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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by Revenue against the order dated 26.03.2025 of Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2012-13/10108767 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 24.03.2022 passed u/s 147 r.w.s. 144B of the Act for Assessment Year 2013-14.
The assessee is an individual and filed her return of income on 08.07.2013, declaring total income of INR 17,06,660/-. The case of the asseessee was re-opened in terms of notice issued u/s 148 dated 31.03.2021. As per the reasons recorded, the AO on the basis of information pushed on the Insight Portal, recorded his satisfaction that the assessee has declared bogus Long Term Capital Gain (“LTCG”) of INR 2,28,22,400/-. In response to notice u/s 148 of the Act, assessee filed return of income on 29.04.2021, declaring same income as was declared in the return of income filed u/s 139(1) of the Act. Thereafter, assessee filed the objections to the reopening of assessment based on incorrect and reasons recorded and further filed various submissions. After considering the same, AO passed the reassessment order wherein it is alleged that the assessee has obtained bogus LTCG of INR 3,55,88,404/- and by holding the same as unexplained cash credit, addition was made u/s 68 of the Act. The AO further made the addition 2% of the said amount as commission for obtaining accommodation entry of bogus LTCG.
Against the said order, the assessee has filed an appeal before Ld.CIT(A) who after considering the submissions of the assessee, has allowed the legal grounds of the assessee by observing that reasons recorded were on borrowed satisfaction without appreciating the facts and without spelling out the basic details of the transaction as to how the assessee has claimed LTCG of INR 2,28,22,400/- as fictious.
Aggrieved by the said order, the Revenue is in appeal before Co- ordinate Bench following grounds of appeal: 1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in quashing the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961, by holding the reasons recorded by the Assessing Officer as invalid, without appreciating that the reopening was based on credible, specific, and tangible information flagged by the Investigation Wing and routed through the Insight Portal.
2. On the facts and in the circumstances of the case and in law, the li. CIT(A) has erred in not adjudicating on the merits of the additions made by the Assessing Officer under Section 68 of the Act, amounting to ₹3,55,88,404/-, despite detailed findings by the AO establishing the bogus nature of the Long-Term Capital Gain (LTCG) claimed through forged contract notes and transactions with entry operators.
3. On the facts and in the circumstances of the case and in law, the 1d. CIT(A) has erred in quashing the reassessment proceedings without appreciating the fact that the assessee failed to discharge the onus of proving the genuineness of the share purchase transactions, creditworthiness of the alleged counter-parties, and the identity of persons involved, as mandated under Section 68 of the Act.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of 27,11,768/- made under Section 690 of the Act on account of unexplained expenditure, without considering the AO's finding that such expenditure was necessarily incurred to obtain fabricated contract notes and accommodation entries.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has not appreciated the findings of Investigation Wing that clearly established, the assessee has generated bogus LTCG through entry operators.
6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee by quoting various facts and case law and stating the "Accordingly, the reasons recorded by the AO are declared as invalid and accordingly the subsequent reassessment proceedings are liable to be set aside and quashed".
The appellant craves to add, alter and amend the grounds of appeal raised.”
Before us, Ld. Sr.DR has vehemently submitted that Ld.CIT(A) vide para 6.4.3 of the order has allowed the legal grounds of appeal of the assessee and has not decided the issue on merits therefore, the order of ld. CIT(A) deserves to be set aside to his file with the directions to decide the issue relating to the merits of the additions.
6. Ld. Sr. DR for the Revenue further submits that AO has passed the assessment order after making necessary verification of the facts and after following the due procedure as provided under the statute where the AO has disposed-off the objections raised against the re-opening of the assessment and therefore, the reassessment proceedings concluded were the valid proceedings. He thus, prayed that the action of the Ld.CIT(A) in allowing the legal grounds taken by the assessee is not correct and requested for setting aside the order of Ld. CIT(A) for deciding the appeal on merits.
7. On the other hand, Ld.AR vehemently supported the order of Ld.CIT(A) and submits that from the perusal of the reasons recorded as appearing at pages 1 & 2 of the re-assessment order, it could be seen that AO has not stated the complete facts as to from which script and through which transactions, the assessee was having LTCG of INR 2,28,22,400/- which was alleged bogus. he AO has not pointed out any specific transaction and rather made a general observation without looking into the details filed by the assessee in the return of income filed. He submits that in the reasons recorded, it is alleged that assessee has fictious earned profit in equity/derivative trading as bogus LTCG of INR 2,28,22,400/- however, the additions was made for INR 3,55,88,404/- i.e. amount of entire capital gain declared by the assessee in the return of income filed and claimed as exempt u/s 10(38) of the Act. Ld.AR submits that during the course of reassessment proceedings, assessee has filed all the relevant details of all the transactions carried out with respect to purchases and sale of equity share of TTK Prestige Ltd. from where assessee has earned LTCG of Rs. 3,55,88,404/-. As per the table reproduced at page 13 of the reassessment order, assessee purchased 10210 shares of this company in the year 2009 for total cost of INR 13,26,276/- and were sold all the shares in the previous year on various dates for a total sum of INR 3,69,14,690/- and the long terms capital gain of earned on this script of INR 3,55,88,404/- was declared in the ITR and claimed as exempt u/s 10(38) of the Act. Ld.AR submits that M/s. TTK Prestige Ltd. is a well known public limited company and was never held as penny stock company. Further, the assessee has hold the shares from May, 2009 till the same were sold in the year 2012, after retaining the them for a period of more than 03 years and during this period of the shares were physically available with the assessee. It is thus, submitted by Ld.AR that observations of the AO that transaction of purchases and sales of the shares of this is fictious LTCG cannot be held as correct. Ld. AR submits that in the reasons recorded no transaction whatsoever was referred and merely the AO observed one figure of the LTCG which infact was not correct. He therefore, submits that the reasons recorded itself are not correct where the reasons was recorded for contract note of INR 2,28,22,400/- whereas the assessee has declared LTCG of INR 3,55,88,404/- and therefore, Ld.CIT(A) has rightly held that the AO has not applied his mind while recording the reasons for re-opening. Ld.AR also placed reliance on the judgement of Hon’ble Supreme Court in the case of DCIT vs Rakesh Ramanlal Shah reported in 477 ITR 296 (SC) wherein Hon’ble Supreme Court has held that AO reopened the assessment on borrowed satisfaction without establishing the live link between the information and material on record and dismissed the SLP filed by the Revenue. He also relied on the judgment of Hon’ble Jurisdictional Delhi High Court in the case of Sanjay Kaul vs ITO in Writ Petition (C) No.11198/2019 dated 30.05.2025 wherein Hon’ble High Court has held that re-opening based on general information from the Report of Investigation Wing is bad in law.
8. Heard the contentions of both the parties and perused the material available on record. In the instant case, it is seen that AO has re-opened the assessment of the assessee by alleging that the assessee has disclosed LTCG of INR 2,28,22,400/- and finally the assessment was made by making addition towards the LTCG of INR 3,55,88,404/- holding the same as fictitious. Ld. CIT(A) appreciated these facts and further appreciated that the AO has proceeded with borrowed satisfaction without independent application of mind on the material available on record and held the re-opening as invalid by making following observations in para 6.4.1 to 6.4.3 which are reproduced as under:- 6.4.1. On perusal of assessment order dated 24.03.2022 passed by the AO u/s. 147 of the Act, it was found that the AO has reproduced the reasons recorded before reopening of assessment. Same are reproduced as follows. "Vide Instruction F.No. 225/40/2021/ITA-II dated 04.03.2021 of CBDT and Instruction No. 28 dated 23.03.2021 of Directorate of Income Tax (System), the case of the assessee has been pushed on the Insight Portal as "potential case" for escapement of income as per the provisions of section 147 of the Income Tax Act, 1961. The information was perused along with the profile and other records available on the system and other wise. An independent opinion was formed after going through the whole records on the modus operandi by which the income was not assessed and hence the provision of the section 147 was attracted.
2. In this case, the assessee has suppress her income by booking fictitious profit in equity/ derivative trading as bogus Long Term Capital Gain through reputed stock by issuing ante dated forged contract note for a value of Rs. 2,28,22,400/- as detailed in the flagged report from Investigation Wing Rohtak and Delhi, The same has been used for undisclosed income invested to earned bogus Long Term Capital Gain or investment which this assessee has used to suppress her income. By going through the complete information, I by independent reason have reason to believe that there has been escapement of income on this account." On going through the reasons recorded it was observed that there was information available with the AO pushed on the Insight Portal as "potential case" for escapement of income as per the provisions of section 147 of the Income Tax Act, 1961. As per the information, the assessee has suppressed her Income by booking fictitious profit in equity/ derivative trading as bogus Long Term Capital Gain through reputed stock by issuing ante dated forged contract note for a value of Rs.2,28,22,400/- as detailed In the flagged report from Investigation Wing Rohtak and Delhi. During the course of reassessment proceedings, before proceeding further, the AO recorded his reasons to believe that income has escaped assessment. The reasons recorded were provided to the appellant. The appellant raised her objections against the reasons recorded. The AO disposed of the objections by passing an order. In response to various notices, the appellant filed her submission before the AO and asked for the relevant report and documents on the basis of which the reasons to believe were recorded by the AO. However, the relevant documents and reports were not supplied to the appellant by the AO as evident from the assessment order and submission of the appellant. On going through the reasons recorded by the AO which are reproduced in the assessment order, it was found that the AO has recorded the reasons only on the basis of information received in the "Insight Portal" as a potential case for escapement of income. The AO has simply recorded that the assesses has suppress her income by booking fictitious profit in equity/ derivative trading as bogus Long Term Capital Gain through reputed stock by issuing ante dated forged contract note for a value of Rs. 2,28,22,400/- as detailed in the flagged report from Investigation Wing Rohtak and Delhi. However, the AO has not mentioned any details of transactions claimed to be forged by the appellant, like name of the shares, quantity, name of the broker, date of transaction. There was no any reference of tangible material or any concrete or cogent material to link the allegation with the appellant with the conclusions. The reasons recorded were also found very vague, incomplete and without any application of mind. It is not sufficient for the AQ to mention that he has applied his mind and formed his independent opinion. It should be reflected in the reasons recorded by bringing all the relevant tangible material and findings of independent inquiries conducted by AO on record which I believe is missing in the reasons recorded. Further, in the assessment order, para 4 onwards, the AO has reproduced the report of investigation wing received by him explaining the modus operandi of some of the brokers and exit providers raided by investigation wing. However, on verification of the report and modus operandi discussed by the AO the assessment order, AO couldn't establish that the appellant was part of this modus operandi. The AO has not conducted any independent inquiry to corelate the information in his possession with the transactions of the appellant. The AO failed to establish the nexus between the tangible material available and the reason to believe that income has escaped the assessment. Even the statements of the persons involved in the modus operandi recorded on which the AO has relied upon, the AO couldn't bring on record corelation with the income escaped in the hands of the appellant and if the name of appellant was explicitly surfaced from the statements. Even the figure of escapement of income Rs. 2,28,22,400/- as flagged in the investigation report was not found correct. The correct figure of long term capital gain claimed by the appellant in the return of income filed for the relevant assessment year was Rs. 3,55,88,404/-. This shows that the AO has not applied his mind and not conducted independent inquiry before drawing his reason to believe that income has escaped assessment. Further, the appellant requested AO to provide copy of report received from Investigation Wing on which the AO has relied up on. The AO didn't provide the underlying material relied up on to the appellant. It is a settled law that in the absence of tangible material and without conducting any independent inquiry, reasons recorded on the basis of borrowed satisfaction, the reasons recorded and the assessment proceedings reopened thereon are invalid, 6.4.2. Further, reliance has been placed on the following decisions: Well Trans Logistics India (P.) Ltd. v. Addl. Commissioner of Income- tax [2024] 166 taxmann.com 72 (Delhi), in which it was held that.... there is no close nexus" or live link between tangible material and the reason to believe that income has escaped assessment. The information received from the Investigating Unit of the revenue cannot be the sole basis for forming a belief that income of the assessee has escaped assessment. Having received information from the Investigating Wing, it was incumbent upon the Assessing Officer to take further steps, make further enquiries and garner further material and if such material indicate that the income of the assessee has escaped assessment and then form a belief that the income of the assessee has escaped assessment. [Para 25] Clearly, in this case, the Assessing Officer has not acquired any material to form such belief. There is not even a line of reason which may justify the formation of the belief. Consequently, reopening of assessment for the assessment year in question by the Assessing Officer does not satisfy the requirement of law in terms of sections 147 and 148." [Para 26] Movish Realtech (P.) Ltd. vs. Deputy Commissioner of Income-tax [2023] 152 taxmann.com 666 (Delhi)/[2023] 294 Taxman 353 (Delhi)/[2024] 460 ITR 334 (Delhi) [08-05-2023], in the head note of the decision it was held that "Where reassessment proceedings, was initiated against assessee pursuant to a search conducted at AFL Ltd. whereby it was alleged by revenue that bogus accommodation entry was provided by AFL Ltd. to assessee and said fact was confirmed by accommodation entry provider, 'R', since foundation for triggering reassessment proceedings qua assessee was statement of 'R' and said statement, by itself did not lend any clarity as to whether Assessing Officer had underlying material available with him for reaching a conclusion that income chargeable to tax qua assessee had escaped assessment, reassessment proceeding was to be set aside" "The statement, by itself, does not lend any clarity as to whether the Assessing Officer had underlying material available with him for reaching a conclusion that income chargeable to tax qua the petitioner had escaped assessment. [Para 15.1]" Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. [2017] 82 taxmann.com 300 (Delhi)/[2017] 395 ITR 677 (Delhi) [26-05-2017), it was held that ... Thus, the crucial link between the information made available to the Assessing Officer and the formation of belief is absent. The reasons must be self-evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. [Para 23] The reopening of assessment under section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the Assessing Officer that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of section 147 (1). [Para 24] The first part of section 147(1) of the Act requires the Assessing Officer to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject-matter of examination. The Assessing Officer being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe, the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre-condition to the assumption of jurisdiction under section 147 The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment [Para 26] In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the Assessing Officer one after the other and there was no independent application of mind by the Assessing Officer to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the Assessing Officer are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between tangible material and the formation of the reason to believe that income had escaped assessment." [Para 36] Bharat kumar Nihalchand Shah vs. Assistant Commissioner of Tax Circle - 1(2) [2021] 128 taxmann.com 228 (Gujarat)/[2021] 281 Taxman 521 (Gujarat)/[2021] 434 ITR 621 (Gujarat) [19-03-2021], it was held that "... There was no basis or material placed on record by department to prima facie show that profit was earned by assessee with regard to transactions and there was no live link between information received and reasons recorded so as to enable Assessing Officer to form a reason to believe that income had escaped assessment." Paresh Babubhai Bahalani vs. Income-tax Officer [2023] 156 taxmann.com 517 (Gujarat)/[2024] 296 Taxman 324 (Gujarat)/[2024] 463 ITR 103 (Gujarat)(20-10-2023], it was held that "... in view of the above conspectus of law, the entire exercise of re- opening would depend upon the reasons recorded by the Assessing Officer and therefore the reasons recorded to re-open the assessment by the Assessing Officer must disclose all relevant facts to the assessee so as to refute the reasons by filing objections. Unless the Assessing Officer records his independent satisfaction in the reasons recorded on the basis of the information received and communicates the same to the assessee, right of the assessee to file objections would remain an empty formality. [Para 13] Therefore, recording of reasons in the facts of the case not disclosing the nature of the transactions, date of transactions and other relevant details would render the entire exercise of reopening vitiated as the respondent-assessing officer has failed to record independent reason to believe that income chargeable to tax has escaped the assessment [Para 14] Tata Capital Financial Services Ltd. vs. Assistant Commissioner of Income-tax [2022] 137 taxmann.com 315 (Bombay)/[2022] 287 Taxman 1 (Bombay)/[2022] 443 ITR 127 (Bombay) [15-02-2022], it was held that In the circumstances, the Revenue is directed to adhere to the following (a) While communicating the reasons for re-opening the assessment, a copy of the standard form/request sent by the Assessing Officer for obtaining approval of the Superior Officer should itself be provided to the assessee. This would contain comment or endorsement of the Superior Officer with his name, designation and date. The Assessing Officer shall not merely state the reasons in the letter addressed to the assessee. (b) If the reasons make reference to any other document or a letter or a report, such document or letter or report should be enclosed to the reasons. Such portion as it does not bear reference to the assessee concerned could be redacted. (c) The order disposing the objections should deal with each objections and give proper reasons for the conclusion. (d) A personal hearing shall be given and minimum seven working days advance notice of such personal hearing shall be granted. (e) If the Assessing Officer is going to rely on any judgment/order of any Tribunal or Court reference/citation of these judgment/orders shall be provided alongwith notice for personal hearing so that the assessee will be able to deal with/distinguish these judgments/orders. 6.4.3. In view of the above discussion and respectfully following the above-mentioned decisions, it has been held that the reasons recorded by the AO are vague, incomplete and are without spelling out basic details of transaction and also based on incorrect facts and figures. The Ao failed to disclose the nature of transactions, date of transactions and other relevant details in the reasons recorded. The AO has also failed to establish the nexus between the tangible material available and the reason to believe that income has escaped the assessment. Accordingly, the reasons recorded by the AO are declared as invalid and accordingly the subsequent reassessment proceedings are liable to be set aside and quashed. Hence, the ground of appeal No. 2 and additional grounds of appeal No. 3, 4 and 5 are allowed.”
Further, Hon’ble Supreme Court in the case of Rakesh Ramanlal Shah (supra) has held that the action of the AO in acting in borrowed satisfaction without live link between the information and material available on record and thus, re-opening is bad in law.
The Hon’ble Jurisdictional High Court in the case of Sanjay Kaul (supra) dealing with identical facts has held that assessment cannot be re-opened merely based on suspicion without having any tangible material to form the belief of escaped income.
In view of the above discussion and by respectfully following the judgements of Hon’ble Supreme Court (supra) and Hon’ble High Court (supra), we are of the view that in the instant case, re-opening of the assessment was done by the AO on incorrect appreciation of facts as he has failed to provide any link between the material available on record and the information received and solely proceeded on the basis of information so available in the Insight Portal. Accordingly, we find no infirmity in the order of ld. CIT(A) in holding the initiation of reassessment proceedings as invalid and quashing the consequent reassessment order passed u/s 147 of the Act which order is hereby upheld. With respect to Revenue’s ground of appeal regarding non-adjudicating the issue of bogus LTCG on merits, we find that once the vary basis of proceedings i.e. re-opening of the assessment is hereby quashed, there is no reason to going further to decide the merits of the issue and the same became academic. Accordingly all the grounds of appeal taken by the revenue are dismissed.
In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 26.11.2025.