Reopening over alleged bogus LTCG from stock trades questioned for "borrowed satisfaction"; reasons lacked independent inquiry, reopening quashed.

Reopening was challenged as based on "borrowed satisfaction" and absence of independent "reasons to believe" that the assessee had obtained bogus LTCG. The ITAT held that the AO relied solely on INSIGHT portal inputs without further enquiry or corroborative material, failed to identify any adverse facts about the accepted purchase transactions, and incorrectly invoked a SEBI order relating to an earlier enquiry period, whereas the assessee's sales occurred later on a recognised stock exchange through a SEBI-registered broker with STT paid; this showed non-application of mind in recording reasons. The reopening was therefore quashed and the assessee's appeal allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether reassessment initiated on the basis of INSIGHT portal inputs, without further enquiry or "positive material" and with apparent non-application of mind, could be sustained.

(ii) Whether addition under section 68 treating the claimed exempt long-term capital gains from sale of listed shares as "bogus", based essentially on third-party information and general circumstances (including SEBI action and financials of the company), could be sustained in absence of specific adverse material against the assessee's transactions.

(iii) Whether consequential/additional addition under section 69C towards alleged commission at 5% of the capital gains could survive once the primary addition on capital gains was not sustainable on facts considered by the Tribunal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of reassessment based on INSIGHT portal information (alleged "borrowed satisfaction" / non-application of mind)

Legal framework (as discussed): The Court examined reassessment as carried out under section 147 read with the faceless assessment scheme provisions (section 144B), in the context of the reasons and material relied upon for reopening.

Interpretation and reasoning: The Court found that the reassessment was founded "solely" on information received from the INSIGHT portal. It held that there was no further enquiry by the Assessing Officer and no bringing on record of any additional facts, details, or positive material contradicting the assessee's claim. The Court further noted that the purchases of the underlying shares in earlier years had been accepted by the Revenue without adverse inference, and yet no material was shown at reopening/assessment stage demonstrating how those purchases were connected to the alleged operators or alleged arrangement.

Conclusion: The Court accepted the challenge to reopening on the ground of non-application of mind/unsupported reasons and sustained the assessee's grounds on this aspect, leading to quashing of the impugned additions.

Issue (ii): Addition under section 68 on alleged bogus long-term capital gains from listed share sales

Legal framework (as discussed): The Court addressed the addition made under section 68 in respect of long-term capital gains claimed as exempt, examining whether the assessment record contained material to dislodge the assessee's transaction evidence.

Interpretation and reasoning: The Court held that the Assessing Officer's conclusion of "bogus" capital gains was not supported by any specific adverse material brought against the assessee beyond INSIGHT portal information. It emphasized that the shares were sold on a recognised stock exchange through a SEBI-registered broker and that securities transaction tax was paid. The Court also found the reliance on SEBI proceedings misplaced because the SEBI enquiry period referred to by the Assessing Officer did not align with the assessee's sale period (the assessee's sales were much later). On these facts, the Court concluded that the assessment failed to establish any concrete contrary evidence to treat the reported gains as unexplained under section 68.

Conclusion: The Court held the section 68 addition unsustainable on the facts and reasoning recorded and quashed the addition on long-term capital gains.

Issue (iii): Addition under section 69C towards alleged commission for arranging bogus gains

Legal framework (as discussed): The Court considered the section 69C addition as an ancillary consequence of the allegation that the gains were bogus and had been facilitated through commission.

Interpretation and reasoning: Since the Court found that the primary premise of bogus long-term capital gains was not supported by positive material and the section 68 addition could not stand, the estimated/ad-hoc commission addition at 5% necessarily lacked foundation.

Conclusion: The Court quashed the section 69C commission addition along with the principal addition.

Additional decisive observation impacting the outcome: The Court found that the first appellate order reflected lack of independent rational consideration of the facts and appeared to proceed on unrelated factual premises, reinforcing the need to interfere and grant relief.

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