ITAT Quashes Reopening Based on “Borrowed Satisfaction” in LTCG Accommodation Entry Case

The assessee, a Hindu Undivided Family, filed its returns for AYs 2017-18 and 2018-19, declaring nominal income and claiming exemption on long-term capital gains arising from the sale of shares of M/s Kushal Tradelink Limited.

Based on information received through the Insight Portal regarding a search conducted in the Kushal Group, the Assessing Officer reopened the assessments under Section 147. The AO treated the exempt LTCG as unexplained income under Section 68 and completed reassessment by disallowing the exemption under Section 10(38). The CIT(A) upheld the reassessment as well as the additions.

Issue Before ITAT: Whether reassessment proceedings started based only on Insight Portal information, without independent application of mind or specific linking the assessee to alleged share price manipulation, were valid in law.

ITAT’s Ruling: The ITAT held that the reassessment proceedings were invalid as the reasons recorded by the AO were vague and based on borrowed satisfaction. The Tribunal noted that the AO failed to show how the assessee was involved in the manipulation of the scrip or how the transactions were not genuine. There was no tangible material brought on record to doubt the purchase or sale of shares or to establish a tax nexus. Since the reopening itself was held to be without jurisdiction, the assessment orders could not survive.

Thus, both appeals of the assessee for AYs 2017-18 and 2018-19 were allowed, and the additions were quashed.

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