ITAT Kolkata Invalidates Reassessment Under Sections 147 and 148: Borrowed Satisfaction and Incorrect Facts Cannot Sustain Reopening

Overview of the Case

The Income Tax Appellate Tribunal (ITAT), Kolkata, delivered a significant ruling in the matter of Kedia Carbon Pvt. Ltd. Vs DCIT, allowing the assessee's appeal and striking down the reopening of assessment for Assessment Year 2009-10. The Tribunal held that where the reasons recorded by the Assessing Officer (AO) are riddled with factual inaccuracies and reflect no independent application of mind — amounting to borrowed satisfaction — the reopening under Section 148 read with Section 147 of the Income Tax Act, 1961 is fundamentally unsustainable and must be quashed.

This decision carries far-reaching implications for how tax authorities may invoke reassessment provisions, particularly in cases arising from search operations, where Investigation Wing inputs are often mechanically adopted without independent scrutiny.

Background and Nature of the Assessee's Business

Kedia Carbon Pvt. Ltd. is engaged in the manufacture of Coal Tar Pitch and its by-products. For Assessment Year 2009-10, the assessee filed its return of income on 18.09.2009, declaring a total income of ₹1,95,36,905. The original assessment was completed under Section 143(3) of the Income Tax Act, 1961 vide order dated 28.11.2011, with the assessed income determined at ₹11,04,57,610.

Subsequently, a search and seizure action under Section 132(1) of the Income Tax Act, 1961 was conducted on 06.10.2015 on the Kedia group of companies, and the assessee was covered within the scope of that search. On the basis of material gathered during the search proceedings, the AO issued a notice under Section 148 on 25.10.2016, thereby reopening the completed assessment.

Reasons Recorded for Reopening and Reassessment

The AO's reasons for reopening centered on the allegation that the assessee had received share capital and share premium aggregating to ₹15,11,35,000 from various entities, with shares allegedly issued at a face value of ₹10 each at a premium of ₹90 per share. The AO further relied on:

  • Statements of alleged entry operators recorded by the Director of Investigation, Kolkata, during various search and survey proceedings
  • References to certain shell companies or "Jamakarchi" entities allegedly operated by known entry operators
  • Admissions purportedly made by Shri Mahesh Kedia and Shri Vedang Kedia — key persons of the Kedia group — that they had availed accommodation entries in the form of share capital/share premium through shell companies

On the basis of these reasons, the AO concluded that income of ₹15,11,35,000 had escaped assessment and proceeded to add the entire amount as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Commissioner of Income-tax (Appeals) subsequently upheld the addition on merits.

Additional Grounds Raised Before ITAT

Before the Tribunal, the assessee sought to challenge not merely the merits of the addition, but the very foundation of the reopening itself. Accordingly, additional grounds were raised vide letter dated 25.09.2026, which the Tribunal extracted as follows: