RELIABLE CONNECT,ROORKEE vs. ITO, WARD -1(3)(4), ROORKEE

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ITA 324/DDN/2026Status: DisposedITAT Dehradun21 August 2026AY 2018-196 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO's action of making additions based on doubted purchases, when the original reason for reopening was a sale transaction, was not permissible. Therefore, the assumption of jurisdiction was illegal, rendering the consequential assessment order bad in law.

What were the facts?

The Assessing Officer (AO) initiated reassessment proceedings based on information about a sale of scrap by the assessee to M/s RCI Industries & Technologies Ltd. However, during reassessment, the AO doubted purchases made from a related firm, Reliable Solution, and made additions based on these doubted purchases.

What were the issues?

Whether the AO can make additions based on grounds different from the initial reasons for reopening under Section 148. Whether the assumption of jurisdiction was valid when the basis for reopening did not directly lead to the additions made.

Which sections of the Income-tax Act were involved?

Section 148,Section 148A,Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DB: DEHRADUN BENCH

Before: SHRI RAJ KUMAR CHAUHAN & SHRI SANJAY AWASTHI

For Appellant: Shri Rajiv Sahani, CA
For Respondent: Shri Mohan Lal Joshi, Sr. DR
Hearing: 23.07.2026Pronounced: 21.08.2026

IN THE INCOME TAX APPELLATE TRIBUNAL DB: DEHRADUN BENCH BEFORE SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER AND SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER ITA No.- 324/DDN/2026 [Assessment Year: 2018-19] Reliable Connect, Income Tax Officer, 181, Awas Vikas Colony, Ward-1(3)(4), Roorkee, Uttarkhand-247667. Vs Roorkee, Uttarakhand-247667. PAN- AATFR0330B Assessee Revenue Assessee by Shri Rajiv Sahani, CA Revenue by Shri Mohan Lal Joshi, Sr. DR Date of Hearing 23.07.2026 Date of Pronouncement 21.08.2026 ORDER Per Sanjay Awasthi, Accountant Member:

1.

This appeal arises from the order dated 29.04.2026, passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as’ the Act’), by the Ld. CIT(A), NFAC, Delhi.

1.1 In this case, on the basis of an information available with the Ld. AO regarding a particular transaction between one M/s RCI Industries & Technologies Ltd. and the assessee for F.Y. 2017-18, during which the assessee purportedly sold some scrap

324/DDN/2026 Reliable Connect to M/s RCI Industries & Technologies Ltd. for Rs. 2,00,39,400/-, it was the allegation that this was a bogus transaction. It was on this basis that a notice u/s 148 was issued on 29.03.2022. Thereafter, the Ld. AO completed the assessment by adding an amount of Rs. 22,77,52,675/- with the following observation: -

“4.1 During the year, the assessee has shown total purchases of Rs. 35,09,29,334/-, out of which purchase amounting to Rs.22,77,52,675/- which means more than half of toal purchases have been made from Reliable Solutions (PAN:AATFR0331A), 181 Avas Vikas Colony, Roorkee which is also the address of assessee M/s Reliable Connect. The assessee has made purchase of Rs.22,77,52,675/-from a partnership firm which is having same address. As per the ITR, the address of both the parties are same and situated at a residential colony which clearly indicates that M/s Reliable Solution and the assessee both firms exit only on paper. Further in both the firms i.e. M/s Reliabale Connect and M/s Reliable Solutions, have a common partner i.e. Mr. Virendra Kumar Chugh, Sector 25, Noida and in any return of the assessee or seller (M/s Reliable Solutions) the PAN of the common partner is not mention. Further, Mrs. Aparna Atrey and Mr. Rachirt Atrey both does have same residential address at 181, Avas Vikas Colony, Roorkee which means both the persons are clearly connected and framed the effigy of bogus sales and purchases through paper firms with the help of M/s RCI Industries. 4.9 In view of the foregoing facts, no doubt is left that the sales transactions of the disputed amount are bogus. Income has been enhanced on account of alleged suppression of closing stock. It is also pointed out that the assessee had made sham transaction of sales out of the purchases. Hence, all unverified sales cannot be deemed income of the assessee. I, therefore, taking lenient view holding that 10% i.e. Rs.2,27,75,267/- out of unverified sales of Rs22,77,52,675/-cannot be held except to be sham transaction and certainly un proved entity as deemed income of the assessee in terms of section 68 of the Act…….”

1.2 Aggrieved, the assessee approached the CIT(A), where the additions on merits were challenged and it is seen that the assessee also took the legal ground regarding illegal assumption of jurisdiction in respect of the procedure followed prior to issue of notice u/s 148 and also the consequential assessment order. It is seen that the assessee did not succeed on the substantive issues. 2

324/DDN/2026 Reliable Connect 1.3 Further aggrieved, the assessee has approached the ITAT with the grounds challenging the assumption of jurisdiction and also the additions on merits.

2.

The Ld. AR requested that his arguments on alleged illegal assumption of jurisdiction was required to be adjudicated before proceedings any further in the matter. To this extent he pointed out that ground nos. 3 and 4 of the appeal were relevant. It was argued that the reopening was done on the basis of sale of scrap made by the assessee to M/s RCI Industries & Technologies Ltd., which was held to be bogus at the time of proceedings u/s 148A of the Act. It was argued that on pages 5 to 6 of the Ld. AO’s order, this particular item of sale has not been made the subject of addition but rather the purchases have been doubted to a certain extent and on that basis by holding that a considerable quantum of the purchases was doubtful and therefore, the sales shown against them could not be held to be entirely genuine. It was a submission that instead of the sale of scrap to M/s RCI Industries & Technologies Ltd., the Ld. AO doubted the purchases and made the addition on that basis. On this issue, the Ld. AR relied on a number of authorities to canvass the point that the basis of reopening has to necessarily be considered in the consequential assessment order and if the basis of reopening itself does not survive on the basis of inquiries and investigations carried out by Ld. AO, then any other addition made would legally not be sustainable. The primary case relied on by the Ld. AR was the case of ATS Infrastructure Ltd. vs. ACIT [2024]166 taxmann.com 61 (Delhi). The 3

324/DDN/2026 Reliable Connect Ld. AR read out from the head-notes of this case and for the sake of reference, the critical portions deserve to be extracted as under:

“The validity of the proceedings initiated upon a notice under section 148 would have to be adjudged from the stand point of the reasons which formed the basis for the formation of opinion with respect to escapement of income. That opinion cannot be one of changing hues or sought to be shored upon fresh reasoning or a felt need to make further enquiries or undertake an exercise of verification. Ultimately, the Court would be primarily concerned with whether the reasons which formed the bedrock for formation of the requisite opinion are tenable and sufficient to warrant invocation of section 148. [Para 7] The first Proviso to section 148 again ties the initiation of action to the existence of information which already exists or is in the possession of the AO and on the basis of which it is opined that income liable to tax has escaped assessment. The provision thus fortifies that the foundational material alone would be relevant for the purposes of evaluating whether reassessment powers were justifiably invoked. Accordingly, and for all the aforesaid reasons, the impugned reassessment action can not be sustained. [Para 12] … This clearly appeals to reason, since Section 147 embodies a power to assess, reassess as well also to recompute. Consequently, and once that power is validly invoked, the original assessment would cease to exist in the eyes of law. Undoubtedly, once an assessment already made comes to be reopened, the AO stands empowered statutorily to undertake an assessment afresh in respect of the entire income which may have escaped assessment. However, the only additional caveat which Ranbaxy Laboratories Ltd. enters is with respect to a situation where, in the course of reassessment, the AO ultimately comes to the conclusion that no additions or variations were warranted in respect of the heads or items of income which had formed the basis for initiation of action under Section 148 of the Act. It is in the aforesaid backdrop that the Court in Ranbaxy Laboratories Ltd. (supra) proceeded on facts to hold that since no additions had ultimately been made in respect of items such as club fees, gifts and presents, and which constituted the basis for initiation of reassessment, it would not be open to the AO to revise or modulate findings on any other head that income chargeable to tax had escaped assessment, once it is found that or items that may have been dealt with in he original assessment. [Para 24] … Explanation 3 cannot consequently be read as enabling the Assessing Officer to attempt to either deviate from the reasons originally recorded for initiating action under section 147/148 nor can those Explanations. be read as empowering the Assessing Officer to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions. [Para 32]”

324/DDN/2026 Reliable Connect The Ld. AR concluded his argument by stating that the grounds for reopening do not find mention in the additions eventually made by the Ld. AO, accordingly, the assumption of jurisdiction was illegal.

2.1 The Ld. DR, on the other hand, relied on the orders of authorities below and stated that even though the exact quantum of sale made to M/s RCI Industries & Technologies Ltd. was not added in the Ld. AO’s order but actually the bogus purchases from a connected firm were used to make the impugned addition on the logic that such bogus transactions were linked to M/s Reliable Solution, a connected entity.

3.

We have carefully considered the rival submissions and have gone through the records before us. It is an admitted fact that the grounds for reopening were the sale of scrap to M/s RCI Industries & Technologies Ltd., but during the course of reassessment proceedings, the Ld. AO has not used this particular transaction specifically but has generally doubted the purchases made from one Reliable Solution, which has been held to be connected to the assessee and thereafter the impugned addition has been made. Clearly, this action is not permissible following the case of ATS Infrastructure Ltd. vs. ACIT (supra) accordingly, it is held that the assumption of jurisdiction in this case is illegal and therefore, the consequential assessment order is also bad in law.

324/DDN/2026 Reliable Connect

4.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 21.08.2026.

Sd/- Sd/-

[RAJ KUMAR CHAUHAN] [SANJAY AWASTHI] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated- 21.08.2026. Pooja. Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi,

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