Switching Reopening Grounds from Accommodation Loans to Bogus LTCG Invalidates Reassessment: ITAT Quashes Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench has quashed a reassessment order after finding that theAssessing Officer (AO) shifted the basis of reopening from alleged fictitious loan transactions to bogus Long Term Capital Gain (LTCG) arising from penny stock dealings.

The reassessment proceedings were initiated based on information received from the Investigation Wing following a search conducted on alleged accommodation entry operators Sanjay Shah and Jignesh Shah. According to the reasons recorded for reopening, the assessee was alleged to have received fictitious loan accommodation entries amounting to ₹49.74 lakh through entities controlled by the entry operators.

However, during the reassessment proceedings, the AO abandoned the allegation relating to bogus loans and instead proceeded to treat the assessee’s LTCG from sale of shares of Naisargik Agritech (India) Ltd. as bogus penny stock transactions. The AO ultimately added ₹49.19 lakh as unexplained cash credit under Section 68 of the Act.

The assessee Pinkal Rajeshbhai Patel contended that the reassessment proceedings were legally unsustainable because the reasons recorded for reopening and the final addition made in the reassessment order were entirely different. It was argued that reopening was based on alleged fictitious loans whereas the addition was eventually made on account of alleged bogus LTCG.

The Tribunal observed that the AO had clearly formed the original “reason tobelieve” on the basis of fictitious loan accommodation entries. However, the reassessment order was ultimately framed on a completely distinct allegation concerning bogus LTCG through penny stock transactions.

The bench comprising Dr. B.R.R. Kumar and Suchitra R. Kamble allowed the appeal filed by assessee against the reassessment order passed under Section 147 of the Income Tax Act for Assessment Year 2015-16 and held that such a shift in the foundation of reassessment was impermissible in law.

Accordingly, the Tribunal ruled that the reassessment proceedings were invalid and liable to be quashed. As a result the reassessment order dated March 30, 2022 was set aside and the addition of ₹49.19 lakh was deleted.

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