ITAT Quashes Reassessment Against Investor Over Kyra Landscapes Shares, Cites Borrowed Satisfaction by AO

The Mumbai Income Tax Appellate Tribunal (ITAT) has quashed the reassessment proceedings initiated against individual taxpayer Dharmil Anil Bodani for AY 2013-14, holding that the Assessing Officer (AO) reopened the assessment merely on the basis of information received from another officer without conducting any independent verification or applying his own mind. The Tribunal ruled that such reopening, founded on “borrowed satisfaction”, was invalid in law and consequently declared the entire reassessment proceedings void.

The assessee had challenged the reassessment initiated under Sections 148 and 148A in relation to alleged unexplained income of Rs. 3.98 crore arising from the sale of shares of Kyra Landscapes Ltd. The AO treated the sale proceeds as unexplained money under Section 69A, alleging that the transactions were non-genuine penny stock dealings. The assessee contended that the sale proceeds were fully accounted for, supported by documentary evidence, and that the reassessment itself suffered from multiple legal defects, including violation of natural justice, absence of independent enquiry, and failure to furnish relied-upon statements or permit cross-examination.

Before the Tribunal, the assessee submitted that the issue was squarely covered by the Tribunal’s own decision in his case for AY 2012-13, where reassessment initiated on identical reasons and the same investigation report had already been quashed. It was argued that the AO had mechanically reproduced the information received from another Income Tax Officer without verifying the assessee’s records or forming an independent belief regarding escapement of income.

The Revenue argued that the reassessment was valid under the amended provisions of Section 149 since the alleged escaped income exceeded Rs. 50 lakh and that the reopening had been approved by the competent authority after following the procedure prescribed under Sections 148A(b) and 148A(d). Reliance was placed on the Madras High Court’s decision in Kandasamy Veluswamy v. ACIT.

The Tribunal found that the facts of the present appeal were identical to those involved in the assessee’s own case for AY 2012-13. It noted that the earlier coordinate bench had already held that the AO had simply relied upon information received from another officer without verifying the assessee’s return of income or independently examining the facts. The Tribunal observed that information received from the Investigation Wing or another officer may constitute a starting point for enquiry, but the AO is duty-bound to independently verify the material and arrive at his own “reason to believe” before assuming jurisdiction under Section 148.

The Tribunal further observed that in the earlier year it had also found that the AO failed to dispose of the assessee’s objections to reopening and continued to proceed on incorrect assumptions despite specific objections being raised. Since the reassessment for AY 2013-14 was founded on the same reasons and identical information, the Tribunal held that the earlier decision fully governed the present appeal.

Rejecting the Revenue’s reliance on the Madras High Court ruling, the Tribunal clarified that the issue before it was not the applicability of the amended reopening provisions but the absence of independent application of mind by the AO while initiating reassessment proceedings.

Thus, the Tribunal quashed the notice issued under Section 148 dated 27 July 2022, held the consequential reassessment order to be void ab initio, and allowed the assessee’s appeal on the legal issue. Since the reassessment itself was invalid, the Tribunal did not examine the merits of the addition under Section 69A.

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