Reassessment Quashed Due to Borrowed Satisfaction and Lack of Independent Inquiry
Krishna Murthy Ella, Chairman & MD of Bharat Biotech, filed his return for A.Y. 2014-15 declaring ₹1.62 crore. The assessment was reopened under Section 147 based on information that he acquired 4,17,535 shares from Mind Tree Trading Co. at ₹1 per share. The fair market value was ₹124.92 per share, leading the Assessing Officer to claim ₹5.17 crore as escaped income. A notice under Section 148 was issued on 12th March 2019.
During assessment, Ella contended the shares were returned to him following the cancellation of a 2005 agreement. The agreement, voided in 2013, resulted in 2,22,222 shares being transferred at ₹1 per share. Despite this, the Assessing Officer treated the differential value as taxable income. Consequently, an addition of ₹2.75 crore was made under Section 56(2)(vii)(c).
Ella challenged the assessment, arguing the reopening was based on incorrect facts without independent inquiry. He emphasized that the transaction was a cancellation, not a purchase. The CIT (A) rejected these arguments, ruling that the reopening was valid. The addition under Section 56(2)(vii)(c) was upheld as justified.
In the Tribunal, Ella’s counsel argued that the Assessing Officer relied on “borrowed satisfaction” without independent investigation.
The Tribunal noted inconsistencies in the Assessing Officer’s claims, including errors in the number of shares. It concluded that the reopening lacked proper inquiry and independent verification. Consequently, the Tribunal ruled the reopening invalid.
The Tribunal allowed Ella’s appeal, holding the reopening unlawful due to the absence of independent inquiry. As a result, the addition made under Section 56(2)(vii)(c) was quashed. With the main appeal allowed, Ella’s related stay application was deemed infructuous and dismissed.
The Copy Of the order is as under:
