Facts of the Case:
¬The case of the assessee was reopened based on information received from the Investigation Wing alleging that the assessee had entered into transactions with certain entities involved in providing accommodation entries. An assessment order was passed on 31st March 2023 under Section 147 of the Act, wherein the AO made addition of Rs.11,05,348/- by estimating a 2% commission on total alleged bogus sales and also treated purchases amounting to Rs. 89,95,892/- as bogus and thereby disallowed the same under section 37 of the Act. The ld.CIT(A) has confirms the action of AO. The assessee challenged the validity of the reassessment as well as the additions made by the AO before the Tribunal.
Contention of Assessee:
The Assessee contended that the AO has reopened the case of the assessee based on borrowed satisfaction by merely relying on information from the Investigation Wing.
The Assessee contended that material available with the AO does not have any direct or tangible nexus to the case of the assessee and the belief of escapement of income formed by the AO.
Contention of Revenue:
The Revenue contended that reassessment proceedings were initiated on the basis of credible information received from the Investigation Wing which indicated that the assessee had engaged in transactions that could be classified as accommodation entries.
The Revenue further contended that the AO has duly applied his mind and issued notice u/s 148A(b) of the Act and framed the assessment by following procedural framework under the Act.
Ruling:
The Hon’ble Tribunal has ruled in favour of the assessee by giving following observations stated hereunder:-
- The belief of escapement was formed mechanically without verifying facts.
- There was no live, rational or proximate nexus between the information received and the conclusion that income had escaped assessment.
- The reasons recorded showed ambiguity and inconsistency regarding the nature of transactions and the parties involved.
- The AO relied merely on borrowed satisfaction from the Investigation Wing without independent application of mind.
Accordingly, the reassessment proceedings were held bad in law and unsustainable.
Editor’s Note:-
This decision reinforces the jurisprudence that post-Finance Act 2021 reassessment proceedings still require a clear nexus between material and escapement of income, and that borrowed satisfaction or vague investigation reports cannot justify reopening.
It is necessary to carefully examine notice under section 148A(b) of the Act and reasons recorded therein to identify any inconsistencies or vague allegations.
Challenge validity of reassessment where reasons reflect borrowed satisfaction without independent inquiry by the AO.
Citation:- M/s JHS Svendgaard Laboratories Ltd V/s DCIT Central Circle 31, New Delhi (ITA No.3454/Del/2025) of Hon’ble Delhi Tribunal