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Facts
The assessee filed a return declaring an income of ₹2,02,150/-, which was processed under Section 143(1). Subsequently, the assessment was reopened under Section 147/148 after DIT investigation indicated that the assessee was a beneficiary of accommodation entries for bogus long-term capital gain of ₹11,87,522/- from shares of BSR Finance & Construction Ltd. The Assessing Officer added ₹12,68,923/- along with commission, and the CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that the reopening of assessment was invalid because the reasons recorded by the Assessing Officer were vague, scanty, ambiguous, and constituted 'borrowed satisfaction' without independent application of mind. Furthermore, the approval granted by the PCIT under Section 151 was mechanical, merely stating 'yes, it is fit case' without recording proper satisfaction. Citing various High Court precedents, the Tribunal quashed the reopening of assessment and the subsequent assessment framed by the AO.
Key Issues
Whether the reopening of assessment under Section 147/148 was valid given the vague and scanty reasons recorded by the AO and the mechanical approval by the PCIT under Section 151 without recording due satisfaction.
Sections Cited
Section 147, Section 148, Section 143(1), Section 69A, Section 148(2), Section 149(b)(iii), Section 151, Section 151(1), Section 151(2)
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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 21.08.2025 for the AY 2013-14.
The first issue raised is against the reopening of assessment u/s 147 read with section 148 of the Act on the ground that notice issued u/s 148 of the Act is bad in law and therefore, all subsequent proceedings in terms of said notices are also invalid and bad in law.
The facts in brief are that the assessee filed the return of income declared ₹2,02,150/- as total income which was processed u/s 143(1) on 18.12.2013. Thereafter, the case of the assessee was reopened u/s
In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee though no legal issue was raised in the appellate proceedings.
The ld. AR vehemently submitted before us that the reopening of assessment has been made by the ld. AO u/s 147 read with section 148 of the Act after receiving an information from the DIT
The ld. DR has relied heavily on the orders of the authorities below and submitted that the reopening us/ 147 r.w.s 148 of the Act has been made by the AO after receiving information from DIT Investigation, Kolkata and after obtaining approval u/s 151 of the Act. The ld. DR submitted that it is sufficient if the PCIT has perused the documents placed before him and granted the approval on the basis of that by mentioning “yes it is a fit case” as he is not supposed to record a detailed satisfaction. The ld. DR submitted that there is a
In the rebuttal the ld. AR submitted that the decisions cited by the ld. DR in the case of Prem Chand Shaw (Jaiswal) vs. Assistant Commissioner, (supra), is not applicable to the facts of the case as in the said decision, the Hon'ble High Court has observed that sanction granted u/s 151(2) of the Act could not be treated as invalid on the ground that that the Addl. Commissioner mechanically granted the approval by affixing signature without recording satisfaction when the reasons on the basis of which sanctioned was sought for could not be assailed. The ld. AR referred to the decision of the co-ordinate Bench in the case of ITO Vs. Shri Anil Kumar Loharua, in vide order dated 28.08.2019, therein the decision of the Calcutta High Court has been distinguished by the Tribunal. The
We have heard the rival contentions and perused the materials available on record. The undisputed facts are that the case of the assessee was reopened u/s 147 read with section 148 of the Act after recording reason to believe u/s 148(2) of the Act by the AO. The above reopening was done after the ld. AO received information from the DIT (Investigation) Kolkata that assessee is beneficiary of accommodation entries in the form Long Term Capital Gain. The reasons recorded are available at page no. 42 of the paper book, which has been challenged by the assessee to be vague, scanty and ambiguous. For the sake of ready reference same is extracted below:-
“(i) The assessee has filed its return of income for the Assessment Year 2013- 14 disclosding total income of Rs.2.02,150/- on 23/07/2013. During the A.Y.2013-14 the assessee has disclosed income from business & profession amount to Rs.2,55,874/- and from other sources at Rs.58,578/-and deduction under Chapter VIA of Rs.1,12,305/-. The assessee has filed its return of Income for the assessment year 2014-15 and 2015-16 disclosing total income of Rs.2,17,940/- and Rs.4,86,060/- respectively. The return of income for the A.Y.2013-14 was duly processed on 18/12/2013 at total income of Rs.2,02,150/- resulting NIL Demand/Refund. (ii) Survey actions were conducted by the DIT (Investigation), Kolkata on various hsare brokers during which the share brokers have accepted their role in the entire scheme of providing accommodation entries of bogus LTCG/STCG in case of penny stock "BSR Finance & Construction Limited." (iii) From the in-depth analysis of the return filed by the assessee for the A.Y.2013-14, Investigation reports, statements of the share brokers involved, the exist providers, related shell companies, sham transactions along with statement of related persons in the scheme it emerges that the assessee has taken accommodation entry of pre-arranged bogus LTCG of around to Rs.11,87,522/- during the F.Y.2012-13 in the scrip of "BSR FINANCE & CONSTRUCTION LIMITED." (iv) Show cause notice for initiation of proceedings u/s 147 was issued on 15/10/2018 for necessary compliance on or before 15/11/2018, but the assessee has failed to comply with the show cause notice.
In our option, the above reasons are not complete as the details of transactions, such as date of transactions, the person from whom the money has been received and where the transactions have been transacted and how the assessee is beneficiary of bogus Long Term Capital Gain. We find merit in the contention of the assessee that the reopening has been made on the basis of vague reasons as it the reasons mentioned only that the assessee is beneficiary of Long Term Capital Gain of ₹11,87,522/- in the script of M/s BSR Finance & Construction Ltd. and no other details were mentioned and therefore, the reasons recorded were not sufficient as the AO has not recorded his satisfaction and it is,in fact, a case of borrowed satisfaction. The case of the assessee find support from the decision of CIT Vs.
“8. The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced: — "In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting
“Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his
”12. We take note that request for approval under Section 151 of the Act in a printed format (Annexure P-6) was placed before the ACIT, who after according his satisfaction, placed the same before the PCIT. PCIT granted the approval on the very same day. The approval accorded by the ACIT and PCIT in Column No. 11 & 12 are extracted below:- "11. Whether the Addl. CIT is satisfied on the reasons recorded by AO that it is a fit Case for the issue of notice u/s 148. I am satisfied Sd/- (G.G. Kamei) Addl. CIT, Range-5, New Delhi Dated 22.03.2017 12. Whether the Pr. Commissioner is satisfied: On the reasons recorded by the AO that it is a fit case for the issue of notice u/s 148.
“6. We have heard the arguments of both the sides and also perused the relevant material available on record. In support of the revenue’s case on the issue under consideration, the ld. D.R. has relied on the decision of the Hon’ble Calcutta High Court in the case of Prem Chand Shaw (Jaiswal) –vs.- ACIT [383 ITR 597]. He has contended that the said decision of the Hon’ble Jurisdictional High Court is squarely applicable in the present case as it was held by Their Lordships that the mere fact that the Additional Commissioner did not record his satisfaction in so many words should not render invalid the satisfaction granted under section 151(2) of the Act. However, as rightly contended by the ld. Counsel for the assessee, the said case cited by the ld. D.R. is distinguishable on facts, inasmuch as, the assessee in the said case had restricted his challenge to the validity of notice under section 148 only on the ground that sanction under section 151 was not valid and the basis for reasons furnished by the Assessing Officer in the notice under section 148 was never in dispute. Keeping in view this factual position prevalent in the said case, it was held by the Hon’ble Jurisdictional High Court that the mere fact that the Additional Commissioner did not record his satisfaction in so many words should not render invalid the satisfaction granted under section 151(2) of the Act when the reason on the basis of which sanction was sought for could not be assailed. In the present case, the facts involved, however, are materially different, inasmuch as, the validity of reopening of assessment was challenged by the assessee on various grounds by making a detailed submission and the relevant judicial pronouncements in support of the said submission were also cited before the ld. CIT(Appeals). As rightly contended by the ld. Counsel for the assessee, the decision of the Hon’bleCalcutta High Court in the case of the Prem Chand Shaw (Jaiswal) (supra) thus is not applicable in the present case being distinguishable
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 01.04.2025.