ITAT Deletes Additions of Reassessment Based on Insight Portal

The assessee, an individual deriving income sources other than salary or capital gains, had submitted her return of income for the A.Y. 2018–19 on 24/07/2018, reporting total income of Rs. 17,14,415 after claiming deduction of Rs. 23,02,040 under Section 10(38) of the Income Tax Act,1961, on sale of shares of M/s. Kushal Tradelink Ltd. The case was reopened under Section 147 based on the facts available on the Insight portal, following the search action in the case of M/S. Kushal Group revealed accommodation entries of the nature of Long-Term and Short-Term Capital Gains, wherein the assessee was involved as a beneficiary. Notices under Sections 148A(b) and 148 were issued, to which the assessee replied accordingly. However, the AO was not satisfied with the explanation and treated the entire long-term capital gain of Rs. 23,59,580 as unexplained income. Another amount of Rs. 1,41,575 was also held as unexplained expenditure under Section 69C, being commission at the rate of 6% of the purchase value of shares, making the total income of Rs. 40,60,390 assessed under Section 147 read with Section 144B.

CIT (A) Held: Aggrieved, the assessee preferred an appeal before the CIT(A), arguing that the reopening was only based on portal data and amounted to borrowed satisfaction without any independent exercise of mind. It was also argued that comprehensive evidences, such as contract notes, demat statements, and payment evidence through banking channels, were placed to prove the genuineness of transactions made through a SEBI-registered entity. The CIT(A), however, confirmed the additions, holding that the transactions in the shares of M/s. Kushal Tradelink Ltd. was part of penny stock arrangements. The assessee thereafter preferred a second appeal before the Tribunal.

Issue Raised: Whether the reopening and later additions of Rs. 23,59,580 and Rs. 1,41,575 made under Sections 10(38) and 69C were sustainable when based solely on information uploaded on the Insight portal without any independent satisfaction or specific material linking the assessee to accommodation entries.

ITAT’s Decision: The Tribunal observed that the reopening was made only based on information available on the Insight portal, without any tangible material or live link connecting the assessee to the alleged accommodation entries. Referring to the jurisdictional High Court’s decision in Ashishbhai Jashwantbhai Desai HUF v. ITO, it was held that such reopening constituted borrowed satisfaction and lacked independent application of mind.

The Tribunal held that the assessee had provided full documentation consisting of contract notes, demat statements, and bank proofs of purchase and sale transactions. The AO could not prove any defect, cash involvement, or off-market transaction to disbelieve the evidence. The assessee was a regular share investor, and the said transactions were rightly reflected in her demat and bank accounts. The Tribunal directed that the additions were purely on suspicion and observation without case-specific investigation. Therefore, the addition of Rs.23,59,580 towards purported bogus long-term capital gain and Rs.1,41,575 towards commission under Section 69C were struck. The appeal was granted in favour of the assessee.

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