'Reasons To Believe' For Reopening Must Based On Credible Information : Kolkata ITAT

The ITAT clarified that mere borrowed satisfaction from Investigation Wing is no justified ground for initiating reopening, when no credible information is available with the AO regarding escapement of income.

The Bench of Manish Borad (Accountant Member) observed that “Assessment cannot be reopened on whimsical ground or in the reasons to suspect towards alleged escapement without giving reference to any relevant material, which may give rise to bonafide belief towards escapement to a reasonable person instructed in law”. (Para 11)

Facts of the case:

The assessee company filed its return declaring only income from business. Subsequently, a notice u/s 148 was issued upon the investigation report held by the Directorate of Income Tax, Kolkata which stated that the assessee is found to have enjoyed bogus LTCG by transacting in the penny stock, 'JMD Telefilm'. In just reverse procedure, the assessee is learnt to have booked STCL from the same scrip in the same year. Therefore, believing that income had escaped assessment, the AO made additions to assessee's income.

Observations of the Tribunal:

The Bench found that the AO has merely referred to the information received from the Investigation Wing giving a general statement that there are certain matters of tax evasion by some individuals and entities.

Thus, the Bench found that the AO had acted on borrowed satisfaction of showing income from long-term capital gain, which is actually bogus and perpetrated through accommodation entry provider.

As far as the allegation of bogus long-term capital gain by transacting in penny stock 'JMD Telefilm' was concerned, the Bench stated that assessee had not earned any long-term capital gain during relevant year and no exemption was claimed u/s 10(38) by assessee in its return.

The Bench further found that assessee has not shown any long-term/short-term capital gain/loss and the purchases and sales of such shares are treated as stock-in-trade, which is why the loss in such scrips are claimed as business loss and not capital loss.

The Bench noted that there is no separate information or material evidence available with the AO which could prove that he had reason to believe that the income had escaped assessment.

The Bench also stated that reasons for reopening appears to be a token exercise for assuming jurisdiction by the AO who has proceeded on hypothesis flow from a generated information rendering the whole exercise to be arbitrary and unsustainable in law.

Therefore, relying on the decision of the Supreme Court in the case of Chhugamal Rajpal [(1971) 79 ITR 603], the Bench observed that the reopening proceedings deserve to be quashed solely on the ground that AO has not disposed of the objections raised by assessee.

The ITAT concluded that reasons for reopening merely based on information received from Investigation Wing cannot be treated as “reasons to believe” but are merely “reasons to suspect”.

Hence, mere suspicion of AO towards escapement of income is not permitted u/s 147 to reopen an assessment, added the Bench.

Therefore, the ITAT quashed the reopening proceeding and allowed Assessee's appeal.

Counsel for Appellant/ Assessee: N.S. Saini

Counsel for Respondent/ Revenue: Arup Chatterjee

Case Title: Alosha Marketing Pvt. Ltd verses Assistant Commissioner of Income Tax

Case Number: I.T.A. No. 356/KOL/2024

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