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Facts
The assessee, engaged in share trading and financing, allegedly took accommodation entries amounting to Rs. 3,34,31,000/-. The case was reopened under Section 147/148 based on information from a search and seizure action. The Assessing Officer (AO) finalized reassessment by adding the said amount as unexplained investment.
Held
The Tribunal held that the Assessing Officer failed to apply his mind independently, relying solely on the Investigation Wing's report. The reasons recorded for reopening were found to be vague and lacking specific details regarding the nature of accommodation entries, making the entire proceeding vitiated.
Key Issues
Whether the reopening of assessment under Section 147/148 was based on valid reasons and proper application of mind by the Assessing Officer, and whether the satisfaction of the approving authority was mechanical.
Sections Cited
143(3), 147, 148, 151, 133(6), 139, 147/143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: Ms. MADHUMITA ROY
O R D E R
PER Ms. MADHUMITA ROY, JM:
The instant appeal, preferred by the assessee, is directed against the order dated 30.08.2018 [Appeal No. 224/16-17], passed by the Commissioner of Income Tax (Appeals)-36, New Delhi, arising out of the order dated 03.03.2015 passed by the Income Tax Officer, Ward-20(3), New Delhi in the proceedings under Section 143(3)/147of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for Assessment Year 2007-08. related activities, alleged to have taken accommodation entries from certain parties amounting to Rs. 3,34,31,000/- as per seized annexures of search and seizure action conducted by the Unit-VI(2) at the residence and office of Shri Surender Kumar Jain and Shri Virender Jain on 14.09.2010. The case of the assessee was reopened under Section 147/148 of the Act. A notice under Section 148 of the Act was issued on 20.03.2014 with prior approval of the CIT, Delhi-IV, New Delhi.
Initially, against the returned income declared at Rs. 28,270/- assessment was finalized on 15.12.2009 under Section 143(3) of the Act at an income of Rs.
65,070/-.
It is the case of the Revenue that the reserve & surpluses and the capital account of a specific set of companies were enhanced with the help of the unexplained cash received by Shri surendra Kumar Jain and Shri Virendra Kumar Jain which is routed to these companies through their dummy firm/companies.
Once the funds of these companies have been enhanced sufficiently, accommodation entries through RTGS/cheque in the shape of share capital, capital gains or loans as per the specific requirement of the recipient clients were provided in lieu of cash received from them and in this way the chain for providing accommodation entries got completed. response whereof the assessee by and under a letter dated 12.04.2014 submitted that the return of income filed under Section 139 of the Act be treated to have been filed in compliance with the notice under Section 148 of the Act. The assessee further sought for reasons recorded by the authorities, which was duly supplied.
The assessee raised objection which was disposed of on 15.07.2014. The copy of share application form, copy of bank statement, copy of ITR etc. in support of its case of having entered into genuine transactions were furnished before the Learned Assessing Officer. In order to verify the claim of the assessee notice under Section 133(6) dated 4.8.2014 was issued to certain companies from whom the assessee claimed to have received share capital and loans. Some of them complied by filing confirmation, copy of bank statement, copy of ITR. The Principal Officer/ Directors of those companies were directed to be produced for examination in order to prove the genuineness of the transactions entered into, the creditworthiness of the persons and the identity of the persons. The documents furnished by the assessee in support of the claim were found to be a paper work to give the transactions a white face and reassessment was finalized upon making addition of Rs. 3,34,31,000/- as unexplained investment of the assessee out of undisclosed source of income being routed through such bogus accommodation appeal preferred by the assessee, hence the instant appeal before us.
The assessee along with very many grounds on merit also raised the legal grounds, particularly on the issue of satisfaction drawn under Section 151 of the Act by the Approving Authority as mechanical as the CIT, Delhi-VI, New Delhi only made a comment “I am satisfied with the reason, it is a fit case for issue of a notice u/s 148”. In support of the ground alleging the satisfaction as mechanical in nature several judgments were relied upon as passed by different judicial forums.
The Ld. AR Shri S.K. Gupta, appearing for the assessee, also argued on the next legal ground submitting that as the reasons recorded was never supplied to the assessee, the satisfaction by the approving authority could not be verified and, therefore, the reasons recorded is incomplete in the sense that proforma for obtaining sanction under Section 151 was not provided and such furnishing of incomplete reasons without providing the ground on which satisfaction by the authority concerned under Section 151(1) was reached is also contrary to the judgment passed by the Hon’ble Jurisdictional High Court in the case of Sabh Infrastructure v. ACIT 398 ITR 339 (Del.), further affirmed by the Hon’ble Apex Court.
of the paper book, filed before us, wherein the information received from the O/o the DIT(Inv.)-II, New Delhi, recorded by the Assessing Officer has been reproduced but without any application of mind to the fact mentioned in the report; without verification of the fact, the reasons recorded by the Learned Assessing officer is found to be vague, particularly in the absence of specification of accommodation entry accepted by the assessee which was treated has escaped assessment, has not been properly recorded by the Ld. Assessing Officer which was treated has escaped income. On this aspect he has further referred to page 257 of the paper book filed before us wherein the Assessing Officer has identified the nature of accommodation entries such as in the shape of share capital, capital gains or loans as per specific requirement of the recipient clients in lieu of cash receipt.
He has vehemently argued against such vague observation made by the Ld. AO as the reason is evidently silent as to the exact nature of accommodation entry out of those three categories identified by the Ld. AO.
It was further argued that the Ld. AO did not apply his mind while alleging that such accommodation entries are in lieu of cash paid by the appellant to the so called entry provider but in the later part reasons of Assessing Officer speak of cash received by the appellant against accommodation entries. The contrary finding is sufficient enough to justify the fact of complete reliance on the independent application of the mind this inconsistency could not have been reflected as argued by the Ld. AR. It was also a fact, as argued by the Ld. AR of the assessee, that the Ld. AO without verifying any cash being recovered in the search operation of Shri Surender Kumar Jain and his brother Shri Virender Jain, came to the finding of accommodation entry been in lieu of cash paid. Though the Ld. AO claimed to have verified the seized documents the same is not reflecting from the reasons recorded by him.
On the other hand, the Ld. DR relied upon the orders of the authorities below.
Under these facts and circumstances of the matter we have perused page 258 of the paper book, wherein in the tabulated statement though the Ld. AO referred the annexures and relevant pages in the last column, we find that the data mentioned has been reproduced from the Investigation Wing information and as such no discussion is forthcoming in the reasons recorded as to what was actually revealed from the seized annexures and referred pages. Had there been independent verification based on the contended information of the Investigation Wing, there had been proper discussion between the finding of examination of those annexures referred in page 258 being part of the reasons recorded by the Ld. AO. In the absence of examination of any such seized material, the Assessing Officer was not assessment. We note that the Ld. DR has failed to controvert such statement made by the Ld. AR and having regard to the averments made on page 258 of the paper book filed before us being the part of reasons recorded by the Ld. AO read with other informations narrated in the reasons recorded by the Ld. AO as discussed above seems to be complete reliance on the report of the Investigation Wing and no independent application of mind by the Ld. AO is found. In this regard the Ld.
AR has relied upon the ratio of decisions in the cases of Pr. CIT v. Goodview Trading Pvt. Ltd. 97 CCH 0381 (Del.), Tia Enterprises P Ltd. v. ITO 468 ITR 5 (Del), Sabh Infrastructure v. ACIT 398 ITR 198 & PCIT v. Meenakshi Overseas P Ltd. 395 ITR 677, which is found to be applicable as the reasons recorded is found to be a product of non-application of mind, very basis of reopening is found to be vague and not sustainable in the eyes of law.
We have further considered the judgment relied upon by the Ld. AR on the ground of mechanical approval specifically on the mere statement of “I am satisfied with the reasons, it is a fit case for the issue of a notice u/s 148” by the CIT, Delhi-V, New Delhi. In this regard the ratio of the judgment in the case of Capital Boradways P Ltd. v. ITO 2024 (10) TMI (Del) is found to be applicable.
the Ld. DR is found to be acceptable and therefore, the entire proceeding is vitiated.
We also find that the Ld. AO has failed to identify the nature of accommodation entry such as in the shape of share capital or capital gains or loans rather was relying upon on the mode of accommodation entries which shows non- examination of the documents seized during search and complete reliance on the documents mentioned in the Investigation Wing Report, that too without examination of the same, are found to be a product of rubber stamp on the report by the Investigation Wing which is sufficient enough to prove non-application of mind on the part of the Ld. AO. On this count it is a clear fact of reasons having been recorded on presumptive basis completely vague in nature and thus not sustainable in the eyes of law. Addition in the reassessment proceedings under Section 147/143(3) on the basis of a search where the reasons recorded is found to be vague and complete reliance on the report of Investigation Wing and where no discussion is forthcoming on the examining of the documents seized cannot be said to be justified and hence taking into consideration the entire aspect of the matter the reasons recorded is found to be a product of non-application of mind and respectfully relying upon the decisions of different authorities which have not been erroneous and therefore quashed. Consequently, the entire proceeding is vitiated and thus quashed.
In the result, assessee’s appeal is allowed.
Order pronounced in open court on 14.01.2026.