Reopening Quashed due to "Borrowed Satisfaction"; AO failed to link Insight Portal Info to Assessee

Reopening Quashed due to “Borrowed Satisfaction”; AO failed to link Insight Portal Info to Assessee

Issue

Whether an Assessing Officer (AO) can validly reopen an assessment under Section 148 based solely on information received from the Investigation Wing (Insight Portal) regarding a third-party search, without forming an independent belief or establishing a “live link” between that general information and the assessee’s specific transactions.

Facts

Assessment Year: 2017-18.
The Transaction: The assessee filed a return declaring Short Term Capital Gains (STCG) from the sale of shares of ‘KTL’ and paid the applicable tax.
The Trigger: A search was conducted on ‘K Group’ (a third party), which allegedly revealed that they were providing bogus Long Term/Short Term Capital Gains entries.
The Reopening: Based on information uploaded to the Insight Portal, the AO issued a notice under Section 148/148A, alleging the assessee was a beneficiary of accommodation entries.
The Defect: The AO relied entirely on the portal’s information. The reasons recorded did not show any independent analysis of the assessee’s return or bank statements to verify if the specific transaction matched the allegation.

Decision

Borrowed Satisfaction: The High Court/Tribunal held that the AO merely acted on “borrowed satisfaction” from the Investigation Wing. The law requires the AO to apply their own mind to the information and form an independent belief that income has escaped assessment.
Missing “Live Link”: There was no evidence or analysis connecting the general incriminating material found on ‘K Group’ specifically to the assessee’s transaction. Merely citing a company name from a list is insufficient.
Prima Facie Belief: Without independent verification, the AO could not have formed a valid prima facie belief.
Ruling: The reopening notice and the subsequent proceedings were quashed and set aside as jurisdictionally defective.

Key Takeaways

Insight Portal is not Gospel: Information flashing on the Insight Portal (High Risk/Suspicious Transaction) is just a starting point. The AO cannot simply copy-paste that information into the “Reasons to Believe.” They must cross-verify it with your return of income before issuing a notice.

Challenge “Borrowed Satisfaction”: If your Section 148 notice reads like a generic report about entry operators without specific details of your cheques or your contract notes, you can challenge the notice on the ground that the AO failed to apply their independent mind.

HIGH COURT OF GUJARAT

Mita Ashish Desai

Deputy Commissioner of Income-tax^*

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 2412 of 2023

SEPTEMBER 23, 2025

Tushar Hemani and Ms Vaibhavi K Parikh, Advs. for the Petitioner. Ms Maithili D Mehta, Senior Standing Counsel for the Respondent.

JUDGMENT

Pranav Trivedi, J. – Heard learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms Vaibhavi K. Parikh for the petitioner and learned Senior Standing Counsel Ms.Maithili Mehta for the respondents

2. Rule, returnable forthwith. Learned Senior Standing Counsel Ms.Maithili Mehta waives service of notice of rule for and on behalf of the respondents.

3. By this petition Article 226 of the Constitution of India, the petitioner has challenged the notice dated 30^th June, 2022 issued under Section 148 of the Income Tax Act, 1961 (for short the Act) for Assessment Year 2017-18.

4 Brief facts of the petition are as follows:-

4.1 The petitioner filed return of income for the year under consideration on 29.06.2017 declaring a total income at Rs.1,46,14,640/- disclosing the Short Term Capital Gains on sale of shares of Kushal Tradelink Limited and paid the tax on such Short Term Capital Gains.

4.2 Thereafter, the impugned notice was issued for reopening. The Assessing Officer reopened assessment on the basis of information from a search under sec.132 on Kushal Group, which revealed incriminating documents showing evidences of cash transactions entered into by Kushal Group providing bogus Long Term Capital Gain/loss or Short Term Capital Gain/Loss. The respondent-Assessing Officer issued notice under Sec.148A(b) on 23.05.2022 and has recorded the following reasons:

” On perusal and analysis of the information, it is found that the assessee had sold 148000 quantity of shares of Kushal Limited during the FY 2016-17 relevant to AY 2017-18 for Rs. 5,69,46,750 and booked profit of Rs. 56,21,939. In the return of income, the assessee has shown short term capital gain of Rs. 1,04,41,675 on sale of equity shares/ mutual funds. The profit earned by the assessee through Kushal Scrip is result of manipulation in price of the Kushal scrip done by Ashish Panalal Shah. Therefore, profit/STCG earned by the assessee to the extent of Rs. 56,21,939 is bogus STCG. On the basis of the information it is inferable that the assessee has introduced his unaccounted income into books of accounts in the form of bogus STCG Profit without paying due taxes. Therefore, STCG claimed by assessee to the extent of Rs. 56,21,939 cannot be treated as genuine STCG. Bogus STCG amounting to Rs. 56,21,939 is required to be treated as undisclosed income of the assessee from urexplained sources.”

4.3 The petitioner filed her objections on 27.05.2022 before the respondent Assessing Officer contending that the petitioner has duly disclosed the transactions carried out for purchase and sale of the shares of Kushal Tradelink Limited in the books of accounts and tax showing the short term capital gain is arising out of such transactions and there is no long term capital gains earned by the individual during the year under consideration.

4.4. The Assessing Officer has thereafter passed order under Sec.148A(d) dated 30.06.2022 for re-opening and has observed as under:

“The submission filed by the assessee has been duly considered and the same is not found acceptable. On perusal of the submission of the assessee, it is found that the documentary evidence submitted by the assessee do not explain the fact that income arising from the impugned transaction/transaction itself has been duly disclosed and relevant income arising therefrom has been offered for taxation for the relevant assessment year.

Therefore, in the light of the above reasons, information, and material available on record, I am of the considered view that the assessee has failed to explain the above-mentioned transactions and income earned/ derived there-from during the year under consideration and the same remained unexplained and unsubstantiated as per the relevant provisions of the Act. Hence, on the basis of material available on record which establishes that the income chargeable to tax in respect of abovementioned unexplained transactions of Rs.56,21,940/-has escaped assessment for AY 201718 and therefore, this is a fit case for Issuance of notice u/s 148 of the Act for Assessment Year 201718.”

5. It was further contended that the Assessing Officer did not form any reason to believe on basis of any specific information relatable to the transactions carried out by the petitioner and in absence of such information of reason to believe, the impugned notice is without jurisdiction.

6. Learned Senior Advocate Mr Tushar Hemani for the petitioner submitted that the respondent-Assessing Officer, without any basis, has formed a reason to believe that the petitioner, being one of the beneficiaries, is availing the Long Term Capital Gain/loss or Short Term Capital Gain/Loss, Unsecured Loans, Share Premium, Bogus Gains, Contrived Losses etc, out of the transactions with Kushal Tradelink Limited. It was submitted that such vague reasons given by the Assessing Officer clearly depicts that there is no clarity to the nature of transaction, date of transaction, accounting treatment or reflection in the balance-sheet and profit and loss loss account of the petitioners for the year under consideration.

6.1. Learned Senior Advocate Mr Tushar Hemani referred to the computation of the income placed on record to point out that the petitioner has offered the Short Term Capital Gains as income and have also paid the tax. It was therefore submitted that the impugned notice is issued in a mechanical manner without application of mind and therefore, there is no prima facie belief as to escapement of income chargeable to tax.

6.2. It was therefore submitted that in absence of any live-link recorded by the respondent Assessing Officer, the reasons are based only on the borrowed satisfaction and therefore, the respondent-Assessing Officer cannot assume jurisdiction to re-open the assessment.

7. On the other hand, learned Senior Standing Counsel Ms.Maithili Mehta for the respondent-Assessing Officer submitted that there was no scrutiny assessment for the year under consideration and the impugned notices are issued within a period of four years and there was only an intimation issued under Section 143(1) of the Act accepting the returned income. It was submitted that there was an information available on Insight Portal pertaining to the petitioner to the effect that the petitioner had availed accommodation entry from the Kushal Tradelink Limited.

7.1 It was further submitted that the petitioner has not denied the transactions with the Kushal Tradelink Limited who has provided the accommodation entries to the various assessees and petitioner is one of such beneficiaries of such entries.

7.2. It was therefore submitted that the Assessing Officer on the basis of such information has formed reason to believe to re-open the assessment and therefore, no interference is required to be made while exercising extra-ordinary jurisdiction under Article 226 of the Constitution of India.

8. Considering the submissions made by learned advocates for both the sides and on perusal of the reasons recorded, it appears that the Assessing Officer has failed to give the requisite details in the reasons recorded so as to form a requisite prima facie belief that income has escaped assessment. The reasons recorded only refer to the information received from the credible sources that the search was carried out in case of Kushal Group and during course of search, incriminating documents were found and seized and on going through the information available on Insight Portal, it was found that the petitioner is one of the beneficiary of the accommodation entries in form of different types of income like Long Terms Gains/Loss/Short Terms Gains/Loss and also beneficiary of unsecured loans etc, without there being any basis for forming such belief

9. Therefore, it is clear that the respondent Assessing Officer has recorded the reasons only on the basis of the borrowed satisfaction without there being any live link between the information available on the Insight Portal and the data available on the record of the petitioner-assessee. In such circumstances, the Assessing Officer cannot be said to have formed an independent satisfaction regarding the reasons recorded to re-open the assessment to come to the prima facie conclusion that there is escapement of income

10. In view of the foregoing reasons, the petition succeeds and accordingly, allowed. The impugned notice dated 30^th June, 2022 issued under Section 148 of the Act is hereby quashed and set aside. Rule is made absolute to the aforesaid extent with no orders as to cost.