Reopening Done without Application of Mind based on Misunderstood Facts not Valid: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that reopening of assessment done without the application of mind based on misunderstood facts is not valid.

The assessee, Ravi Gopal Trivedy was an individual and filed the original return of income and the case was selected for scrutiny and Assessing Officer after considering the materials on record passed an order under Section 143(3) of the Income Tax Act accepting the capital gains offered by the assessee and by making certain disallowances under Section 14 A of the Income Tax Act.

Subsequently, the assessment was reopened for the reason that certain information was received from DDIT(Inv), with regard to the issue of Client Code Modification in the case of a few brokers and based on a statement of President Anand Rathi Commodities Ltd (ARCL) who did the maximum client code modification was recorded.

The Assessing Officer came to the conclusion that certain losses of the assessee were speculative losses and not allowed to be set off against normal business income and that the assessee had not disclosed fully and truly all material facts and had escaped assessment. The Assessing Officer concluded the assessment stating that the share transactions done by the assessee were bogus in nature and not genuine and made addition.

K Shivram, on behalf of the assessee, submitted that the notice under section 148 of the Income Tax Act where the reasons were recorded that the assessee had made a bogus loss and had set it off against income was factually incorrect for the reason that the assessee had made only profit from the non-speculative business.

He further submitted that no specific finding were recorded by the Assessing Officer with respect to the impugned transaction and how the entire scam that happened in NSEL was related to the assessee and the reopening was done without any application of mind and on the basis of misunderstood facts and therefore not valid.

Mahita Nair on behalf of the revenue relied upon the order of lower authorities.

The two-member Bench of Amit Shukla (Judicial Member) and Padmavathy S. (Accountant Member) allowed the appeal filed by the assessee holding that the reopening was not valid as it had been done without recording any specific reasons pertaining to the assessee and without linking the information received from DDIT specifically to the assessee.

To Read the full text of the Order CLICK HERE

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