AO's mechanical reopening under section 147 for bogus LTCG quashed for lacking independent application of mind

ITAT Kolkata quashed the reopening of assessment under section 147 concerning bogus long-term capital gains from penny stock transactions claimed as exempt under section 10(38). The tribunal found that the AO recorded reasons without independent application of mind, acting on borrowed satisfaction in a mechanical manner rather than forming objective satisfaction. The reopening was based on information from Investigation Wing regarding Quest Financial Service Limited shares, but the AO failed to properly apply mind to the facts. Following Hindustan Lever Limited precedent, the tribunal held that reasons must be independently recorded and cannot be substituted, directing deletion of the addition and allowing the assessee's appeal.

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Issues Involved:
The judgment involves the issue of condonation of delay in filing the appeal, challenge to the reopening of assessment under section 147 of the Income Tax Act, and the legality of additions made by the Assessing Officer.

Condonation of Delay:
The appeal was initially barred by limitation by 11 days, and the Counsel for the assessee explained the delay due to the assessee's health issues. The delay was condoned after considering the reasons provided by the assessee.

Reopening of Assessment:
The assessee challenged the reopening of assessment under section 147 of the Act, which was based on information regarding long-term capital gain from shares of a penny stock company. The Assessing Officer made additions under section 68 of the Act, alleging commission for arranging accommodation entry of long-term capital gain. However, it was observed that the reasons for reopening the assessment were recorded without proper application of mind and in a casual manner. The Tribunal found that the Assessing Officer's reasons lacked clarity and did not establish a valid basis for reopening the assessment, as per the legal requirement of disclosing all material facts necessary for assessment.

Legality of Additions:
The Tribunal noted discrepancies in the reasons recorded by the Assessing Officer for reopening the assessment, including the mention of a surprise figure related to the assessee's alleged involvement in malpractices. Citing a precedent from the Bombay High Court, the Tribunal emphasized the importance of clear and unambiguous reasons for reopening an assessment, based on concrete evidence. Consequently, the Tribunal quashed the reopening of assessment and directed the Assessing Officer to delete the addition made. The appeal of the assessee was allowed on legal grounds, and the merit-based grounds were not adjudicated upon.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee based on the legal issue of the improper reopening of assessment under section 147 of the Income Tax Act. The Tribunal emphasized the necessity of clear and valid reasons for such actions, as highlighted in relevant legal precedents. The judgment was pronounced on 26/12/2023.

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