Brand India Real Estate Pvt. Ltd. Vs ITO (ITAT Jaipur)
Share Capital Addition: ITAT Jaipur ruled that reassessment under Section 148 based solely on Investigation Wing’s report without independent verification is invalid and void ab initio. Tribunal held that once identity, creditworthiness, and genuineness of investors are established, no addition can be made under Section 68; reliance placed on Lovely Exports ruling. ITAT Jaipur followed Rajasthan High Court’s decision in Esspal International, ruling that a retracted statement without corroboration cannot form the basis of addition.
Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) in its order dated 29 September 2025, in the case of Brand India Real Estate Pvt. Ltd. v. ITO, quashed the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, holding that the reopening was invalid and based solely on “borrowed satisfaction” derived from an investigation report, without any independent application of mind by the Assessing Officer (AO). The Tribunal also deleted the addition made on account of share application money under Section 68, finding that the assessee had discharged its evidentiary burden and that the AO’s reliance on a retracted third-party statement was unsustainable in law.
Background and Reassessment Proceedings
The assessee had been earlier assessed under Section 143(3) for Assessment Year 2012–13, where the issue of share capital was thoroughly examined by the AO, who accepted the assessee’s submissions and completed the assessment on 26 November 2014. Subsequently, based on information received from the Directorate of Income Tax (Investigation), Kolkata, the AO reopened the assessment under Section 148, alleging that the assessee had taken accommodation entries in the form of share capital.
The information received by the AO was through a series of letters from different investigation units in Kolkata, referring to alleged accommodation entries. The AO recorded these details verbatim as the “reasons for reopening,” concluding that income had escaped assessment. However, in his recorded reasons, the AO mentioned “unsecured loans” rather than “share capital,” indicating mechanical reproduction of the information without understanding or verification. Further, in the section of the reasons requiring details of enquiries made by him, the AO stated that since the investigation unit had already made inquiries, no further verification was necessary.
The assessee objected to the reopening, arguing that (i) reassessment after four years from the end of the relevant assessment year was impermissible in the absence of failure to disclose material facts; (ii) there was no new tangible material, but only a change of opinion; and (iii) the AO had not conducted any independent enquiry or formed his own satisfaction.
Tribunal’s Observations on Reassessment
The ITAT observed that reassessment beyond four years from the end of the relevant assessment year can be initiated only if the assessee failed to make full and true disclosure of all material facts during the original assessment, as held by the Supreme Court in Calcutta Discount Co. Ltd. v. ITO (41 ITR 191). Both conditions—“reason to believe” that income escaped assessment and that such escapement occurred due to nondisclosure—must coexist.
The Tribunal found that in this case, the AO had reopened the assessment solely based on the Investigation Wing’s report, without any independent verification or corroboration. The order itself acknowledged that no inquiry was conducted at the assessment level since “the investigation unit had already made enquiries.” The Tribunal held that such an approach amounted to mere mechanical reliance on external information without independent satisfaction, which is impermissible under the law.
In support, the Bench cited the Jaipur ITAT’s earlier decision in Smt. Kanta Chaudhary v. ITO (ITA No. 878/JP/2018), where reopening was quashed on similar grounds. The Tribunal in that case had held that an AO cannot reopen an assessment merely on the basis of third-party information without first examining whether such information is applicable to the assessee’s case or conducting basic verification of records. It also referred to the Bombay High Court’s ruling in Shodiman Investments (P.) Ltd., which emphasized that the AO must form a prima facie belief based on material linked to the assessee’s own case, not solely on general reports.
Accordingly, the Tribunal held that the reopening in the present case was without jurisdiction and void ab initio, as it was based on borrowed satisfaction, absence of independent application of mind, and amounted to a change of opinion on matters already examined in the original scrutiny assessment.
Findings on Merits (Addition under Section 68)
The Tribunal then considered the merits of the addition under Section 68 pertaining to share application money. The assessee had submitted detailed documentation, including application forms, bank statements, income tax returns, financial statements, audit reports, and confirmations of investor companies. These materials established the identity, creditworthiness, and genuineness of the investors. The AO, however, ignored these documents and made the addition solely on the basis of a statement by one Shri Mukesh Banka, allegedly involved in providing accommodation entries.
The Tribunal noted that the statement of Shri Mukesh Banka had been retracted through a written communication dated 4 September 2019. No independent material was brought on record by the AO to demonstrate that the assessee’s transactions were bogus or that any cash was routed back to the company. The Tribunal emphasized that additions cannot be sustained on the basis of uncorroborated or retracted statements, relying on the Rajasthan High Court decision in PCIT v. Esspal International Pvt. Ltd. (DB ITA No. 25/2024, dated 3 September 2024), which held that a retracted admission without supporting evidence cannot form the sole basis for addition.
The Bench further referred to the Supreme Court’s ruling in CIT v. Lovely Exports Pvt. Ltd. (216 CTR 195), wherein it was held that if the share applicants are identifiable and their details are furnished, then any doubt about the genuineness of their funds should be examined in their own assessments, and not in the hands of the company receiving the investment. Applying this principle, the ITAT concluded that once the assessee had proved the identity, capacity, and genuineness of the investor companies, no addition under Section 68 could be made.
Accordingly, the Tribunal deleted the entire addition on merits, observing that the AO had failed to discharge his burden of disproving the evidentiary material produced by the assessee.
Conclusion
Summing up, the ITAT Jaipur quashed the reassessment proceedings initiated under Section 148 as invalid due to lack of independent satisfaction and non-application of mind by the AO, holding the proceedings to be void ab initio. On merits, it deleted the addition under Section 68, finding that the assessee had discharged its burden of proof and that the AO’s reliance on a retracted third-party statement was legally untenable. As a result, the appeal filed by the assessee was allowed in full, with other grounds rendered infructuous.
Assessee was represented by : Shri Siddharth Ranka, Adv. & Ms. Satwi
