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Facts
The assessee challenged the reopening of assessment for AY 2017-18 under Section 147/148, which was based on information from the Insight Portal suggesting the assessee received accommodation entries from the Kaushal Group totaling Rs.64,05,601/-. The assessee contended that they only traded in shares of Kaushal Ltd., which was disclosed in the original return and scrutinized under Section 143(3), and denied receiving bogus accommodation entries.
Held
The Tribunal found that the AO's information was vague and general, lacking specific transaction details, and the AO failed to correlate it with the assessee's assessment records. It concluded that the reasons recorded for reopening were factually incorrect and did not establish a 'reason to believe' for income escapement, thus deeming the reassessment bad in law and quashing the assessment order.
Key Issues
The validity of assessment reopening under Section 147/148 when based on vague information about accommodation entries from a third party without proper correlation to the assessee's previously scrutinized records, determining if the AO had 'reason to believe' income escapement.
Sections Cited
250, 147, 148, 139(1), 143(3), 153C
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Shri Makarand V. Mahadeokar
"ी संजय गग", "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम!। ] ] Before Shri Sanjay Garg, Judicial Member And Shri Makarand V. Mahadeokar, Accountant Member आयकर अपील सं / Year : 2017-18 Hansaben Girishbhai Shah The Dy.CIT बनाम/ 139, V.R. Shah Smruti Circle-2(1)(1) v/s. Shikshan Mandir Ahmedabad – 380 015 Opp. Yogeshwar Nagar Society Nr. Dharnidhar Derasar Vasna Ahmedabad – 380 007 "थायी लेखा सं./PAN: AAJPD 7188 H (अपीलाथ$/ Appellant) (%& यथ$/ Respondent) Assessee by : Shri Jaimin Shah, AR Revenue by : Shri Abhijit Sr.DR सुनवाई की तारीख/Date of Hearing : 20/08/2025 घोषणा की तारीख /Date of Pronouncement: 26/08/2025 आदेश/O R D E R
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 27/03/2024 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2017-2018. Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18
There is a delay of thirty days in filing the present appeal. An application has been filed for condonation of delay. Considering the averments made in the application as well as the shortness of delay, the delay in filing the appeal is hereby condoned.
The assessee, in this appeal, has mainly contested the validity of re- opening of the assessment by the Assessing Officer (AO) u/s.147 r.w.s.148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). Since this legal issue goes to the root of the case and hit at the very validity of the assessment order, therefore, we proceed to adjudicate first this issue.
At the outset, the Ld.Counsel for the assessee has invited our attention to the paper-book at page No.22, which is a copy of the reasons recorded by the AO for re-opening of the assessment. It is alleged in the said reasons that a search action was conducted at one Kaushal Group on 05/02/2019 and during the said search action, certain incriminating material were found. Thereafter, the AO of the assessee while going through the information available on insight Portal noticed that the Investigation Wing, Ahmedabad had, during investigation, found that the Kaushal Group was managing and controlling multiple companies and concerns which were not carrying out any genuine business activity. That these concerns were involved into activities of providing accommodation entries of various kinds, such as, bogus Long Term Capital Gain/Loss or Short Term Capital Gain/Loss, unsecured loans, share premium, bogus gains, contrived losses, etc. The AO further noticed that on perusal of information, it was revealed that the assessee was one of the beneficiaries who had availed accommodation entries to the tune of Rs.64,05,601/- from the said Kaushal Group under various Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18 heads, such as, bogus Long Term Capital Gain/Loss, unsecured loans, share premium, bogus gains, contrived losses, etc. He, therefore, observed that there was a failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment. He, therefore, observed that the income of the assessee for the year under consideration has escaped assessment to the tune of Rs.64,05,601/-. He accordingly re-opened the assessment and issued notice to the assessee u/s.148 of the Act. The assessee filed objections against the reopening of the assessment vide letter dated 01/11/2021, which were disposed of by the AO vide his order dated 27/01/2022. The Ld.Counsel for the assessee, while bringing our attention to the assessment records, has pointed out that the assessee during the year had not taken any accommodation entry from the Kaushal Group. He, however, had traded in the shares of the Kaushal Ltd. which were fully disclosed in the original return of income filed u/s.139(1) of the Act. It has been further submitted that the return of the assessee was selected for scrutiny assessment u/s.143(3) of the Act and the above issue of trading in shares and disclosing Short Term Capital Gain (STCG) was duly examined during the original scrutiny proceedings. That the assessee had earned STCG by trading in shares of the Kaushal Ltd. and the same were duly subjected to income-tax. The Ld.Counsel has submitted that the observation of the Officer in the reasons recorded that the assessee has obtained accommodation entry from the Kaushal Group was factually incorrect. That even, the AO after getting the aforesaid general information did not co-relate the same with the assessment records of the assessee. He, therefore, has submitted that the AO did not have any valid reason to reopen the assessment. He has submitted that the AO straightly proceeded to reopen the assessment on the basis of vague information available on insight Portal without correlating the same Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18 with the accounts of the assessee. He, therefore, has submitted that the AO did not have any valid reasons for the reopening of the assessment, hence the same was bad in law.
The Ld.Departmental Representative (DR), however, has submitted that in this case, information was available on insight portal. The said information was collected by the Investigation Wing in post-search enquiries. That from the aforesaid information, it revealed that the Kausahal Group was indulged in stock price rigging and that the assessee was one of the beneficiaries. That the assessee had traded off-market in the shares of Kaushal Group. He has further submitted that the issue of validity of re- opening of the assessment has been thoroughly examined by the Ld.CIT(A) in para No.5.5 of the impugned order of the CIT(A). The Ld.DR further submitted that the Ld.CIT(A) has also discussed the issue of validity of reopening of the assessment vide his observations made and dismissed the issue regarding the validity of the assessment in para Nos.6 & 6.4 of the impugned order. He submitted that the Ld.CIT(A) observed that the assessee had shown bogus STCG by taking benefit of price rigging of that script by Kaushal Group. The Ld.DR further submitted that, time and again it has been held by the higher Courts including the Hon’ble Supreme Court that not only the incriminating material available on record, but the surrounding circumstances have also to be considered for forming belief regarding the escapement of income of the assessee. The Ld.DR further submitted that the Ld.CIT(A) has thoroughly examined and decided the issue relating to the validity of reopening of the assessment and that he did not find any infirmity in the order of the AO. Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18
We have considered the rival contentions of the parties and gone through the record. It is noticed that, in this case, there was a general information available on insight portal of the department that the assessee was beneficiary of some bogus transactions with the Kaushal Group. However, there was no mention about any specific transaction or nature of transaction as to whether it was bogus Long Term Capital Gain/Loss or Short Term Capital Gain/Loss, unsecured loans, share premium, bogus gains, contrived losses, etc. The said information was a general and vague information. The only information available to the AO was that the assessee had engaged into some transaction with Kaushal Group and nothing else. Under those circumstances, the AO was supposed to co-relate to the said information with the assessment records of the assessee, which were very much available with the Department, as earlier, the case of the assessee was selected for scrutiny u/s.143(3) of the Act. However, the AO did not co- relate the said general information with the assessment records of the assessee.
6.1. As noted above, the Assessing Officer, in this case, has reopened the assessment solely on the basis of the information available on the insight portal of the department without verifying the veracity and truthfulness of such information. Hon’ble Supreme Court in the case of “Dr. Jagmittar Sain Bhagat & Ors vs Dir. Health Services, Haryana” in Civil Appeal No.5476 of 2013 decided on July 11, 2013, while relying upon another decision of the Hon’ble Supreme Court in the case of “Sushil Kumar Mehta v. Gobind Ram Bohra” (1990) 1 SCC 193 and further placing reliance on the other decisions of the Hon’ble Supreme Court in the cases of “Premier Automobiles Ltd. v. Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18 K.S. Wadke & Ors.”, (1976) 1 SCC 496; “Kiran Singh v. Chaman Paswan”, AIR 1954 SC 340; and “Chandrika Misir & Anr. v. Bhaiyalal”, AIR 1973 SC 2391 has observed that where a statute places obligation and enforces the performance in specified manner, performance cannot be forced in any other manner. Under the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that such reasons to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. Such an action of the Assessing Officer regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18 open to challenge in a court of law. The entire law as to what would constitute "reason to believe" has been summed up by the Hon’ble Supreme Court in the case of “Income Tax Officer vs. Lakhmani Mewaldas” (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs. Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein, making identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s. 148 of the Act was not valid.
6.2. The facts on the file reveal that there was not any specific information available to the AO regarding the escapement of the income of the assessee for the year under consideration. Even, the AO was not aware about the nature of transaction, if any, done by the assessee with Kaushal Group. The AO did not bother to correlate and verify the said general information available on insight portal with the assessment records of the assessee. Even the reasons recorded are factually incorrect as the assessee did not enter into any transaction with Kaushal Group. He just had traded in the script of Kaushal Ltd., wherefrom he has shown STCG, which were offered for taxation. The said issue was duly examined by the AO during the original assessment proceedings. In view of the above discussion, the reopening of the assessment in this case was bad in law.
In view of this, since, the reopening of the assessment in this case is bad in law, hence the consequential assessment order passed u/s.143(3) r.w.s.147 of the Act is also bad in law and the same is hereby quashed. The appeal of the assessee stands allowed on this legal ground. Hansaben Girishbhai Shah vs. Dy.CIT, Cir-2(1)(1) Asst.Yeaar 2017-18
Before parting, it is pertinent to mention here that the assessee has raised another legal ground that, in this case, re-opening has been made on the basis of various material/information collected during the course of search action in the case of Shri Kaushal Group and under the circumstances, the only recourse available with the Department was to proceed against the assessee u/s.153C of the Act and that the re-opening of the assessment u/s.147 was not justified on this score also. However, we have already held that the re-opening of the assessment in this case is bad in law, for want of valid reasons available to the AO to form the belief of escapement of income of the assessee for the year under consideration, hence, at this stage, no adjudication is made on this legal ground of appeal and the same is kept open, the assessee may raise this ground at proper stage, if need be.