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Facts
The assessee, engaged in garment manufacture and export, had income of Rs. 52,40,220/- declared in his return for AY 2012-13. The AO reopened the case based on information from the Investigation Wing about accommodation entries amounting to Rs. 16,01,995/- provided by M/s Keshav Cloth. The AO made an addition of this amount as bogus transactions.
Held
The Tribunal held that the reopening of the assessment was procedurally valid and substantively justified, as the AO had received credible information from the Investigation Wing and conducted his own inquiries. The alleged accommodation entries pertained to the impugned year, and the payment made was considered unexplained expenditure.
Key Issues
1. Whether the reopening of the assessment was valid and based on sufficient reasons. 2. Whether the addition made on account of alleged accommodation entries for purchase of fabric was justified for the Assessment Year 2012-13.
Sections Cited
148, 147, 143(3), 69C
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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI ANUBHAV SHARMA, & SHRI NAVEEN CHANDRA
This appeal by the assessee is directed against the order of the ld. CIT(A)-1, Nashik dated 23.06.2025 pertaining to A.Y 2012-13. 2. Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacture and export of garments through his proprietorship firm M/s. AZURE during the relevant F.Y.
The AO of the assessee received information from the Investigation Wing Department that M/s Keshav Cloth, Prop. Anita Rani Singhal, located Shop No. 2, Ground Floor, East Guru Angad Nagar, Delhi-110092, had provided accommodation purchase entries amounting to Rs. 16,01,995/- to the assessee during the year under consideration. On the basis of the information, assessee's case was reopened by issuing a notice u/s 148 of the Income-tax Act, 1961 [the Act, for short]. The Assessing Officer thereafter, passed a reassessment order u/s 147 r.w.s143(3) of the Act on 23.12.2019, making an addition of Rs. 16,01,995/- to the returned income. This addition was computed at 100% of the bogus transaction of Rs. 16,01,995/- made from M/s Keshav Choth, Delhi.
Being aggrieved, the assessee preferred the appeal before the ld. CIT(A) who sustained the addition. Aggrieved further, the assessee has come in appeal before us.
The ld AR of the assessee challenge to the impugned order is basically on two fold: that the reasons of reopening was mechanical and on the basis of vague information from Inv. Wing; and that the addition is made mechanically without specifying the section under Page 2 of Shri Abhimanyu Nath Vs ITO which the additions are made. On the issue of mechanical reopening, the ld AR submitted that there is no independent application of mind by the LdAO. It is based simply on the information supplied by the Investigation Wing. It is submitted that the enquiry regarding the existence of M/s Keshav Cloth was made only during the assessment proceedings and not before framing the reasons for re-opening. Therefore, at the time of framing the reasons for re-opening, the LdAO had no reasons to believe that were backed by any enquiry or evidence, that some of the assessee's income had escaped tax. The ld AR stated that the AO has not taken into account that the bill was almost 10 years old and it is possible that such business could have shifted or even closed down. The fact that the payments to this entity were made through banking channels shows that such entity actually existed.
On merits, it is the say of the ld AR that the alleged 'accommodation entries' of purchase of fabric were entered into in the FY 2010-11, therefore, the 'accommodation entries' that added did not pertain to the FY 2011-12 relevant to AY 2012-13. The ld AR argued that only payments were made in year under consideration against the opening liability for purchases of cloth made in the FY 2010-11. Further, the ld AR stated that section under which addition is made is Page 3 of Shri Abhimanyu Nath Vs ITO not stated. It is submitted that increase of returned income in assessment can be made either as disallowances of expenditure or addition of undisclosed income and to make a disallowance, a bogus claim/expenditure should be claimed in the year of assessment. As is clear from the evidence provided during assessment and as stated in the assessment order, no such claim of expense was made in AY 2012- 13.
Per contra, the ld. DR relied on the orders of the authorities below and vehemently stated that the contention of the assessee that the reopening was based on suspicion is unfounded, as the material on record clearly shows systemic entry operations, corroborated by the Investigation Wing's report. Courts, including in Kalyanji Mavji& Co. [1976] 102 I.T.R. 287(SC)and A.L.A. Firm,(1991) 189 ITR 285(SC) have upheld reassessments based on new external information suggesting suppression of facts. The appellate authority rightly held that the reopening was not only procedurally valid but also substantively justified, and the assessee failed to rebut the findings with credible evidence. Therefore, the conclusion in favor of the department merits affirmation.
We have heard the rival submissions and have perused the relevant material on record. First, we take up the issue of jurisdiction
Page 4 of Shri Abhimanyu Nath Vs ITO and validity of notice u/s 148.We find that the AO received the information from the Investigation Wing that M/s Keshav Cloth, Prop. Anita Rani Singhal, are providing accommodation purchase entries; it is a paper entity whose transactions in bank accounts do not commensurate with their returned income; their bank statement shows immediate withdrawals following each credits; and field enquiries found they did not existed in their registered address and lastly failed to comply with summons. The AO was informed that the assessee had taken accommodation entry from M/s Keshav Cloth, Prop. Anita Rani Singhal amounting to Rs. 16,01,995/.
The AO, upon receipt of information, verified the records with the AIR information and found that the assessee’s return was only processed u/s 143(1) and was never subjected to scrutiny assessment. Thereafter he recorded his reasons for reopening, comparing the information and investigation made by the Investigation Wing which formed the ‘live link’ for recording his reasons for reopening. We are of the considered view that the AO did not base his reasons for reopening only on the basis of specific, credible information but clearly applied his mind when he examined the return of income which was never scrutinized before. We are of the view therefore that at this Page 5 of Shri Abhimanyu Nath Vs ITO stage the AO formed a prima facie belief of income escapement and as held in Raymond Woollen Mills Ltd. v. ITO[1999] 236 ITR 34 (SC) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC),the sufficiency of reasons cannot be questioned at the stage of reopening-only the presence of relevant material and rational connection is required. The inability of M/s Keshav Cloth to respond to summons, its non- existence at the declared address, and the assessee's failure to produce confirmations or evidence of actual delivery of goods further support the AO's belief. We therefore hold that the reopening was procedurally valid in law and dismiss the assessee ground on this account.
With the jurisdictional ground out of the way, we find on merits, that the assessee has raised two challenges to the assessment made:- one is that the transaction pertained to previous assessment year 2011- 12, hence disallowance can be made only in AY 2011-12 and that the AO did not specify the section under which the assessment was made.
We find that the AO during the assessment proceedings, made his own enquiries to find out the authenticity of the existence of M/s Keshav Cloth by issuing summons to it which again remained un- responded. The AO thereafter made physical enquiry by deputing his Inspectorwho found no such entity at the given address. With these
Page 6 of Shri Abhimanyu Nath Vs ITO internal enquiries, the AO confirmed the findings of the Investigation Wing regarding M/s Keshav Clothes being a paper entity only and the transaction with it are mere in the nature of accommodation entries. We are thus of the view that the taxability of payment made to M/s Keshav Clothes has to be considered in the impugned year itself, devoid of any connection/relation with the purchase in the previous assessment Year, as there is no actual purchase made. Since the payment is made in the impugned year to anaccommodation provider entity, the said payment is liable to be considered as unexplained expenditure u/s 69C of the Act and taxed in the year of payment itself.
The fact that the AO has not specified the section under which addition is made is not material as right from the stage of reopening the assessment, the assessee was made aware of the fact that the said payment was made for bogus purchase from an entry provider entity and its implication on the taxability of payment made to it. At the stage of recording reasons itself, the assessee was made aware of the fact that it had taken accommodation entry from M/s Keshav Clothes. Further, while disposing the objections of the assessee against reopening, the AO again reiterated the prima facie view that assessee had taken accommodation entry. And during the assessment proceedings, the AO directed its enquiry to show that the payment is Page 7 of Shri Abhimanyu Nath Vs ITO made to an entry provider entity and the ramification of such findings on the taxability of such payment.In view of the above discussion, the Grounds raised
by the assessee on merits stand dismissed.