AO's reassessment notice under section 148 quashed for borrowed satisfaction and lack of independent verification

ITAT Hyderabad quashed the reassessment notice u/s 148 and consequent assessment order u/s 143(3) r.w.s. 147, finding no live link between fresh tangible material and the AO's belief of income escapement. The AO issued the notice without independent verification, relying solely on information from another assessee's AO, constituting borrowed satisfaction. The reasons recorded showed discrepancies - initially claiming 4,17,535 shares but later assessing based on 2,22,222 shares, demonstrating lack of independent application of mind. The reopening was held invalid due to incorrect assumption of jurisdiction u/s 147. Assessee's appeal was allowed.

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Issues Involved:
1. Validity of reopening the assessment under Section 147 of the I.T. Act, 1961.
2. Addition made under Section 56(2)(vii)(c) of the I.T. Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the I.T. Act, 1961:

The assessee challenged the reopening of the assessment on the grounds that it was based on "borrowed satisfaction" without independent application of mind by the Assessing Officer (AO). The AO had reopened the assessment based on information from the financial statement of M/s. Bharat Biotech International Ltd, indicating that the assessee had purchased shares at a price significantly lower than the fair market value. The AO issued a notice under Section 148 of the I.T. Act, 1961, on 12.03.2019, and the assessee responded by filing a return of income on 27.04.2019.

The learned CIT (A) upheld the reopening, stating that the AO had applied his own mind and formed a reasonable belief of income escapement. However, the Tribunal found that the AO had issued the notice based on information from another AO without any independent verification or inquiry. The Tribunal cited several judicial precedents, including the Hon'ble Supreme Court and various High Courts, which held that reopening based on borrowed satisfaction without independent application of mind is invalid. Consequently, the Tribunal quashed the notice under Section 148 and the consequent assessment order.

2. Addition Made Under Section 56(2)(vii)(c) of the I.T. Act, 1961:

The AO made an addition of Rs. 2,75,37,750 under Section 56(2)(vii)(c), stating that the assessee received shares at Rs. 1 per share when the fair market value was Rs. 124.92 per share. The assessee contended that the shares were received back due to the cancellation of a share purchase agreement and not as a new purchase. The learned CIT (A) upheld the AO's addition, citing that the assessee could not justify acquiring shares at a price significantly lower than the market value.

The Tribunal, however, did not delve into the merits of this issue since the reopening of the assessment itself was found to be invalid. Therefore, the grounds of appeal on this issue were dismissed as infructuous.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the notice under Section 148 and the consequent assessment order under Section 143(3) r.w.s. 147 of the I.T. Act, 1961. The stay application filed by the assessee was dismissed as infructuous.

Order Pronouncement:

The order was pronounced in the Open Court on 14th August, 2024.

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