Nitin Tammansa Katwa Vs ACIT (ITAT Panaji)
Panaji ITAT Quashes Penny-Stock Reassessment: Investigation-Wing Information Cannot Substitute AO’s Own Satisfaction; Reopening on Incorrect Facts and Borrowed Satisfaction Invali
The Income Tax Appellate Tribunal, Panaji Bench, considered two appeals for A.Y. 2011-12 filed by Nitin Tammansа Katwa and Ravi Tammansа Katwa against separate NFAC/CIT(A) orders arising from reassessment proceedings under sections 147/143(3) of the Income-tax Act, 1961. The assessees challenged the validity of notices issued under section 148 and the resulting addition under section 68 concerning alleged bogus long-term capital gains from shares of Comfort Intech Ltd. In Nitin Katwa’s case, the assessee had disclosed total income of Rs.32,44,230 and claimed exempt LTCG of Rs.4,07,94,331 under section 10(38). The Assessing Officer relied on information from the Kolkata Investigation Directorate concerning penny-stock transactions and recorded that the assessee had sold 29,50,000 shares for Rs.4,58,73,227 without showing purchases on the exchange. The assessee, however, had furnished details showing purchases through stock brokers and preferential allotment, banking-channel payments, contract notes and demat records. The AO ultimately made an addition of Rs.4,58,73,227 under section 68 and assessed total income at Rs.4,91,17,457. The CIT(A) upheld the reassessment and addition.
Before the Tribunal, the assessee restricted submissions to the validity of reopening. It was contended that the recorded reasons relied on general investigation information, failed to identify the Comfort Intech Ltd. scrip or establish its relevance to the assessee, incorrectly stated that no purchases were shown, and reflected borrowed satisfaction without independent application of mind. The assessee relied, among others, on Hindustan Lever Ltd Vs R.B.Wadkar Assisstant Commissioner of Income Tax And Others (268 ITR 332)(Bombay), Smt.Tanu G Agarwal Vs DY,CIT-10(3)(2) ITA.No.2325/MUM/2018, AnilChothmal Patodia Vs NFAC Mumbai.ITA.NO.4060/MUM/2023., Hotel New Niyaz Vs ACIT Belgaum ITA.18 to 22/PAN/2022., P R C I T -5 Vs Shodiman Investments (P) Ltd.(422 ITR 337)(Bombay) and C I T Vs Sfil stock Broking Ltd(233 C T R 69)(Delhi). The Tribunal examined the recorded reasons and found that the assessee had in fact purchased shares, including 20,000 shares in F.Y. 2006-07, 25,000 shares in F.Y. 2007-08 and 2,50,000 shares through preferential allotment in F.Y. 2008-09. It also noted that the scrip name did not appear in paragraphs 1, 2 and 3 of the recorded reasons and that it was not clear whether the AO had independently applied his mind to the information received from DIT(Inv.) and linked it to the assessee’s facts.
The Tribunal referred to the reasoning in Smt. Tanu G. Agrawal Vs Dy.CIT-Mumbai [In ITA No. 2325/MUM/2018 for the A.Y. 2013-14] dated 20.04.2020, including the principle that reopening cannot be sustained on borrowed satisfaction where the AO merely relies on investigation information without linking it to the assessee’s disclosed facts. It also considered the reasoning reproduced from Pr. CIT Vs. Shodiman Investments Pvt. Ltd., Nu Power Renewables Pvt. Ltd. vs DCIT, Circle1(2), Pr CIT Vs Meenakshi Overseas Pvt Ltd. and South Yarra Holdings Vs ITO. The Tribunal found that the AO had not demonstrated independent application of mind or linked the investigation information to the assessee’s facts. It further observed that the investigation report by itself was not tangible material without further enquiry by the AO, and that the AO had not adequately examined the return or even remained certain about the nature and amount of income allegedly escaping assessment.
The Tribunal held the proceedings under section 147 to be invalid and bad in law and quashed the reassessment. Since the legal issue was decided in favour of the assessee, consideration of the merits of the addition was treated as academic and left open. The appeal in ITA No.96/PAN/2024 was allowed. The Tribunal then applied the same decision mutatis mutandis to ITA No.222/PAN/2025, noting that its facts and circumstances were identical except for variance in figures, and allowed that appeal also. Both appeals were accordingly allowed. The order was pronounced in the open Court on 04.08.2026.
Cases Discussed
- Anil chothmal Patodia HUF, Vs NFAC Delhi, [In ITA No. 4060/MUM/2023 for the A.Y. 2015-16] dated 30.04.2024
- Smt. Tanu G. Agrawal Vs Dy.CIT-Mumbai, [In ITA No. 2325/MUM/2018 for the A.Y. 2013-14] dated 20.04.2020
- Hindustan Lever Ltd Vs R.B.Wadkar Assisstant Commissioner of Income Tax And Others, (268 ITR 332)(Bombay)
- P R C I T -5 Vs Shodiman Investments (P) Ltd., (422 ITR 337)(Bombay)
- C I T Vs Sfil stock Broking Ltd, (233 C T R 69)(Delhi)
- Hotel New Niyaz Vs ACIT Belgaum, ITA.18 to 22/PAN/2022.
