The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) quashed the reopening of assessment under Section 147 of the Income Tax Act, 1961, ruling that reassessments based purely on external investigation reports without independent verification were deemed invalid.
Kishore Trading Company, a partnership firm, filed its income tax return for the Assessment Year (AY) 2012-13 on 18.09.2012, declaring an income of Rs. 48,600. The return was processed under Section 143(1) on 26.02.2013. The AO later reopened the case under Section 147, acting on information from the Directorate of Investigation (DDIT), Kolkata, which alleged that the assessee had received bogus commodity profits of Rs. 20 lakhs from Kali Commodity Pvt. Ltd.
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The AO issued a notice under Section 148 on 31.03.2019, after obtaining approval from the competent authority. The assessee filed a return in response to the notice on 29.04.2019, maintaining the same income declaration.
During the assessment, the AO examined the commodity transactions and speculation losses claimed by the assessee. Notices under Section 133(6) were issued to Multi Commodity Exchange (MCX), Kolkata Stock Exchange, and the brokers involved in the transactions.
MCX replied that the assessee had not conducted transactions through Kali Commodity Pvt. Ltd., leading the AO to conclude that the claimed commodity profit of Rs. 84,45,684 was bogus. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision.
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Before the ITAT, the assessee argued that the reopening of the assessment was invalid, as it was solely based on information from the DDIT Investigation wing without any independent application of mind by the AO. The assessee relied on multiple judicial precedents, including G & G Pharma, Meenakshi Overseas, and RMG Polyvinyl, to support the claim that reopening based on borrowed satisfaction is bad in law.
The two-member bench comprising Rajesh Kumar ( Accountant Member ) and Pradip Kumar Choubey ( Judicial Member ) observed that the AO had failed to conduct an independent inquiry and merely acted on external information without verification. The tribunal also observed that the alleged escaped income of Rs. 20 lakhs was already disclosed in the return filed by the assessee making the reopening unjustified. The appeal was allowed.
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