2013-IT dt. 18.12.2014 wherein it has been provided that only statement is not enough to make the addition where there is no corroborating materials.
3.5. The Id. DR on the other hand relied on the orders of the authorities below by submitting that at the time of reopening correct facts need not to be brought on record. It is just point of initiation of investigation which are investigated and examined during the course of assessment proceedings. Therefore, ground raised by the assessee may be dismissed.
3.6. We have heard the rival arguments and perused the materials available on record. The undisputed facts are that reopening was made by the AO on the basis of wrong and incorrect facts. As has been stated herein above, there were conflicting amounts mentioned by the AO in the reasons recorded. We note that the AO has observed in the reasons recorded that shares were issued at a face value of t10 each at a premium of t90, thereby collecting 5,11,95,000/- from the investors, whereas as a matter of fact, the assessee has issued shares at a face value only on face value of t 10/- each and no premium was ever collected. We note during the year the assessee has issued 15,90,000 equity shares at a face value of t10 each thereby, thereby collecting from the investors Rs.1,59,00,000/-. Therefore, the facts mentioned by the AO while forming the belief are totally incorrect. Thereafter, the learned AO also referred to 12,45,00,000/- and t 2,09,00,000/- in the reasons recorded. Again, the facts were wrongly mentioned by the AO. The AO also recorded the reasons that assessee has received share capital / share premium from companies namely; Starpoint Distributors Pvt. ltd., M/s Suasion Finvest Pvt. ltd. and M/s Emcee Commercial Pvt. Ltd. whereas as a matter of fact, no share capital was ever allotted to these companies. Therefore, reopening of assessment made by the AO on the basis of incorrect facts is wrong, unlawful and bad in law and so is the reopening of assessment framed by the AO consequently. The case of the assessee finds support from the decisions of Hon’ble Bombay High Court in case of Tata Sons ltd. (supra), wherein it has held as under:-
“If we consider the table reproduced above, the sale of shares of TCS Ltd. which according to Respondent No. I should be treated as ‘business income’ and not ‘profits arising out of sale of sale of investment, is only Rs. 19,32,34,27,592/(12,26,61,28,794 + 7,05,72,98,798) Le. “Long terms capital gains: Tata Consultancy Services Limited”. Mr. Pinto though he made valiant attempt to defend the notice issued for re-opening, in fairness, as an officer of the Court, considering the reasons as recorded agreed that the only item which could have been stated to have escaped assessment would be the Long-Term Capital gains in the sale of TCS Ltd. shares amounting to Rs. 19,32,34,27,592/- and Respondent No. I was incorrect in stating that he had reason to believe that the sum of Rs. 22,71,25,79,374/-has escaped assessment.
7. In our view, if the reasons for re-opening the assessment is based on incorrect facts or conclusions, certainly the notice issued for re-opening cannot be sustained. Moreover, if according to Respondent No. 1 only the sale of shares of TCS was ‘business income’ and not ‘profits arising of sale of investment’ to say that the amount of Rs. 22,71,25,79,374/- has escaped assessment, also indicates non-application of mind.”
3.6.1. Further, coordinate bench , Delhi in the case of ITO vs Arti Khatter (2014) 41 CCH 0025 (Del Trib) held as under:-
“When these factual details were compared with the reasons recorded, it was found that the reasons recorded were vague and factually incorrect also. No bank instrument of Rs. 6 lakhs was received by the assessee. The CIT(A) had allowed relief to the assessee following the decision of Hon’ble Jurisdictional High Court. The facts of the assessee’s case clearly show that the Assessing Officer had not examined the information received from Investigation Wing before recording his own satisfaction of escapement of income. Though he had mentioned in the reasons recorded that he had examined the information and details so available. Because had he examined the details and information, he would have certainly known that the information was factually incorrect and incomplete. The CIT(A) rightly followed the above decision of Hon’ble Jurisdictional High Court and set aside reassessment notice. CIT vs. Smt. Paramjit Kaur [2009] 311 ITR 38 (P&H).”
3.6.2. Therefore, considering the facts of the case and reasons recorded by the AO without application of mind we hold that the reopening has been made on the basis of borrowed satisfaction which is not permissible under the Act. Accordingly we hereby quash the reopening of assessment as well as the consequent assessment framed by the AO.
3.6.3. So far as the reopening on the basis of statement of Shri Mahesh Kedia is concerned, that we are in agreement with the Counsel of the assessee that reopening of assessment cannot be made on the basis of mere statement of the Director of the assessee Company and the same is in violation of CBDT Circular No. F. No. 286/2/2003-IT (Inv.) dated 10-3-2003&CBDT vide Circular No. F. No. 286/98/2013-IT dt. 18.12.2014 which are extended below:-
CBDT Circular No. F. No. 286/2/2003-IT (Inv.) dated 10-3-2003
“Subject: Confession of additional Income during the course of search & seizure and survey operation-regarding
“Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search and seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.
3.6.4. In continuation to the above Circular, CBDT vide Circular No. F. No. 286/98/2013-IT dt. 18.12.2014 further stated that,
2. 1 am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence”
3.6.5. Therefore, the ground number 1 of the additional grounds are allowed.
4. Since, we have allowed the appeal of the assessee on additional ground number one by quashing the reopening of assessment as well as the consequent assessment framed, therefore, other grounds are not decided at this stage and are being left open to be adjudicated if any need arises for the same in future.
5. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 25.06.2026.
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