HIMANSHU DAKSHESHKUMAR KATWALA,KHAMBHAT ANAND vs. INCOME TAX OFFICER, WARD-1(3)(1), PETLAD

The addition is unsustainable as it is made without any incriminating material, documentary evidence, statement, bank trail or seized material linking the appellant with any alleged accommodation entry.

The authorities erred in relying upon alleged third party material without providing such material to the appellant and without granting opportunity of cross examination, thereby violating principles of natural justice.

The authorities failed to appreciate that the Assessing Officer adopted an arithmetically incorrect and legally impermissible method by taxing purchase value and sale value instead of taxing only the actual profit.

The authorities further erred in treating unsold closing shares as sold and adding their value as income, which is contrary to settled principles of taxation and accounting.

The entire addition is based on non-application of mind and incorrect understanding of law and therefore deserves to be deleted.

The burden of proving unexplained income lies upon the Revenue, which has not been discharged in the present case.

The appellant craves leave to add, alter, amend or modify any of the above grounds at the time of hearing.”

The brief facts of the case are that the assessee is an individual who filed his return of income for the assessment year 2017-18 declaring total income of Rs. 2,35,340/-. Subsequently, based on information received from the Investigation Wing and data available on the Insight Portal, the case of the assessee was reopened under section 147 of the Act. The information indicated that the assessee had allegedly entered into transactions amounting to Rs. 29,81,262/- in the nature of accommodation entries or fictitious loans through entities controlled by Shri Jignesh Shah and Shri Sanjay Shah, who were found to be engaged in providing bogus entries during search proceedings conducted under section 132.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(Appeals). The assessee raised multiple grounds challenging the validity of reopening under section 147 of the Act, lack of independent application of mind, non-disposal of objections, and absence of specific details regarding the alleged accommodation entries. The assessee also challenged the addition on merits, contending that no material evidence was brought on record to establish that any fictitious loan or accommodation entry was taken and that the addition was made merely on the basis of third-party information without HImanshu Daksheshkumar Katwala vs. ITO Asst.Year –2017-18 - 4– providing opportunity for cross-examination. Further, the assessee challenged initiation of penalty proceedings.

The Ld. CIT(Appeals), at the outset, observed that there was a delay of more than 500 days in filing the appeal and no condonation petition was filed by the assessee. Accordingly, the appeal was liable to be dismissed in limine. However, the Ld. CIT(Appeals) proceeded to examine the matter on merits as well. It was noted that the appeal before him arose from an order passed under section 154 read with section 147, wherein the Assessing Officer had only rectified the penalty provision by substituting section 271AAC in place of section 271(1)(c), without making any change to the assessed income or addition.

With respect to the grounds relating to reopening of assessment under section 147 and addition of Rs. 29,81,262/- under section 69A of the Act, the Ld. CIT(Appeals) held that these issues pertained to the original assessment order and could not be adjudicated in an appeal against the rectification order under section 154 of the Act. Accordingly, these grounds were treated as not maintainable and were not adjudicated.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material on record. On careful consideration of the facts of the case and the submissions of the Ld. Counsel for the assessee, we find that the reassessment proceedings initiated under section 147 of the Act suffer from a fundamental legal infirmity.

Further, we observe that the Assessing Officer has not brought on record any specific details such as the name of the entity from which such alleged accommodation entries were received, the date-wise transactions, the mode of transaction or the nature of such entries. The reasons recorded in our view are vague and without any independent verification or inquiry conducted by the Assessing Officer. Such mechanical reopening, in our considered view, does not satisfy the jurisdictional requirement of “reason to believe” as contemplated under section 147 of the Act.

In view of the above, we are of the considered opinion that the reassessment proceedings have been initiated without proper application of mind and without even identifying the precise nature of HImanshu Daksheshkumar Katwala vs. ITO Asst.Year –2017-18 - 6– income escaping assessment. The initiation of proceedings under section 147 is therefore bad in law and liable to be quashed.

Since the very foundation of reassessment proceedings is held to be invalid, the consequent assessment order passed under section 143(3) read with section 147 of the Act as well as the addition made under section 69A of Rs. 29,81,262/- cannot be sustained and are hereby quashed.

In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 09/04/2026