ITAT Quashes Reopening Under Section 147; Reasons Based on Wrong Facts and Mechanical Approval Invalid:

ITAT Quashes Reopening Under Section 147; Reasons Based on Wrong Facts and Mechanical Approval Invalid The assessee filed his return of income for AY 2012-13 declaring Rs. 1.95 crore, which was processed under Section 143(1). Later, based on a report from the Investigation Wing, Kolkata, regarding alleged penny-stock transactions, the Assessing Officer reopened the assessment under Section 147/148. According to the report, the assessee had earned bogus long-term capital gains (LTCG) on shares of Konark Synthetics Ltd. amounting to Rs. 14.69 lakh. However, during reassessment, the AO added Rs. 78.38 lakh as unexplained cash credit under Section 68, alleging that the assessee had routed unaccounted money through penny-stock transactions in Konark. CIT(A)'s Ruling: The CIT(A) upheld the additions. Aggrieved, the assessee appealed before the Tribunal, contending that the reasons recorded were factually wrong, as he had never dealt in the scrip “Konark Synthetics Ltd.” The entire reopening was based on borrowed satisfaction from the Investigation Wing, without any independent inquiry by the AO. Main Issue: Whether the reassessment initiated under Section 147, based on incorrect facts and mechanical approval, could be sustained in law. ITAT's Decision: The tribunal allowed the appeal, quashing the reopening proceedings in their entirety. The Tribunal observed that the AO recorded reasons on incorrect facts, mentioning a scrip and amount unrelated to the assessee. No independent inquiry was made to verify the information received from the Investigation Wing. The Principal CIT granted approval mechanically, without considering that the foundational facts were erroneous. Such reopening based on “borrowed satisfaction” and wrong assumptions violates the requirement of forming a bona fide “reason to believe.” Relying on Sanjay Kaul v. ITO and CNB Finwiz Ltd. v. DCIT, the Tribunal reiterated that reopening cannot rest on suspicion or conjecture. Therefore, the entire reassessment under Sections 147/148 was held bad in law and quashed. To Read Full Judgment, Download PDF Given Below