Facts of the Case

The assessee, S. K. Hisaria HUF, filed its original return of income for Assessment Year 2017-18 on 01.08.2017 declaring total income of ₹1,51,610, which was processed under Section 143(1). Subsequently, based on information received through the Insight Portal relating to a search under Section 132 in the Kushal Group, alleging provision of accommodation entries in the form of bogus long-term capital gains, the Assessing Officer reopened the assessment under Section 147 by issuing notice under Section 148 dated 31.01.2021.

The assessee filed return in response on 19.04.2021 declaring the same income. The Assessing Officer provided reasons for reopening and approval subsequently. The assessment was completed under Section 147 read with Section 144B on 29.03.2022, disallowing exempt long-term capital gain of ₹68,03,129 claimed under Section 10(38) on sale of shares of M/s Kushal Tradelink Limited and adding the same under Section 68. Similar addition of ₹9,06,381 was made for Assessment Year 2018-19. The CIT(A), NFAC dismissed the assessee’s appeals for both years.

Issues Involved

Whether reopening under Section 147 was valid when based solely on information from the Insight Portal without independent application of mind by the Assessing Officer, whether exemption under Section 10(38) could be denied and LTCG added under Section 68 without specific evidence of manipulation by the assessee, and whether the reassessment orders could survive in law.

Petitioner’s Arguments

The assessee contended that the reopening was invalid as the Assessing Officer merely acted on borrowed satisfaction based on Insight Portal information without examining tangible material having live nexus with escapement of income. It was argued that the reasons recorded did not specify how the assessee was involved in manipulation of Kushal Tradelink shares. On merits, it was submitted that the shares were purchased and sold through recognised stock exchange, held in demat account, STT was paid, and all documentary evidences were furnished, proving the genuineness of transactions.

Respondent’s Arguments

The Revenue relied upon the assessment order and placed reliance on a coordinate bench decision in the case of Gitaben Dineshbhai Patel vs ITO involving the same scrip, contending that the Assessing Officer had rightly invoked Section 68 in similar circumstances.

Court Order / Findings

The ITAT Ahmedabad observed that the reasons recorded for reopening merely referred to accommodation entries based on Insight Portal information and failed to bring on record any specific material demonstrating how the assessee had manipulated the scrip of Kushal Tradelink Limited. The Tribunal held that reopening based solely on borrowed satisfaction without independent application of mind is not permissible in law.

The Tribunal further noted that the decision relied upon by the Revenue was distinguishable as the reasons recorded in that case were not examined. In the present case, the absence of specific allegations regarding purchase, sale or price manipulation rendered the reopening invalid. Since the reassessment itself was held to be bad in law, the additions made on merits could not survive.

Important Clarification

The Tribunal clarified that reassessment proceedings cannot be initiated merely on the basis of general information available on the Insight Portal. The Assessing Officer must independently apply his mind and record reasons demonstrating a live nexus between material and alleged escapement of income. Borrowed satisfaction vitiates reopening proceedings.

Final Outcome

Both appeals filed by the assessee for Assessment Years 2017-18 and 2018-19 were allowed. The reopening under Section 147 was quashed and the reassessment orders denying exemption under Section 10(38) and making additions under Section 68 were set aside in full.

 Link to Download Order
 https://www.mytaxexpert.co.in/uploads/1769062918_SKHISARIAHUFAHMEDABADVS.THEITOWARD532AHMEDABAD.pdf

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