HC Quashes Reassessment Based on Borrowed Satisfaction Without Live Link

Case Details: Mita Ashish Desai vs. Deputy Commissioner of Income-tax [2025] 180 taxmann.com 815 (Gujarat)

Judiciary and Counsel Details

• Bhargav D. Karia & Pranav Trivedi, JJ.
• Tushar Hemani & Ms Vaibhavi K Parikh, Advs. for the Petitioner.
• Ms Maithili D Mehta, Senior Standing Counsel for the Respondent.

Facts of the Case

The assessee filed her return of income for the relevant assessment year and declared short-term capital gains on the sale of shares of a company. Subsequently, the Assessing Officer (AO) issued a notice for reassessment based on information from a search under section 132 on that group of companies. The search revealed incriminating documents showing evidence of cash transactions providing bogus entries.

The assessee filed objections to the reassessment notice, contending that all purchase and sale transactions of shares were duly recorded, short-term capital gains were fully disclosed and taxed, and no long-term capital gains were earned during the year. However, the AO rejected the objections and passed an order holding that the short-term capital gains were bogus and reopened the assessment.

The assessee filed a writ petition to the Gujarat High Court against the reassessment order.

High Court Held

The High Court held that the AO failed to provide sufficient details in the reasons recorded to establish a prima facie belief that income had escaped assessment. The reasons recorded only refer to information received from credible sources, indicating that a search was conducted on a group of companies and that incriminating documents were found and seized during the search. Upon reviewing the information available on the Insight Portal, it was found that the assessee was one of the beneficiaries of accommodation entries in various forms of income, such as Long Term Gains/Loss, Short Term Gains/Loss, and also as a beneficiary of unsecured loans, among others, without any proper basis for forming such a belief.

It was clear that the AO recorded the reasons solely based on borrowed satisfaction, without any live link between the information available on the Insight Portal and the assessee’s record. Therefore, the AO cannot be said to have formed an independent satisfaction regarding the reasons recorded for reopening the assessment, in order to reach the prima facie conclusion that there is escapement of income.

Accordingly, the petition was allowed, and the reassessment notice was quashed and set aside.