Reassessment on Incorrect Share Purchase Figures Invalid: ITAT Kolkata

Shoparna Brothers Private Limited Vs DCIT (ITAT Kolkata)

Reopening on Incorrect Share Transactions and Borrowed Satisfaction Quashed; Documented Purchases and Sales Cannot Be Treated as Unexplained Investments

Background of the Case

The assessee, an NBFC engaged in purchasing and selling shares, challenged reassessments and additions concerning transactions in shares of Himadri Speciality Chemical Limited, also referred to in the order by its earlier name.

The reopening followed information received from the Investigation Wing after search and survey proceedings in the Himadri Group on 24 August 2016.

The information referred to alleged accommodation-entry activities involving companies controlled by Sandip Sharma. Relying on that information and his statement, the Assessing Officer questioned the assessee’s share transactions.

The Tribunal examined both the validity of reopening under Sections 147/148 and the substantive additions.

AY 2012-13: Recorded Purchase Figures Were Incorrect

For AY 2012-13, the assessee had originally declared a loss of approximately ₹5.94 crore, which was accepted in scrutiny assessment completed on 19 December 2014.

The assessment was reopened through a notice dated 31 March 2017, alleging escaped income of ₹27,99,46,366 representing unexplained share purchases.

However, the Tribunal found that the actual purchases during the year comprised 49,49,168 shares for ₹24,64,22,658.

The assessee had also sold shares during the year and disclosed the resulting profit in its profit and loss account.

The transactions were conducted through BSE and NSE through registered broker Microsec Capital Limited, and were supported by contract notes, broker ledgers, bank statements and details explaining the source of funds.

Transactions Had Already Been Examined in Scrutiny

The Tribunal found that the original Assessing Officer had specifically called for share-transaction details during scrutiny proceedings.

The assessee had furnished the relevant purchase and sale particulars, contract notes, broker accounts, bank records and source details. After examining these documents, the officer completed the assessment without making an addition.

The later allegation that the transactions and their source had not been examined was therefore inconsistent with the assessment record.

The Tribunal held that reopening on the same material amounted to review of an earlier assessment through a change of opinion.

Mechanical Reliance on Investigation Information Rejected

The Tribunal also found that the Assessing Officer had acted mechanically on the Investigation Wing’s report without independently verifying the information.

The incorrect purchase figures demonstrated the absence of proper application of mind. Further, the statement relied upon had been retracted by Sandip Sharma.

The Tribunal characterised the reopening as based on borrowed satisfaction and incorrect facts, without supporting tangible material.

It relied on CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC), concerning the distinction between reassessment and review, and Tata Sons Ltd. v. DCIT, (2022) 137 taxmann.com 414 (Bom.), concerning reopening founded on incorrect facts or conclusions.

The reassessment for AY 2012-13 was accordingly quashed.

Addition Also Deleted on Merits

The Tribunal separately examined the addition concerning the purchases.

It noted that the assessee’s documentary evidence had not been properly verified or disproved. The purchases were recorded in the books, routed through recognised exchanges and supported by evidence explaining their funding.

The assessee had also sought the statement relied upon against it, but neither a copy nor an opportunity for cross-examination was provided.

The Tribunal considered reliance on the retracted statement, without corroborating material and without allowing the assessee to confront it, contrary to natural justice. It referred to Andaman Timber Industries.

The addition of ₹27,99,46,366 was therefore directed to be deleted on merits as well.

AY 2014-15: Share Sales Mistaken for Investments

For AY 2014-15, the Assessing Officer proceeded on the allegation that the assessee had made unexplained share investments of approximately ₹7.03 crore.

The Tribunal found that the relevant transactions were actually sales of shares, rather than the alleged purchases.

The sales had been conducted through recognised stock exchanges and the registered broker. Contract notes, bank statements, broker ledgers and transaction details were available before the authorities.

Applying its reasoning on incorrect facts and borrowed satisfaction, the Tribunal allowed the challenge to reopening.

It also held on merits that the authorities had wrongly treated documented sale proceeds as unexplained investments.

Recorded Sales Could Not Be Added Again

The Tribunal noted that the assessee had already accounted for the sales in its books and offered the resulting income to tax.

Adding the same recorded transactions again, while ignoring their actual character, resulted in duplication of taxation, which the Tribunal rejected.

The corresponding addition for AY 2014-15 was directed to be deleted. Both appeals were allowed.

Author’s Comments

The decision rests on several connected deficiencies: incorrect transaction figures, failure to distinguish purchases from sales, prior scrutiny of the same material, unexamined documentary evidence and reliance on a retracted statement without cross-examination.

The order refers inconsistently to Sections 69 and 69A and uses investment-related language while discussing Section 69A. Its substantive findings should therefore be reported precisely: the transactions were recorded, their supporting evidence was furnished, and the alleged unexplained investments were not established.

The ruling does not make exchange routing alone conclusive. It rejects additions and reopening founded on factual errors and unsupported allegations despite the available transaction records.

List of Cases Discussed

• CIT v. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC) — The Supreme Court distinguished the power to reassess from the power to review and held that a mere change of opinion cannot justify reopening.
• Tata Sons Ltd. v. DCIT, (2022) 137 taxmann.com 414 (Bom.) — The Bombay High Court held that reassessment founded on incorrect factual premises or conclusions cannot be sustained.
• Kedia Carbon Private Limited v. DCIT, ITA No. 861/KOL/2026 (ITAT Kolkata), 25/06/2026 — The coordinate Bench rejected reassessment founded on incorrect share-capital figures and borrowed satisfaction.
• ITO v. Arti Khatter, (2014) 41 CCH 0025 (ITAT Delhi) — The decision concerned reopening based on factually incorrect information not independently examined by the Assessing Officer.
• CIT v. Smt. Paramjit Kaur, (2009) 311 ITR 38 (P&H) — Cited concerning invalid reassessment based on unverified or incorrect investigation information.
• Chandrika Dhansukhlal Gandhi v. ACIT, (2024) 167 taxmann.com 638 (Guj.) — Cited in support of quashing reassessment founded on incorrect facts.
• Andaman Timber Industries v. CIT, (2015) 10 TMI 442 (SC) — Relied upon for the principle that denial of cross-examination of a person whose statement is used adversely violates natural justice.
• Jainam Investments v. ACIT, (2021) 131 taxmann.com 327 (Bom.) — Discussed in the extracted Tata Sons judgment regarding tangible material and the change-of-opinion restriction.
• CIT v. K.S. Venkatasubbiah Reddiar, (1996) 221 ITR 18 — Mentioned in the extracted Tata Sons judgment regarding the characteristics of business activity.
• Bharat Development Pvt. Ltd. v. CIT, (1982) 133 ITR 470 (Delhi) — Mentioned in the extracted Tata Sons judgment concerning continuity and profit motive in business activity.

FULL TEXT OF THE ORIGINAL ORDER OF ITAT KOLKATA

These are appeals preferred by the assessee against the orders of the Commissioner of Income-tax (Appeals), Kolkata-27 (hereinafter referred to as the “Ld. CIT(A)”] dated 21.01.2026 & 18.02.2026 for the AY 2012-13 & 2014-15 respectively.

A.Y. 2012-13

ITA No. 879/KOL/2026

2. The issue raised in ground no.1 is against the order of ld. CIT(A) confirming the initiation of reassessment proceedings u/s 147/148 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) as made by the ld. AO on the incorrect facts without application of mind and accordingly, the reopening of assessment as well as the assessment framed u/s 147/143(3) of the Act dated 08.11.2017, are bad in law and may be quashed.

3. The issue raised in ground no.2 is against the order of ld. CIT(A) confirming the initiation of re-assessment proceedings u/s 147 of the Act and framing the assessment u/s 147 of the Act which is based upon the change of opinion as there was no material before the ld. AO at the time of reopening of assessment and therefore, the same may kindly be quashed.

4. The facts in brief are that the assessee filed the original return of income on 30.09.2012, declaring total loss of ₹5,93,76,352/-. A survey u/s 133A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was conducted on the assessee’s premises on 09.06.2011. Accordingly, the case of the assessee was selected for scrutiny and assessment u/s 143(3) of the Act dated 19.12.2014, was framed accepting the returned loss. Thereafter, the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2017, after recording the reasons to believe u/s 148(2) of the Act mentioning therein that the income of the assessee to the tune of ₹27,99,46,366/- has escaped assessment within the meaning of Section 147 of the Act. The assessee filed the return of income in compliance on 05.08.2017, declaring the same loss as declared in the original return of income. Thereafter, the notices u/s 143(2) and 142(1) along with questionnaire were issued and duly served upon the assessee. The ld. AO observed on the basis of return of income filed for the impugned assessment year that assessee has incurred huge losses. The ld. AO noted that the assessee is NBFC company and is engaged in the business of purchase and sale of shares. The ld. AO noted that assessee has the resources by way of share capital of ₹3,85,60,550/- and huge reserves and surplus to the tune of ₹46,47,30,250/- and despite that there was no surplus return during the year. The ld. AO noted that the assessee earned income by way of interest on loans and advances. The ld. AO on the basis of low profit/income low equity base, low turnover and high reserves & surplus came to the conclusion that the assessee has invested in unlisted companies and has not earned any dividend. The ld. AO noted that during the year the assessee has held/purchased shares of M/s Himadri Speciality Chemical Limited on the basis of intimation from DDIT (Investigation) (1)(2), Kolkata to the effect that during the course of search u/s 132 of the Act and also survey u/s 133A of the Act on 24.08.2016 on Himadri Group of cases, it was found that the shares of M/s Himadri Speciality Chemical Limited were purchased through primary and secondary market from various shell companies which were controlled and managed by Sandip Sharma. Thereafter, the ld. AO extracted the details of transactions pertaining to purchase of shares (quantity as well as cost), sale of shares (quantity as well as value) & surplus/loss incurred by the assessee. The ld. AO noted that the assessee has invested ₹27,99,46,366/- for the purchase of 56,80,907 no of equity shares in the impugned assessment year. The assessee total investments were of ₹37,78,90,046/- during the various assessment years commencing from F.Y. 2010-11 to 2015-16. The ld. AO noted that the companies involved are shell companies managed and controlled by Sandip Sharma, which made bulk dealings in shares of M/s Himadri Speciality Chemical Limited. Thereafter, the ld. AO referred to the statement of Shri Sandip Sharma, wherein he admitted that he operated the shell companies which dealt in the shares of M/s Himadri Speciality Chemical Limited in the primary market through Bombay Stock Exchange and NSE as well. However, he expressed his inability to disclose the names of the beneficiaries. But the ld. AO observed that on the basis of statement of Shri Sandip Sharma that shares of M/s Himadri Speciality Chemical Limited were allotted to the assessee at a premium of ₹90 to ₹790/- and the reassessment proceedings were initiated against the assessee. Thereafter, the ld. AO noted that the issue arising out of the search and seizure at the business places of M/s Himadri Speciality Chemical Limited required examination of source of investment of ₹27,99,46,366/- and, in absence of any explanation from the assessee regarding such investment in shares amounting to ₹27,99,46,366/- has remained unexplained. Accordingly, the ld. AO treated the same as unexplained investment u/s 69 of the Act and added to the income of the assessee in the assessment framed u/s 143(3)/147 of the Act dated 08.11.2017.

5. In the appellate proceedings, the ld. CIT(A) simply affirmed the order of the ld. AO by dismissing the appeal of the assessee on legal issue. The ld. CIT(A) noted that the ld. AO made the reopening on the basis of information disseminated by the investigation wing based on the statement of entry operator u/s 132(4) of the Act, which was apparently new information due to twisting the fact/truth by the appellant. The AO, thus, held that the reassessment proceedings are rightly initiated by the ld. Assessing Officer. The ld. CIT(A) referred to decision as noted in Para no.23 to 27 and concluded that the reopening could be made on the basis of statement recorded u/s 132(4) of the Act.

6. After hearing the rival contentions and perusing the materials available on record, we note that the case of the assessee has been reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2017, by recording the reasons to believe u/s 148(2) of the Act that income to the tune of ₹27,99,46,366/- has escaped assessment. For the sake of ready reference the reasons recorded by the ld. AO are extracted below:-

“NAME: M/S SHOPARNA BROTHERS PVT LTD

PAN: AADCS71461

A.Y. 2012-13

29.03.2017:

The return of income for the AY 2012-13 was filed by the assessee on 30.09.2012 declaring the total income of loss ₹ 5,43,76,152/-.

Accordingly order u/s 143(3) of the I.T. Act was made on 19.12.2014 at a total income of ₹ NIL. Based on information received from DDIT (Inv) Unit-1(2), Kolkata, it is seen that a search and seizure operation u/s 112 and also survey operation u/s 133A of the I.T. Act 1961 at the various places of Himadri Group were conducted on 24.08.2016. During the course of enquiry. it has been observed that the shares of M/s Himadri Chemical & industries Ltd has been purchased by Bain Capital through primary as well as secondary markets from various companies including some papers/shell companies which is/were controlled and managed by known entry operator Mr. Sandeep Sharma. The statement on oath of the said entry operator was recorded & he admitted that he is engaged in the business of providing accommodation entry.

My assessee, M/s Shoparna Brothers Pvt Ltd during the FY 2011-12 has shown purchase of shares of M/s Himadri Chemical & Industries Ltd with BSE & NSE amounting to ₹ 27,99,46,366/ and this company is managed and controlled by the said entry operator Shri Sandeep Sharma for the purpose of providing accommodation entry as deposed in his statement. Thus, the source of the money utilized for purchase of shares of M/s Himadri Chemical & Industries Ltd stands unexplained in the ITR filed on 30.09.2012. and further assessee failed to disclose the primary facts truly, correctly and completely relating thereto, during the course of proceedings u/s 143(3) The issue was not examined and no opinion was formed in the assessment u/s 143(3) dated 19.12.2014.

In view of the above, I have reason to believe that the income chargeable to tax to the tune of ₹ 27,99,46,366/-has escaped assessment within the scope of section 147 of the IT Act, 1961 and such escapement occurred due to assessee’s failure to disclose true and complete facts in the ITR In order to assess/re-assess such escaped income chargeable to tax and any other income which may come to my notice during this proceeding which has escaped assessment, a notice u/s. 148 is required to be issued.

Put up for kind perusal and approval of the Pr. CIT, Central, Kolkata 2 Kolkata.”

7. A perusal of the above reasons reveals that the ld. AO referred to the information received from DDIT, Investigation Unit-1(2), Kolkata, to the effect that during the course of search and seizure action u/s 132 of the Act and a survey action u/s 133A of the Act on M/s Himadri Group on 24.08.2016, it was observed that the shares of M/s Himadri Speciality Chemical Limited were purchased by Bain Capital Ltd through primary and secondary market from various companies including some shell/paper companies operated by Shri Sandip Sharma. The ld. AO therefore referred to the statement on oath recorded of Shri Sandip Sharma in which he was admitted that he was engaged in the business of providing accommodation entries. Thereafter, in second Para of the reasons, the ld. AO noted that the assessee has purchased equity shares of M/s Himadri Speciality Chemical Limited on the platform of Bombay Stock Exchange and National Stock Exchange amounting to ₹27,99,46,36/-. The ld. AO noted in the second para that the source of money utilized for the purchase of shares of M/s Himadri Speciality Chemical Limited remained unexplained in the ITR filed by the assessee on 30.09.2012 and assessee has failed to disclose primary facts truly and correctly and the issue was not examined and no opinion was formed in the assessment framed u/s 143(3) of the Act dated 19.12.2014. The ld. AO in para no.3 concluded that the income has escaped assessment to the tune of ₹27,99,46,366/- within the meaning of Section 147 of the Act.

8. We note from the facts available before us that the assessee is a NBFC company engaged in the business of purchase of listed and unlisted equity shares. During the financial year the shares of M/s Himadri Speciality Chemical Limited were purchased by the assessee. We note that as on 01.04.2011, the assessee has opening inventory of 5,87,042 equity shares of M/s Himadri Speciality Chemical Limited (in short ‘HCIL’) costing ₹2,35,35,077/-. We note that during the year the assessee purchased 49,49,168 equity shares of HCIL for consideration of ₹24,64,22,658/- and sold 11,54,660/- equity shares for a consideration of ₹4,90,86,480/-. We note that the closing inventory left in the hands of the assessee at the year-end was 43,81,550 number of equity shares valuing at ₹22,39,00,803/-. The statement of sale of preference shares is available at page no.82 to 86. We note that all the purchases and sales were made through the National Stock Exchange and Bombay Stock Exchange through registered broker M/s Microsec Capital Limited (in short ‘MCL’), a registered broker on stock exchange [SEBI registration No. INB231115933]. We note that during the year the assessee has earned a profit of ₹30,29,551 on sale of 11,54,660/- equity shares of which were duly shown in the profit and loss account. The assessee has filed all the evidences comprising contract notes with respect to sale and purchase of shares, copy of bank account which is available at page no. 88 to 267 and also the copy of ledger account of the registered broker MCL which is available at page no. 268 to 293 of the Paper Book. The assessee has also filed the copy of bank statement showing the receipt and payment from MCL, which is available at page no. 294 to 347. We note that the assessee has furnished source of funds for purchase of equity shares of M/s Himadri Speciality Chemical Limited, which is available at page no. 348 to 367. Besides, the assessee has also traded in the shares of Emami Infra, Emami Limited, Emami Paper Mills Limited and Emrald Commercial Limited etc. during the impugned financial year. We also note that during the year a survey u/s 133A of the Act was conducted on the business premises of the assessee on 09,06.2011. During the course of assessment proceedings, the assessee was specifically asked to furnish the details during the scrutiny proceedings vide notice issued u/s 142(1) of the Act on 10.01.2014, in which the query was raised. The copies of the notices were available at page no.29 to 31 of the Paper Book. We note that the assessee has replied the same by filing the details of the purchases/sales of shares including HCIL along with relevant document comprising contract notes, ledger of registered broker, bank statement and source of purchase etc. The ld. AO after verifying the details and documents as filed by the assessee did not make any addition and completed the assessment u/s 143(3) of the Act vide order dated 19.12.2014. A copy of the assessment order is available at page no. 27 to 28 of the paper book.

9. We note that the ld. AO alleged in the reasons recorded that the assessee has purchased shares amounting to ₹27,99,46,336/- of HCIL and the trading was done by the companies which were managed and controlled by the entry operator Shri Sandip Sharma providing accommodation entries and the source of purchases were not examined by the ld. AO during the original assessment proceedings and therefore, income to the tune of ₹27,99,46,366/- has escaped assessment. We note that the reopening of assessment has been made on the basis of wrong facts as the reasons stated the purchase of shares of HCIL to the tune of ₹27,99,46,366/-, whereas as a matter of fact, the assessee had purchased 49,49,168 equity shares of HCIL for a consideration of ₹24,64,22,658/-. We note that the transactions of purchase and sale of shares of HCIL were examined in detail in original scrutiny assessment proceedings and were accepted by the ld. Assessing Officer. We even note that the statement has been retracted by Shri Sandip Sharma. Thus, we note that the reopening made on the basis of wrong facts and on the basis of retracted statement without any tangible material cannot be sustained for two reasons i) the ld. AO acted on the information received in a mechanical manner without any independent application of mind and ii) reopening of case of the assessee on wrong facts. Therefore, the reopening is bad in law on this very point. Thus the reopening of assessment on the basis of report of DDIT (Investigation) (1)(2), Kolkata and not applying his own independent mind and thus re-opened the assessment on wrong facts which is nothing but borrowed satisfaction of the Assessing Officer. We also note that the AO relied on same materials to re-open the assessment which were examined by the ld. AO in the original assessment proceedings. In our opinion this is nothing but a review of the order passed in the original assessment proceedings which amounted to review the order passed earlier, which is not permissible under the Act as has been held by the Hon’ble Apex Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). Therefore, the reopening of assessment as well as the assessment framed is bad in law and cannot be sustained.

10. The case of the assessee is squarely covered by the decision of Hon’ble Bombay High Court in case of Tata Sons Ltd. vs. Deputy Commissioner of Income-tax [2022] 137 taxmann.com 414 (Bombay)/[2022] 286 Taxman 587 (Bombay)[03-02-2022], wherein the Hon’ble High Court has held as under:-

“4. We have heard Mr. Pardiwalla, for Petitioner and Mr. Arvind Pinto, for Respondents and having considered the reasons for re-opening with their assistance, we are inclined to hold in favour of Petitioner and set aside the notice dated 31st March, 2010 under sec.148 of the Act impugned in this Petition. Consequently, the order rejecting the objections of the Petitioner dated 29th October, 2010 which is also impugned in the Petition also will have to be set aside.

5. The entire basis of forming an opinion that there has been an escapement of assessment is that, the sale of shares of TCS Division by Petitioner was nothing but ‘business income’ and therefore the profits arising out of the sale of shares held by Petitioner in the group companies would be treated as Petitioner’s income from business, and not profits arising out of sale of investment. Therefore, according to Respdt. No. 1 he had reason to believe that a sum of Rs. 22,71,25,79,374/- has escaped assessment. Break up for this figure of Rs. 22,71,25,79,374/- can be found in reasons itself and it is necessary for us to re-produce the same. The same is as under:

6. If we consider the table reproduced above, the sale of shares of TCS Ltd. which according to Respondent No. 1 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) i.e. “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. 1 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. We would also go a step ahead and observe that if only the approving authority under section 151 of the Act had considered the reasons properly, either he would have directed Respondent No. 1 to re-work on the reasons or would not have granted the approval. Moreover, we may keep in mind this is a case where the scrutiny assessment was completed and order under section 143(3) of the Act has been passed followed by a rectification order under section 154 of the Act. ThereforePetitioner’s case has been considered at two stages, (i) When the assessment order was passed after scrutiny under section 143(3) of the Act and (ii) When an order under section 154 of the Act was passed.

8. The reasons for proposed re-opening clearly indicates that Respondent No. 1 wants to re-open only on the basis of change of opinion which, as held time and again by various Courts, cannot be a ground for reopening. This is because in the assessment order dated 31st December, 2007 passed under section 143(3), the same point raised in the reasons for re-opening has been discussed and considered. The relevant portion reads as under :

“As per the submissions, the activity of the assessee company for making investment in shares group company was to acquire and retain control of the companies promoted by it. The question that requires to be considered is whether this activity itself constitute a business when the real intention of the company is not to earn profit but to acquire and exercise control of the group companies. In order to constitute activity of the assessee for carrying on the business, it is essential that such activity for carrying on the business, it is essential that such activity must be with a motive of earning profit. Such earning of profit should be by the company itself and not by the other group company. This issue came to be considered by the Hon’ble Madras High Court in the case CIT v. K.S. Venkatasubbiah Reddiar [1996] 221 ITR 18 where it was held that the income tax Act defines the term “business” only inclusively. The two essential requirements for an activity to be considered as “business” are (i) it must be continuous course of activity and (ii) it must be carried on with a profit motive. The issue also came to be considered by the Delhi High Court in the case in Bharat Development Pvt. Ltd. v. CIT [1982] 133 ITR 470 where it was observed that the expression “business” is a word of a occupation. In taxing statute, it is used in the sense of a occupation or profession which occupies the time, of making profit. To regard an activity as business there must be a course dealings either actually continued or contemplating to be continued with the profit motive, and not for support or pleasure. Whether a person carried on business in a particular commodity must depend upon the volume, frequency, continuity and transaction of purchase and sale in class of goods and the transaction must ordinarily be entered into with a profit motive. Now when the ratio of the aforesaid decisions is to be applied to the facts of the present case, the actions of the assessee are not actuated by the profit motive. Transactions of purchasing shares to garner controlling interest could not be regarded as carrying on business for the purpose of section 28 of the Income-tax Act.”

9. It is settled law that review in the garb of reassessment is absolutely prohibited and the Courts have consistently held that reassessment cannot be allowed in such situation of change of opinion and presence of fresh tangible material is a sine qua non for a valid re-assessment. Where the assessment is sought to be reopened within a period of 4 years, of end of relevant assessment year, this Court in Jainam Investments v. Asstt. CIT [2021] 131 taxmann.com 327/283 Taxman 439/439 ITR 154 has laid down the settled principles which read as under:

12. ……..…..Where the assessment is sought to be reopened within a period of four years of the end of the relevant assessment year, the Apex Court in CIT v. Kelvinator of India Ltd . [2010] 320 ITR 561 has laid down the test of the principle which reads as under :

‘Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” falling which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of “change of opinion” as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in s.147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the AO’.

10. In the circumstances, we allow the Petition in terms of prayer clause (a), which reads as under:

(a) For a writ of certiorari or a writ, direction or order in the nature of certiorari or any other appropriate writ, direction or order under article 226 of the Constitution of India calling for the records of the case pertaining to the impugned notice dated 31-3-2010 issued by the Respondent No. 1 under section 148 of the Act to reopen the assessment for the assessment year 2005-06 and the order dated 29-10-2010 rejecting the objections of the Petitioner to the issuance of the notice under section 148 of the Act and after considering the legality thereof quashing and setting aside the same.

11. Similarly, the co-ordinate Bench in case of Kedia Carbon private Limited Vs. DCIT in ITA No. 861/KOL/2026 vide order dated 25.06.2026, has held as under:-

“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 ₹10 each at a premium of ₹90, 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 ₹ 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 ₹10 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 ₹2,45,00,000/- and ₹ 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 re-opening 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.

Similarly in case of Chandrika Dhansukhlal Gandhi vs. Assistant Commissioner of Income-tax [2024] 167 taxmann.com 638 (Gujarat)[23-09-2024], wherein the same ratio has been laid down. Considering the fact of the case in the light of decisions as discussed above, we are inclined to quash the re-opening as well as the assessment framed by the Assessing Officer. The ground nos. 1 and 2 are allowed.

12. The issue raised in ground no.3 by the assessee is against the order of ld. CIT(A) confirming the addition of ₹27,99,46,366/- u/s 69 of the Act as made by the ld. AO in respect of investment in equity shares of 56,80,907/- of HCIL of ₹27,99,46,366/- at a premium of ₹90 to 790/- whereas as a matter of fact the assessee purchased shares at an average price of 49.79 per share purchasing 44,49,168 equity shares for a consideration of ₹24,64,22,658/- from the recognized stock exchange through the registered broker. The assessee has also challenged the confirmation of assessment order by the ld. CIT(A) where the addition was made by the ld. AO u/s 69A of the Act which is not applicable to facts of the instant case and on the basis of retracted statement of Shri Sandip Sharma, where no cross-examination was ever granted to the assessee. The assessee has also challenged the order of ld. CIT(A) by relying on a series of decisions which are not applicable and are in fact applicable to the unexplained cash credit u/s 68 of the Act.

13. The facts qua the case have been discussed while deciding the legal issue (supra). We note that during the year the assessee has purchased 49,49,168 equity shares in M/s Himadri Speciality Chemical Limited for a consideration of ₹24,64,22,658/-, whereas the ld. AO noted that the assessee has purchased 56,80,907 equity shares at a premium of ₹92,790/- for a consideration of ₹27,99,46,366/-. Therefore, the facts noted by the ld. AO were fundamentally incorrect. Despite the assessee placing all the records and documents as has been noted above before the ld. AO as well before the ld. Commissioner of Income-tax (Appeals). We note that the ld. AO has simply made addition on the basis of information received from DDIT, Investigation Unit 1(2), Kolkata, without having the verification of evidences filed by the assessee. We note that the assessee has furnished before the ld. AO as well as before the ld. CIT(A), the details/evidences qua the purchase and sale of shares made during the year including the shares of HCIL. The ld. AO rather doing any verification/enquiry into the evidences filed by the assessee mainly harped on the records received from the investigation wing. We also note that the shares were purchased on Bombay Stock Exchange and National Stock Exchange platform through the registered broker M/s Microsec Capital Limited. The assessee has paid STT, brokerage and service tax thereon. We note that the issue was also examined by the ld. AO in the original assessment proceedings and based on the same facts and evidences. The ld. AO accepted the transactions entered into by the assessee during the year.

14. Besides, we note that the assessee has also traded in the shares of Emami Infra, Emami Limited, Emami Paper Mills Limited, Emrald Commercial Limited etc. during the year. We further note that the impugned company M/s Himadri Speciality Chemical Limited is regularly assessed to tax and even the issues were decided by the co-ordinate Bench in different assessment years in ITA No. 813/KOL/2018 vide order dated 05.09.2018, for A.Y. 2012-13, ITA No. 2223/KOL/2025 vide order dated 17.02.2026 for A.Y. 2012-13, ITA No. 819/KOL/2017 vide order dated 05.04.2019 (A.Y. 2011-12), ITA No. 1351/KOL/2019 vide order dated 03.01.2020 (A.Y. 2012-13), which proved that the said company is genuine company and the allegation that the share were used for accommodation entries is also not correct.

15. We also note that the assessee requested the AO to provide the copy of statement of Shri Sandip Sharma which was never provided. We even note that the said statement was retracted by Shri Sandip Sharma on 26.08.2016, therefore, to make the addition on the basis of retracted statement without there being any corroborating material is also bad in law and is against the principle of natural justice.

16. We further note that the assessee was not provided any cross-examination of the person whose statement was relied upon though the same was retracted as noted hereinabove. We note that the assessee has to be provided the material gathered by the AO so that the assessee could be confronted and the reply of the assessee could be elicited and considered while framing the assessment but this was not done. Therefore, this is the in violation of ratio laid in the decision of Hon’ble Apex Court in the case of Andaman Timber Industries Vs. CIT (2015) 10 TMI 442 (SC). Considering these facts, we are in view that the addition confirmed by the ld. CIT(A) is wrong and not sustainable under the Act.

17. So far as the application of section 69A of the Act by the ld. AO and its confirmation by the ld. CIT(A) are concerned, the same is also legally incorrect, as the provisions of Section 69A are applicable in respect of unexplained investments which are not recorded in the books of account, if any maintained, by the assessee for any source of income and assessee offers no explanation about the nature and source of investments or the explanation offered by him is not in the opinion of the ld. AO satisfactory, then the value of investments may be deemed to be income of the assessee of such financial year. However, in the present case the assessee has duly recorded the investments in the books of accounts and offered all the explanation qua the source of investments, therefore, the order of ld. CIT(A) confirming the addition u/s 69A of the Act is also wrong and cannot be sustained. Considering the facts and circumstances of the case, in the light of the aforesaid decisions, we are inclined to set aside the order of ld. CIT(A) on this issue and direct the AO to delete the addition. Accordingly, ground no.3 of the assessee’s appeal is allowed.

A.Y. 2014-15

ITA No. 880/KOL/2026

18. The issue raised in ground no.1 is against the order of ld. CIT(A) confirming order of AO reopening of assessment u/s 147 of the Act by issuing notice u/s 148 of the Act on suspicion and vague allegation of investment of ₹7,03,02,050/- by the assessee in the share of HCIL, whereas as a matter of fact no such investment was made but actually the shares to the tune of ₹7,02,83,092/- was sold. Therefore, the reopening of assessment is just a borrowed satisfaction of the AO based on the investigation wing report containing wrong facts and not the satisfaction of the AO himself and may be quashed.

19. The facts in brief are that the assessment u/s 143(3) was framed vide order dated 19.12.2014. The assessment was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2017. The reassessment proceedings were initiated on the on basis of information received from DDIT(Inv), Unit-1(2) found in the course of search and survey operation on Himadri group wherein it was observed that M/s Bain Capital Limited has purchased shares of HCIL through primary as well as secondary market from various companies including some shell entities controlled and managed by alleged entry operator Mr. Sandip Sharma. It was thereafter alleged that assessee has purchased shares of HCIL to the tune of ₹7,03,02,050/- and the companies which traded in the equity shares of HCL are managed and controlled by alleged entry operator Mr. Sandeep Sharma for providing accommodation entries and the source of purchases has not been explained by assessee and as such the income of ₹7,03,02,050/- has escaped assessment. The ld. AO made the reassessment u/s 143(3)/147 of the Act, by passing order dated 17.11.2017 adding therein a sum of ₹7,03,02,050/- to the income of the assessee in respect of investments in shares of HCIL as alleged unexplained investment u/s 69A of the Act.

20. In the appellate proceedings, the ld. CIT(A) dismissed the appeal of the assessee.

21. The issue raised in this ground is similar to one as decided by us in ground no.1 in ITA No. 879/KOL/2026 for A.Y. 2012-13 and accordingly, our decision in ground no.1 would, mutatis mutandis, apply to ground no. 1 of this appeal as well. Consequently, ground no.1 of assessee’s appeal is allowed by setting aside the order of ld. CIT(A) and directing the AO to delete the addition.

22. So far as the 2nd ground is concerned, the same is against the order of ld. CIT(A) confirming the addition of ₹7,02,83,042/- on the ground that no satisfactory explanation offered by the assessee relating to the sale proceeds received by the assessee and the same remained unexplained cash credit whereas the ld. AO has made the addition u/s 69A of the Act.

23. We note that even the ld. CIT(A) dismissed the appeal of the assessee without appreciating the facts on record which are available in the assessment order as well as the evidences filed by the assessee. We note that the said amount repeated the sale of shares. We note that the assessee has made any investment in shares. The assessee has in fact sold the equity shares of HCIL on Bombay Stock Exchange as well as National Stock Exchange platform. The ld. AO has passed a very cryptic order and treated the sale of shares as unexplained investments u/s 69A of the Act and thus added the same to the income of the assessee. The ld. AO while doing so referred to the statement of Shri Sandip Sharma which has been retracted as discussed in the first appeal decided by us (supra). We note that the provisions of Section 69A are not applicable to the sale of investments as these are applicable where the assessee has made investments which are unrecorded in the books of accounts as maintained by the assessee for any source of income and the explanation offered by the assessee as to the source is not satisfactory or assessee has not offered any explanation. In that scenario the investment made by the assessee during the year can be treated as unexplained investment but in the present case the position is exactly reverse as this is a case of sale of investment(equity shares) done by the assessee in the Bombay Stock Exchange as well as National Stock Exchange platform through registered broker M/s Microsec Capital Limited and all the evidences comprising contract notes, bank statement, ledger copy of the broker and details of shares sold were placed before the authorities. However, both the authorities below have failed to appreciate the facts correctly.

24. In our opinion, the said addition has resulted into double taxation of the same income first by way of the assessee suo motto offering the sale of shares in the profit and loss account and paying the taxes on whatever was earned on the sale of shares/investment and secondly when these were added by the ld. AO to the income of the assessee in blatant ignorance of the facts on record which was also confirmed by the ld. CIT(A) wrongly. In our opinion, the income cannot be taxed to twice as the same is not permissible under the Act. Once the assessee has treated and accounted for the sale of investments in the book of account and offered income thereon to tax, the same cannot be added to the income of the assessee as the same amounts to double taxation. Therefore, we are inclined to set aide the order of ld. CIT(A) on merits by directing the ld. AO to delete the addition. The ground no.2 is allowed.

25. In the result, both the appeals of the assessee are allowed.

Order pronounced on 12.10.2026.