Reassessment u/s 147 Requires Fresh Tangible Material, Mere Reliance on Investigation Report Insufficient: ITAT [Read Order]

The Surat Bench of the Income Tax Appellate Tribunal (ITAT) ruled that reassessment under Section 147 of the Income Tax Act, 1961, must be based on fresh tangible material and that reliance solely on an investigation report is insufficient to justify reopening an assessment.

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Rambilash Rajaram Jajoo and Sunita Jajoo, the assessees, had filed appeals against the orders of the Additional Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The AO had reopened the assessments and treated LTCG of Rs.6,81,214 as unexplained cash credit under Section 68 and an additional Rs.3,406 as unexplained expenditure under Section 69C of the Income Tax Act, suspecting involvement in a penny stock scam.

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The CIT(A) upheld the AO’s decision, dismissing the appeals without fully considering the facts. The assessees’ counsel argued that the reopening of assessments was invalid as no fresh tangible material was brought on record apart from an investigation report from the Kolkata Directorate of Investigation.

They submitted that their purchase of 9600 shares of Global Capital Markets Ltd. in 2003-04 through a SEBI-registered broker was legitimate. They further argued that the shares were held for over seven years before being sold on the Bombay Stock Exchange in 2010 after paying Securities Transaction Tax (STT) and through proper banking channels.

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The assessees asserted that they had submitted all necessary documents, including contract notes, bank statements, and demat holdings, proving the genuineness of their transactions.

The Revenue’s counsel argued that Global Capital Markets Ltd. was a penny stock entity and that the assessees had engaged in a price manipulation scheme to generate artificial LTCG. The Department relied on an investigation report but failed to provide direct evidence linking the assessees to the alleged scam.

The two-member tribunal bench comprising Pawan Singh (Judicial Member) and Bijayananda Pruseth (Accountant Member) observed that the AO had merely relied on the investigation report without conducting an independent inquiry or presenting fresh evidence to justify reopening the assessment.

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The tribunal further observed that the assessees had held the shares for an extended period and had conducted transactions through recognized stock exchanges, making the LTCG claim valid.

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The tribunal referred to the Gujarat High Court’s ruling in Jagat Pravinbhai Sarabhai, which held that LTCG on shares held for a long duration could not be treated as bogus solely based on an investigation report. The tribunal ruled that the reopening of the assessment under Section 147 of the Income Tax Act was invalid due to a lack of fresh tangible material. The appeals were allowed.

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