BABULAL VYAPAAR PVT. LTD.,KOLKATA vs. I.T.O., WARD - 9(1), KOLKATA

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ITA 503/KOL/2026Status: DisposedITAT Kolkata21 May 2026AY 2016-201711 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO had not formed a prima facie belief that income had escaped assessment, but rather reopened the case for mere examination of financial transactions. Therefore, the reassessment proceedings and the consequent assessment order were deemed invalid.

What were the facts?

The assessee's case was reopened based on information about dubious financial transactions. The Assessing Officer (AO) issued notices, and after the assessee provided some documentation, made additions including unexplained cash credit. The CIT(A) upheld the reopening and assessment.

What were the issues?

Whether the reopening of assessment under Section 147 was valid when the AO's reasons indicated a mere examination of transactions rather than a belief that income had escaped assessment.

Which sections of the Income-tax Act were involved?

Section 147,Section 144,Section 144B,Section 148,Section 142(1),Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

For Appellant: Shri Anil Kochar, AR
For Respondent: Shri Manoj Kumar Pati, DR
Hearing: 11.05.2026Pronounced: 21.05.2026

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 19.12.2025 for the AY 2016-17.

2.

The only issue pressed at the time of hearing is against the order of ld. CIT (A) upholding the reopening of assessment and assessment framed u/s 147 read with section 144/144B of the Income-tax Act, 1961 (the Act) passed by National Faceless Appeal Centre, Delhi [the learned CIT (A)], which is otherwise invalid and bad in law.

4.

In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee when there was no compliance before the ld. CIT (A) though decided the issue on merit after going

5.

The Ld. A.R vehemently submitted before us that the reopening of assessment has been made by AO just to examine the investments in immovable property and for verification of financial transactions s which according to AO were suspicious. The Ld. A.R by referring to the reasons recorded argued that the reopening of assessment u/s 147 read with Section 148 of the Act cannot be made just for the purpose of examination or verification of the facts as the AO is required to record the reasons u/s 148(2) and reach an objective satisfaction as to how the income has escaped assessment. The Ld. A.R therefore prayed that the AO is himself not sure whether the income had escaped or not. The Ld. A.R argued the provisions of Section 148 of the Act which deals with the reopening which unsettle the already settled assessment and therefore the reasons recorded stated only that the financial transactions/investments were required to be examined. The Ld. A.R. contended that the AO is required to form a belief on the basis of said information received that income of the assessee has escaped assessment failing which the AO has no jurisdiction to initiate the proceedings under section 147 read with section 148 of the Act. The Ld. A.R. argued that the AO is required to form a reasonable belief that that income chargeable to tax has escaped assessment on the basis of information available to him which is missing in the instant case as is apparent from the reasons reproduced above. The AO has resorted to the provisions of section 147 of the Act to merely verify the financial transactions and

1.

PCIT v ManzilDineshkumar Shah (406 ITR 326)(Guj) 2. SLP dismissed by the Hon'ble Supreme Court against the judgment of the Hon'ble Gujrat High Court in the case of PCIT v Manzil Dinesh kumar Shah 3. Inductotheran (India) P. Ltd. v DCIT (356 ITR 481)(Guj) 4. Chhugamal Rajpal v S P Chaliha and Ors. Ltd. (416 ITR 435)(SC) 5. Nivi Trading Ltd v Union of India (375 ITR 308)(Bom) 6. CIT v Maniben Lalji Shah (283 ITR 453)(Bom) 7. CIT v Batra Bhatia Company (321 ITR 526)(Delhi)

6.

The Ld. A.R., therefore, prayed that in view of the ratio laid down by the Apex Court and various High Courts, the assumption of jurisdiction under section 147 of the Act for verification and examination of financial transactions is bad in law and so is the consequent assessment framed u/s 143(3) r.w.s. 147 of the Act. Accordingly, the Ld. A.R. prayed that the same may kindly be quashed.

7.

The Ld. D.R., on the other hand, strongly opposed the arguments putforth by the Ld. A.R. by submitting that in this case the information to the effect that the assessee has made some financial transactions which were suspicious and based upon the said information the reasons to believe were recorded and after obtaining approval from competent authority ,the case was re-opened u/s 147 of the Act and notice under section 148 of the Act was issued. The Ld. D.R. argued that in this case the AO has tangible and fresh material to form a belief that income has escaped assessment. The Ld. D.R., while referring to the reasons recorded, submitted that it is clearly mentioned in the reasons recorded under section 148(2) of the Act that purchases were bogus. The Ld. D.R., therefore, prayed that the ground raised by the assessee before ldCIT(A) has rightly been dismissed by the first appellate authority after going into the legal aspect of the issue. The ld. DR prayed that in view of these facts and circumstances especially independent and tangible materials, the legal ground raised by the assessee may kindly be dismissed by upholding the order of Ld. CIT(A) on this issue.

8.

After hearing the rival contentions and perusing the materials available on record, we find that in this case the assessments was reopened by the ld. AO u/s 147 of the Act by issuing notice u/s 148 of the Act on 29.03.2021, after recording the reasons to belief. For the sake of ready reference, the reasons are extracted below:-

“"A piece of information was received from the DIT(I & CI), Kolkata on 25/10/2018 containing the fact that the office is possession of credible information in respect of cash transaction in a number of dubious accounts. On examination of bank statements, it is found that unaccounted cash has been frequently deposited in the bank A/Cs which is immediately transferred to interlink accounts and then ultimately to the beneficiary's account. In this way the beneficiary companies bring back their unaccounted income into their regular books of accounts in the guise of bogus sale/purchase/share capital/share premium /unsecured loan.

The information was received form credible sources that the Kavita Vyapaar Private Limited purchase of property on 24/07/2015. In course of verification, it is found that the assessee has furnished sources of investment of Rs.66,35,600/- against total investment expenses of Rs.66,90,596/- on account of stamp duty and registration fees etc. When confronted, it was informed that the difference of Rs.54,996/- has been spend in cash and has been debited under the head General expenses in profit and loss account. As the books of accounts were not produced, therefore, this expenditure remained unverified. It is also found that the assessee company had received rent of Rs.7,80,191/- from this property and the rent receipt from this property is varied in preceding years and there is a question of verification. Another disparity is that the assessee company had received loan from Mis Shree Mahendra Kr Soni Finance Pvt Ltd of Rs. 4,00,000/-, But this amount could not verified due to non receipt of books of loan creditors and the question of genuineness arise. Further it is seen that the assessee claimed a receipt of Rs.7,95,000/- from M/s. Narbada Vyapaar Pvt Ltd may be inappropriate. Financial transaction with Smt. Shobha Jain, Shri Gopal Das Daga, M/s. G G Resources Pvt Ltd, M/s. Rash Merchants Pvt Ltd, M/s. G B India Finance Pvt Ltd of Rs. 10,00,000/-, Rs.5,00,000/-, Rs.5,00,000/-, Rs. 10,50,000/- and Rs.4,00,000/- may be suspicious during the financial year 2015 16. Therefore, the source of cash of Rs.54,80,187/-deposit is suspicious during the F.Y 2015-16.”

(a) In the case of PCIT vs Manzil Dinesh kumar Shah (supra), the Hon’bleGujrat High Court has held that formation of independent opinion by the AO is mandatory condition and mere mentioning of need for deep verification of information received is not a valid ground for

(b) In the case of Inductotheran (India) P. Ltd. v DCIT (supra) the Hon’ble Gujarat High Court has held that the reassessment notice is not permissible merely for verification of claim made under section 80HHC of the Act. The relevant extract of the decision of the Hon’ble Gujarat High Court is reproduced below: “18. Reverting to the facts of the present case, we notice that in two out of the four reasons recorded by the Assessing Officer for reopening the assessment, he stated that he need to verify the claims. In the second ground, he had recorded that the admissibility of the bad debts written off required to be verified. In the fourth ground also, he had recorded that the admissibility of royalty claim was required to be verified. We are in agreement with the contention of the counsel for the petitioner that for a mere] verification of the claim, the power for reopening of assessment could not be exercised. The Assessing Officer in the guise of power to reopen ai assessment, cannot seek

(d) In the case of Nivi Trading Ltd v Union of India (supra) & others (supra) the Hon’ble Bombay High Court has held that if more details are sought or some verification is proposed that can not be a substitution for reason which led the AO to believe that income chargeable to tax has escaped assessment. The court has held as under: “Held, allowing the petition, that the return of income was filed. There was a processing and verification thereof. In the return of income and on the res- pondents' own showing on its verification, the long-term capital gains and dividend income in the sum came to be disclosed and equally another sum (Rs. 1,21,33,429) as gift. The Revenue proceeded on the footing that these shares were gifted without consideration. It was this fact which it wanted to verify and particularly whether the value of these shares had been computed on the market value. The tax authorities did not state that any income charge-

(f) In the case of CIT v Batra Bhatia Company (supra) the Hon’ble Delhi High Court has held while dismissing the appeal of the Revenue that Ld. CIT(A) as well as Tribunal had given a concurrent finding that there was no material before the AO on the basis of which the AO would have had a belief that agricultural land sold by the assessee was a capital receipt within the meaning of section 2(14) of the Act and expression of the AO “requires much deeper scrutiny” indicated that he was mere embarking on mere presumptions without any belief much less belief based on reason and material and thus the reassessment was not valid.

10.

In view of the ratio laid down in the various decisions as discussed above vis-a-vis fact of the assessee case, we are of the considered view that the AO has not formed a prima facie and independent belief on the reasons recorded that income has escaped assessment but reopened the assessment only for carrying out examination of financial transactions with certain parties by the assessee. Under these facts and circumstances, we are not in a position to concur with the finding of the Ld. CIT(A) justifying the re-opening of assessment. Under these facts and circumstances, the order

11.

The other issues raised on merits are not decided at this stage and are being left open to be decided it need arises for the same in future.

12.

In the result, the appeal of the assessee is allowed.

Order pronounced on 21.05.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 21.05.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

Asst. Registrar Income Tax Appellate Tribunal, Kolkata

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