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Facts
The assessee filed an original return of income, which was processed u/s 143(1). Subsequently, the case was reopened u/s 147/148 based on information that the assessee received an accommodation entry of Rs.50.60 crores from M/s. Instyle Commercial Pvt Ltd. The assessee contended these were legitimate sales of hosiery and cotton yarn, with payment received via RTGS, but the AO linked the transaction to a third party's fund layering activities.
Held
The Tribunal held that the reopening of assessment was invalid, finding no tangible material to support the belief of escaped assessment, and noting a change of opinion by the AO. It concluded there was no live link or close nexus between the material available to the AO and the belief that income had escaped assessment. Therefore, the reassessment passed u/s 147 of the Act was quashed.
Key Issues
Whether the reopening of assessment u/s 147/148 was valid given the alleged lack of tangible material, absence of a live link, and evidence of a change of opinion by the Assessing Officer.
Sections Cited
148, 143(1), 147, 131, 153A, 143(3), 147(1)
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totally vague, arbitrary, scanty, suspicious, doubtful and ambiguous and, therefore, notice u/s.148 of the Act is liable to be quashed.
The facts in brief are that the assessee filed its original return of income on 3.9.2016 declaring total income at Rs.41,24,080/-, which was processed u/s.143(1) of the Act on 29.9.2016 accepting the returned income. Subsequently, the case of the assessee was reopened after receiving information that the assessee had taken accommodation entry of Rs.50,60,460/- during the previous year 2015-16 relevant to assessment year 2016-17 from M/s. Instyle Commercial Pvt Ltd., Accordingly, proceedings 147 of the Act were initiated and notice u/s.148 of the Act was issued on 13.3.2019, which was complied with by the assessee by filing return of income on 17.4.2019 declaring the income as declared before. Therefore, statutory notices were issued and duly served upon the assessee. In response to notices, the assessee submitted certain details explaining thereon that the assessee has sold hosiery, cotton yarn to M/s. Instyle Commercial Pvt Ltd., for a consideration of Rs.50,60,460/- in the month of March, 2015 by way of two invoices as under:
“Invoice No. Date Amount (Rs.) TTC/Instyle/001/14-15 28.3.2015 25,22,510/- TTC/Instyle/002/14-15 29.3.2015 25,37,950/- 50,60,460/- 4. It was submitted that the payment was received against the supply through RTGS in Central Bank of India, Siliguri Branch on 20.6.2015 of P a g e 2 | 8 Rs.50,60,460/- during the financial year 2015-16 relevant to assessment year 2016-17. The Assessing Officer noted that during the assessment year 2012- 13, there was some transactions in the bank statement of Mukesh Kmar Singh and his proprietary concerns and it was found that the firm was utilised for cash deposits and subsequently layering of funds by way of accommodation entries, which ultimately landed in the hands of the assessee in F.Y. 2015-16 relevant to A.Y. 2016-17. We note that the Assessing Officer has totally missed the reply of the assessee forwarded to DDIT (Inv) Unit 4(3) in response to summon issued u/s.131 of the Act, wherein, it was explained that the assessee was involved in trading of various merchandise namely, fabric, raw jute, sugar etc and sold cotton yearn to M/s. Instyle Commercial Pvt Ltd., in the month of March, 2015. The assessee has duly accounted the sales of that year. The Assessing Officer has failed to notice that this was a sundry debtor in the books of account and it is only debtor received by the assessee by way of two RTGS, therefore, the reasons recoded by the AO is vague, arbitrary, scanty, suspicious, doubtful and ambiguous and it is not clear as to how the payment received from the sundry debtor has escaped assessment during the year. In our opinion, the reopening of assessment by the Assessing Officer based on this information is invalid and cannot be sustained. In our opinion, there is no live link or close nexus between the material before the Assessing Officer and belief which he believed that the income has escaped assessment. Our view get supports from the decision of Hon’ble
P a g e 4 | 8 unfortunately did not do in the present case. Having regard to the aforesaid facts, we find merit in the Ld. AR's contention that there was no tangible material contained in the appraisal report based on which the AO could have validly formed reason to believe that income chargeable to tax had escaped assessment which was completed u/s 153A/143(3) of the Act on 30.-03.2015. Relying the decision of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinators India Ltd. (supra) and other case laws cited (supra), we are inclined to hold that the initiation of reassessment suffered from legal infirmity since the AO in the original assessment has already taken a view after enquiry and therefore, the impugned action of AO to reopen was based upon change of opinion by the present AO without there being any tangible material or material change in the underlying facts which were already known to the AO at the time of passing of the regular assessment. On a perusal of the above, it is clear that on the date when the notice for reopening was issued i.e. on 31st March, 2016 there was no tangible material available in the hands of the assessing officer to justify reopening the assessment. Before us this factual position, as recorded by the Tribunal, could not be assailed by the revenue. The learned Tribunal not stopping with the finding that the reopening of the assessment was bad in law has proceeded to consider the factual position in detail and affirmed the factual finding rendered by the CITA.”
Similarly, Hon’ble Delhi High Court in the case of PCIT vs Meenakshi Overseas Pvt Ltd., (2017) 82 taxmann.com 300(Delhi) observed and held as under:
“The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act.
P a g e 6 | 8 Therefore, on merits also, the assessee deserves to be succeeded in appeal. Therefore, we quash the reassessment passed u/s.147 of the Act.
In the result, appeal of the assesee is allowed.
Order dictated and pronounced in the open court on 11/09/2025.