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Facts
The assessee filed a return declaring a loss. The Assessing Officer (AO) reopened the assessment based on information from ADIT(Inv.) that the assessee had taken accommodation entries. The AO made an addition of Rs. 1,00,00,000/-. The CIT(A) dismissed the appeal. The assessee contended that the reopening was invalid due to wrong and fallacious reasons recorded by the AO.
Held
The Tribunal held that the reasons recorded by the AO for reopening were vague, scanty, and ambiguous, not forming a valid basis for belief that income had escaped assessment. The AO acted on borrowed satisfaction without independent application of mind.
Key Issues
Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, was based on valid reasons and the AO had a proper application of mind.
Sections Cited
147, 148, 68, 250, 143(3)
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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: September 03, 2025 ORDER
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 07.11.2024 of the National Faceless Appeal Centre [hereinafter referred to as the “ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”].
The issue raised in Ground No.1 & 2 is against the invalid reopening of assessment u/s 147 of the Act by the Assessing Officer which was upheld by the ld. CIT(A) and accordingly the reassessment framed as well as consequent assessment deserved to be quashed.
The facts in brief are that the assessee filed return of income on 27.09.2012 declaring total loss of Rs.47,11,358/-. The case of the assessee was reopened u/s 147 of the Act after the Assessing Officer Aviral Marketing Pvt. Ltd received information from ADIT(Inv.), Unit-3(1), Kolkata that the assessee has taken accommodation entry of Rs.1,00,00,000/- during the relevant assessment year. Accordingly, reasons were recorded and notice u/s 148 was issued on 20.03.2019 after obtaining approval from ld. Pr. CIT-2, Kolkata. The assessee filed the return of income in compliance on 29.04.2019 declaring the same loss as declared in the original return of income. Thereafter, statutory notices along with questionnaire were issued which were duly complied by the assessee by filing necessary evidences. Finally, the Assessing Officer rejected the plea of the assessee and made an addition of Rs.1,00,00,000/- u/s 68 in respect of money received from M/s Startrack Vinimay Pvt. Ltd. vide assessment order dated 27.12.2019 passed u/s 143(3) r.w.s. 147 of the Act.
In the appellate proceedings, the ld. CIT(A) dismissed the appeal of the assessee ex parte, however the issues were dealt with on merits. The ld. counsel for the assessee vehemently submitted before us that though there was no participation of the assessee before the appellate proceedings, however, the ld. CIT(A) has decided the issues on merits and therefore, there is no need for restoration of the appeal to the file of the ld. CIT(A). The ld. counsel stated that while opposing the prayer of the ld. Sr. DR at the beginning that the appeal may be restored to ld. CIT(A).
The ld. counsel for the assessee stated that the reopening of the assessment u/s 148 of the Act has been made invalidly by the Assessing Officer as the reasons recorded were totally wrong and fallacious. The ld. counsel drew our attention to the reasons recorded, a copy of the same is available at page no.14 of the paper-book. The ld. counsel submitted that in the said reasons, the Assessing Officer has noted that huge funds were credited to the bank account of M/s Startrack Vinimay Pvt. Ltd. Aviral Marketing Pvt. Ltd from the assessee amounting to Rs.1,00,00,000/- and therefore, the Assessing Officer has reasons to believe based on the said material that Rs.1,00,00,000/- has escaped assessment within the meaning of section 147 of the Act. The ld. counsel, therefore, stated that in the said reasons, the Assessing Officer noted that the assessee has given Rs.1,00,00,000/- to M/s Startrack Vinimay Pvt. Ltd. whereas as a matter of fact this unsecured loan was raised by the assessee from M/s Startrack Vinimay Pvt. Ltd. which was also refunded during the year. Therefore, the reasons recorded by the Assessing Officer were totally wrong and fallacious and the reopening based thereupon is also invalid and may be quashed. The ld. counsel submitted that reasons recorded are vague, scanty and ambiguous and reopening based on the said reasons may be quashed. Besides, the ld. counsel argued that the Assessing Officer has acted as borrowed satisfaction of the investigation wing and has not recorded his own satisfaction. In defence of his argument, the ld. counsel has relied on the decision of PCIT vs. Meenakshi Overseas (P) Ltd. reported in (2017) 395 ITR 677 (Del), PCIT vs. G & G Pharma India Ltd. reported in (2016) 384 ITR 147 (Del) and CIT vs. Insecticides (India) Ltd. reported in (2013) 357 ITR 330 (Del).
The ld. DR, on the other hand, relied heavily on the orders of the authorities below.
After hearing the rival contentions and perusing the materials available on record, we find that in this case, the Assessing Officer recorded reasons u/s 148 for reopening of the assessment observing that the assessee has advanced money to M/s Startrack Vinimay Pvt. Ltd. of Rs.1,00,00,000/- and therefore, he noted that the said amount has escaped assessment. Whereas the fact of the matter is that the assessee has received the unsecured loan from the said party during the year Aviral Marketing Pvt. Ltd which was also repaid during the year itself. The copy of the reasons recorded is available at page no.14 of the paper-book. The assessee has also filed the copy of bank statement which is available at page no.24 of the paper-book which clearly reveals that the assessee has taken unsecured loan of Rs.50 lacs on 21.05.2022 by way of two entries of Rs.25,00,000/- each and on 25.05.2011 Rs.50 lacs by way of two entries of Rs.25,00,000/- each. Meaning thereby that the assessee has borrowed Rs.1,00,00,000/- on 09.06.2011 which was repaid by the assessee on 13.06.2011 by making repayments of Rs.75,00,000/- and Rs.25,00,000/- respectively. Therefore, we find merit in the contention of the assessee that the reopening has been made up on the basis of wrong reasons which are totally vague, wrong and scanty. In our view, the assessment cannot be reopened on the basis of such reasons as has been held by the Hon’ble Delhi High Court in the case of CIT vs. Insecticides (India) Ltd. (supra), the relevant part of the decision of the Hon’ble Delhi High Court is extracted as under:
“7. We may point out at this juncture itself that the Tribunal did not go into the question of merits. It only examined the question of the validity of the proceedings under Section 147 of the said Act. The Tribunal, in essence, held that the purported reasons for reopening the assessments were entirely vague and devoid of any material. As such, on the available material, no reasonable person could have any reason to believe that income had escaped assessment. Consequently, the Tribunal held that the proceedings under Section 147 of the said Act were invalid.
The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced:- "In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned Aviral Marketing Pvt. Ltd
as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT vs. Atul Jain (2000) 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the Aviral Marketing Pvt. Ltd information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotels (P) Ltd. (supra) also supports the view we have taken above."
9. We do not see any reason to differ with the view expressed by the Tribunal. No substantial question of law arises for our consideration. The appeals are dismissed. There shall be no order as to costs.” 7.1 Similarly, in the case of PCIT vs. Meenakshi Overseas (P) Ltd. (supra), the Hon’ble Delhi High Court held that there is no independent application of mind by the Assessing Officer to the tangible material which form the basis of reasons to believe that income has escaped assessment and further held that the conclusions of the Assessing Officer are at best a reproduction of the conclusion in the investigation report and indeed it is a borrowed satisfaction as the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe that income has escaped assessment.
7.2 Similarly, in the case of PCIT vs. G & G Pharma India Ltd. (supra), the Hon’ble Delhi High Court has held as under:
“13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity .” 7.3 Accordingly, by following the above ratio laid down by the Hon’ble High Court, we are inclined to quash the reopening of the assessment made by the Assessing Officer. The legal issue raised in the Ground Nos.1 & 2 is allowed.
Aviral Marketing Pvt. Ltd 8. Besides, we find merit in the contention of the assessee that the loan received during the of Rs.1,00,00,000/- has also been repaid during the year itself and therefore, there is no benefit derived by the assessee from the said transaction. The case of the assessee finds force to the decision of the Hon’ble Gujarat High Court in the case of PCIT vs. Ambe Tradecorp (P) Ltd. reported in (2022) 145 taxmann.com 27(Guj). Therefore, even on merits, the addition made by the Assessing Officer as sustained by the ld. CIT(A) cannot be sustained and the addition is hereby deleted.
In the result, the appeal of the assessee is allowed.
Kolkata, the 3rd September, 2025.