Reassessment based on casual Non-Application of Mind and borrowed Satisfaction: ITAT Quashes Proceedings [Read Order]

The Guwahati Bench of the Income Tax Appellate Tribunal (ITAT) held that the AO had reopened the case with a "complete non-application of mind," relying on "borrowed satisfaction" from an investigation report that did not involve the assessee's actual trading brokers.

Assam Valley Finance and Investment Pvt. Ltd. (assessee), a company involved in share trading and investment, filed return for AY 2016-17 declaring nil income. The case was subsequently reopened under Section 147 of the Income Tax Act on the grounds that the assessee had allegedly claimed fictitious losses through illiquid stock exchange derivatives.

The AO based this reopening on statements from specific brokers (Harish Kumar Singhania, Pawan Kumar Kayan, and Sanjay Kumar Periwal) who admitted to generating non-genuine losses. The AO made an addition of ₹4,47,48,164 as unexplained cash credit under Section 68, representing the loss shown in the profit and loss account.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (appeals) [CIT(A)]. The CIT(A) dismissed the appeal of the assessee. Aggrieved by this dismissal, the assessee filed an appeal before the ITAT.

The assessee argued that the brokers named in the "reasons to believe" were not the brokers the assessee had actually traded with. It was also argued that the National Faceless Assessment Centre (NFAC) lacked the authority to frame the assessment on March 29, 2022, as the relevant e-assessment scheme for income escaping assessment was only notified that same day.

The two-member bench comprising Rajesh Kumar(Accountant Member) and Manomohan Das (Judicial Member) observed that the AO’s reasons for reopening were "devoid of any merit."

The tribunal observed that the AO alleged trades through Singhania, Kayan, and Periwal, but the assessee actually traded through Bahubali Forex Pvt. Ltd., Odyssey Securities Pvt. Ltd., and NS Broking Pvt. Ltd.

Built for GST appeals—not theory, but what actually works in Tribunal. Click here

The bench noted that the AO merely reproduced conclusions from an investigation report without independent verification, which constitutes "borrowed satisfaction" rather than a genuine "reason to believe."

The tribunal further clarified that treating a loss claimed in the profit and loss account as "unexplained cash credit" under Section 68 is legally incorrect. It concluded that the reassessment was framed in a casual manner without establishing a "live link" to the assessee.

It quashed both the reopening of the assessment and the final assessment order issued by the NFAC. The appeal of the assessee was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates