Reopening Based on Change of Opinion and Without New Material is Bad in Law: ITAT

The Income Tax Appellate Tribunal (ITAT) deleted an addition made by the AO in the reassessment, which was based on a change of opinion. The Tribunal held that such additions are bad in law.

The assessee, Arun Kumar, sold 19,000 shares of M/s City Travel Solutions Ltd, which was identified as a penny stock company by the Investigation Wing of the Income Tax Department. Based on this, the AO concludes that the sale of equity shares to M/s City Travel Solution Ltd is a bogus sale. Thus, he made an addition of Rs 57,06,000 under section 68 of the Income Tax Act. When the assessee appealed before the CIT(A), it partly allowed the appeal. Therefore, the Revenue challenged this decision of CIT(A) before the ITAT, Delhi.

The assessee argued that the sales were made through proper banking channels on a recognised stock exchange through a SEBI-registered stockbroker. He had declared the Short Term Capital Gain (STCG) on the sale of the shares in his ITR, and he had duly paid taxes.

In the cross objection filed by the assessee, he argued that the reopening was based on the change of opinion, as the case was already examined and accepted by the AO in the original proceedings under section 143(3) of the Act. He also contended that four weeks’ time was not given to the assessee after rejection of the objection of the assessee. Further, the assessee also objected that his case was opened four years after the end of the relevant assessment year without any fresh material.

The Tribunal observed that the assessee had paid tax on the capital gain on the sale of shares and the CIT(A) is correct in deleting the addition made by the AO. Based on this, the revenue’s appeal was dismissed.

Additionally, the ITAT also observed that the assessee’s case was reopened after four years and was based on the information received from the portal, and the AO did not do his own enquiry. Therefore, the Tribunal quashed the reassessment, as it was based on a change of opinion and not any independent verification. The assessee’s cross objection was allowed.