Loading judgment…
Facts
The assessee, M/s GDR Finance and Leasing Pvt. Ltd., e-filed its ITR for AY 2018-19. The case was reopened based on information alleging the assessee availed accommodation entries of Rs. 47,65,476/- from M/s K.G. Finvest Pvt. Ltd., identified as a shell company linked to an entry operator. The AO made an addition of Rs. 47,65,476/-, which was confirmed by the CIT(A), leading the assessee to file an appeal before the Tribunal.
Held
The Tribunal held that the Assessing Officer's 'reasons to believe' for reopening the assessment, as stated in the satisfaction note, lacked both factual and legal basis. Citing judicial precedent, the Tribunal ruled that proceedings initiated on incorrect facts or without valid reasons render the assumption of jurisdiction bad in law. Consequently, the Tribunal found the AO's order to be illegal due to the absence of valid reasons for reopening the assessment.
Key Issues
1. Whether the initiation of reassessment proceedings under Section 147/148A was valid when the 'reasons to believe' lacked factual or legal basis. 2. Whether the addition made for accommodation entries was justified given the assessee's denial and lack of material provided by the department. 3. The jurisdictional validity of assessment proceedings initiated by a 'jurisdictional assessing officer' instead of a 'faceless assessing officer' under Section 151A and the E-Assessment Scheme, 2022.
Sections Cited
250, 147, 144B, 148A, 148, 143(2), 142(1), 133(6), 151A, 68, 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES : C : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMAR
Assessment Year : 2018-19 M/s GDR Finance and Leasing Vs. Assessment Unit, Pvt. Ltd., Income Tax Officer, 323, Agrawal Plaza, NFAC. DDA Community Centre, Shalimar Bagh, New Delhi – 110 088. PAN: AAACG2363D (Appellant) (Respondent) Assessee by : Shri C.S. Aggarwal, Sr. Advocate; Shri Rupinder Aggarwal, Shri R.P. Mall, Shri Uma Shankar, Ms Suman Verma & Ms Vidushi Aggarwal, Advocates Revenue by : Shri Om Parkash, Sr. DR Date of Hearing : 29.10.2025 Date of Pronouncement : 23.12.2025 ORDER PER VIMAL KUMAR, JM:
The appeal filed by the Assessee is against the order dated 23.01.2025 of the ld. Commissioner of Income-tax (Appeals)-29, New Delhi, [hereinafter referred to as the Ld. CIT(A)] u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the assessment order dated 22.03.2023 of the ld. AO/Assessment Unit, Income-tax Deptt. (hereinafter referred to as ‘the ld. AO’) u/s 147 r.w.s. 144B of the Act for Assessment Year 2018-19.
The brief facts of the case are that the assessee e-filed ITR on 31.10.2018 disclosing total income at Rs.22,24,590/- from business profit and other sources. There was credible information that the company availed accommodation entries from shell company M/s K.G. Finvest Pvt. Ltd. to the tune of Rs.47,65,476/-. The case was reopened after following proceedings u/s 148A and taken up for scrutiny. Notice u/s 148 dated 30.03.2022, notice u/s 143(2) dated 20.10.2022 and notice u/s 142 (1) dated 20.10.2022 and show cause notice dated 16.03.2023 were issued. The assessee, in response to the notice u/s 148 dated 19.04.2022, e- filed the return of income. On completion of proceedings, the ld. AO, vide order dated 22.03.2023, made addition of Rs.47,65,476/-.
Against the order dated 22.03.2023 of the ld. AO, the appellant-assessee filed appeal before the ld.CIT(A) which was dismissed vide order dated 23.01.2025.
Being aggrieved, the appellant-assessee preferred the present appeal with the following grounds:- “
1. That the learned CIT(A) has erred both on facts and in law when he has confirmed the addition made by the Assessment Unit, Income Tax Department of Rs. 47,65,476/-.
2. That the learned CIT(A) has failed to appreciate that the proceedings u/s 148 of the Income Tax Act had been initiated on an allegation that the assessee had taken accommodation entries of Rs. 47,65,476/- from M/s K. G. Finvest Pvt. Ltd., which had duly been denied by the assessee in response to the notice u/s 148 A(b) of the Act and has been accepted by the AO while framing assessment when such an addition has not been made by the AO; whereas the addition made was in respect of an allegation which was not the subject matter of reopening of assessment and as such no addition could have been made.
3. That the learned CIT(A) has further failed to appreciate that the instant proceedings under section 148 and 148A(d) of the Act had been initialed by '‘jurisdictional assessing officer” and not by “faceless assessing officer”, which is against the mandate of section 151A of the Act and also, the E Assessment Scheme, 2022. Thus as such, the impugned proceedings and assessment thereto made were without jurisdiction and untenable in law.
4. That the findings of the learned CIT(A) in order in para 5.1, 5.2, & 5.3 are not only perverse but overlooks the fact that the assessee had paid the interest on the sum genuinely borrowed by it and utilized by it for its business and that said sum borrowed had not been held to be undisclosed income of the assessee.
5. That the learned CIT(A) has failed to appreciate that, in response to the notice u/s 133(6) of the Act of M/s K.G. Finvest Pvt. Ltd. had re- confirmed the loan and also the amount paid by the assessee as interest and as such the findings that the assessee had failed to establish the genuineness of the transaction i.e. identity, genuineness and creditworthiness, is not only erroneous but is based on no material and has no connection with the addition made.
6. That the further finding of the learned CIT(A) that the disallowance of interest had been made on the basis of the specific information with the AO, that the loan transactions were in the shape of accommodation entry is wholly unsupported by any material, as no such information has ever been confronted to the assessee company for its rebuttal.
7. The assessee craves to leave add, alter, and modify any other ground of appeal at the time of hearing.”
5. The learned Authorised Representative for the appellant-assessee submitted that the assessee furnished return of income on 31.10.2018 along with financial statements and other documents (Page 1-33 of the Paper Book). The return was scrutinized by issuance of notice u/s 143(2) of the Act dated 22.09.2019, after raising questionnaires and replies the assessment was framed at the returned income by order dated 22.01.2021 (Page 75 to 77 of the paper book). On 21.03.2022, the assessee received a notice u/s 148A(b) of the Income Tax Act (Pg. 78-79 of PB)
5.1. In satisfaction note, it is alleged that credible information has been received from ld. DDIT (Inv.) Unit - 2(4) New Delhi that the appellant had taken accommodation entries of Rs. 47,65,476/- through M/s KG Finvest Pvt. Ltd. It had further been stated that as a result of search carried out in Filatex Group on 01.09.2021, in which an entry operator named Shri Ankit Bhageria was also covered and that Shri Ankit Bhageria who controlled several shell companies had provided accommodation entries to beneficiaries. It has been alleged that such entries when analyzed Shri Ankit Bhageria had admitted during the statement on oath that M/s KG Finvest Pvt. Ltd. is a shell company.
5.2. The appellant thus on receipt of the notice u/s 148A(b) of the Act filed its objections on 28.03.2022 (Pg. 80 -81 of PB). The appellant had specifically stated in its objections that it did not receive any sum from M/s KG Finvest Pvt. Ltd. and no sum is credited during the year under consideration and as such the initiation of the proceedings in the case of the appellant is unsustainable in law. The appellant-further requested that it be provided with:
1) Verbatim copy of information suggesting escapement of income available with our good self, based on which notice u/s 148A has been issued and the source thereof. 2) Copies of adverse material and adverse statements if any based on which, there is information with him suggesting escapement of income. 3) Copy of material gathered by AO on the basis of enquiry, if any, conducted under clause (a) of section 148 A. 4) Copy of approval of specified authority which may have been given before issuing notice u/s 148A. 5) We want to avail opportunity to cross examine Sh. Ankit Bhageria referred in the Annexure of 148A.
5.3. The alleged information received was that the assessee had taken accommodation entry. This information was completely incorrect information and was based on no material, and before proceeding to issue notice, the learned AO has made no enquiry or verification of such alleged information nor even while passing the order u/s 148A(d) of the Act or order of assessment. It is settled law that if the proceedings u/s 147 of the Act are initiated on the basis of wrong fact, assumption of jurisdiction is bad in law. Reliance is placed on the following judicial pronouncements: i. In Sonansh Creations Pvt Ltd. vs. ACIT in W.P.(C) 12316/2022 dated 10.01.2025. “33. The Revenue was granted sufficient opportunities to file a counter affidavit to the present petition but had failed and neglected to do so. Even before this court, the Revenue has not produced any material to establish that Tulsi has received any amount in its bank accounts from any of the entities as mentioned in the impugned notice or the impugned order. Clearly, absent any material to establish that the petitioner had received amounts in its bank accounts - the fundamental premise on which the allegation that it had received accommodation entries is founded - the petitioner’s assessment could not be reopened. We are unable to accept that the reassessment can be initiated on the basis of information which is contested as palpably incorrect without examining the material giving rise to the said information. The contention that the AO does not require to take any view as to the correctness of the information available with him would render the provisions of Section 148A of the Act a dead letter and the exercise of conducting an enquiry under Section 148A of the Act an exercise in futility. The AO is required to ascertain whether the basic facts on which an assessment is sought to be reopened, are sustainable. An allegation that income has escaped assessment on account of accommodation entries availed by an assessee would be insufficient to reopen a closed assessment if the AO does not have material to establish that in fact there were entries in the bank accounts that could possibly support the said allegations. The AO is not required to conclusively decide whether the entries are accommodation entries. But the AO has to be reasonably certain that the alleged entries exist that could be possibly be accommodation entries. ii. Banyan Real Estate Fund Mauritius v. Assistant Commissioner of Income-tax reported in [2025] 473 ITR 466 (Delhi), iii. Akshar Builders & Developers v. Asstt. CIT [2019] 411 ITR 602 (Bombay) iv. Ankita A. Choksey vs. ITO W.P. 3344 of 2018 dated 10.1.2019 HC (Bom) v. Mumtaz Hazi Mohmad Memon Vs. ITO 408 ITR 268 (Guj) vi. Pr. CIT v. RMG Ply vinyl (I) Ltd. 396 ITR 5 (Del) vii. PCIT vs. SNG Developers Limited 404 ITR 312 (Del) 6 viii. Shamshad Khan vs. ACIT 395 ITR 265 (Del) ix. Synfonia Tradelinks (P). Ltd. vs. ITO 435 ITR 642 (Del) x. Sunrise Education Trust vs. ITO (Exemption) 92 taxmann.com 74 (Guj)
Learned authorized representative for the Department submitted that the assessee, in response to notice u/s 148A(b), merely issued a blanket denial of having taken accommodation entries from M/s K.G. Finvest Pvt. Ltd. However, the Assessing Officer, in the order passed u/s 148A(d), has clearly recorded that the assessee had not denied the transactions with M/s K.G. Finvest Pvt. Ltd. during F.Y. 2017-18. Instead, the assessee failed to furnish any supporting documentary evidence such as bank statements, confirmations, invoices, or other primary records to prove the genuineness and creditworthiness of the transactions. This failure goes to the root of the matter and establishes that the assessee did not discharge its onus under section 68 of the Act. In absence of satisfactory explanation, the AO was justified in drawing adverse inference and making addition on account of unexplained credits and related issues. The information received from the Investigation Wing categorically identified the assessee as a beneficiary of accommodation entries from M/s K.G. Finvest Pvt. Ltd. When any sum is found credited in the books of the assessee, the burden lies upon the assessee to offer an explanation about the nature and source of such credit to the satisfaction of the AO. If the explanation is not satisfactory, such sum may be treated as income of the assessee. The assessee neither furnished confirmations from M/s K.G. Finvest Pvt. Ltd. nor any proof of creditworthiness or genuineness. Hence, the addition made by the AO is fully justified on merits. The categorical finding in the 148A(d) order that the assessee has not denied transactions with M/s K.G. Finvest Pvt. Ltd. further weakens the assessee’s claim. The assessee cannot approbate and reprobate - on one hand claiming denial of entries, and on the other failing to produce evidence. Such contradictory stands show that the transactions are sham and merely accommodation in nature.
6.1 Regarding Ground No.3, Learned Authorised Representative for Department submitted that Section 151A of the Act empowers the Central Board of Direct Taxes (CBDT) to make a scheme for faceless assessment, reassessment, or recomputation, “to impart greater efficiency, transparency, and accountability.” However, the said provision does not create a bar on jurisdictional Assessing Officers to initiate or conduct proceedings in cases where such functions are not routed through faceless units or where administrative exigencies require action by jurisdictional officers. The E- Assessment Scheme, 2022 notified under Section 151A is procedural in nature and intended to facilitate the conduct of proceedings in a faceless environment. It does not divest jurisdiction conferred upon the Assessing Officer under Sections 147, 148, and 148A of the Act. In the instant case, the assessee was duly issued notice u/s 148A(b), provided opportunity to file its reply, and the order u/s 148A(d) was passed after consideration of such reply, with prior approval of the Principal Commissioner of Income Tax, as mandated by law. The assessee participated in the proceedings and filed submissions. Thus, principles of natural justice were fully complied with. The mandate of faceless assessment is an administrative reform to bring efficiency, but it does not oust the jurisdiction of designated jurisdictional officers. The Hon’ble Delhi High Court in Indus Towers Ltd. v. Union of India [2021] 432 ITR 44 (Del) observed that faceless schemes are machinery provisions and not jurisdiction- conferring provisions; therefore, failure to route proceedings through faceless system does not render proceedings void ab initio.
From examination of the record in the light of the aforesaid rival contentions, it is crystal clear that the appellant-assessee is a private limited company duly registered as a non-banking finance company carrying on financing business. The assessee received notice dated 21.03.2022 u/s 148A(b) of the Act, copy of which placed at pages 78-79 of the paper book, mentioning:
“Credible information in the case of M/s GDR Finance and Leasing Pvt. Ltd. (PAN: AACG2363D) relating to escapement of financial year 2017-18 relevant to the A.Y. 2018-19 has been received from the DDITdnv.), Unit- 2(4), New Delhi. A perusal of the information received suggests that the assessee company has, during the year, taken accommodation entries of Rs. 47,65,476/- through M/s KG Finvest Pvt. Ltd. (PAN; AAACK4032H) A search and seizure operation u/s 132 of Income Tax Act, 1961 was carried out in Filatex Group on 01.09.2021 in which an entry operator named Sh. Ankit Bhageria was also covered. During the course of search, evidences regarding Sh. Ankit Bhageria (PAN: ALKPB4936F) who controlled several shell companies and provide accommodation entries to 9 beneficiaries, were found and analysed. Sh. Ankit Bhageria has also admitted during the statement recorded on oath that M/s KG Finvest Pvt. Ltd. is a shell entity. After detailed analysis of the information received from Investigation Wing and on examination of the records it is found that the assessee has taken accommodation entries of Rs. 47,65,476/- through M/s KG Finvest Pvt. Ltd. (PAN: AAACK4032H) during FY 2017-18 relevant to AY 2018-19. The genuineness of the transactions undertaken by the assessee company with M/s KG Finvest Pvt. Ltd. has not been explained by the assessee during the assessment proceedings for AY 2018-19 and hence remained unexplained. Therefore, amount of Rs. 47,65,476/- appears to have escaped assessment for AY 2018-19 which needs to be brought to tax by issuing notice u/s 148 of the Income Tax Act, 1961. Hence, notice u/s 148A(b) of the Income Tax Act is issued to show cause as to why a notice u/s 148 should not be issued on the basis of information available for AY 2018-19 as per facts discussed above.”
7.1 The reasons in the satisfaction note referred to credible information received from ld.DDIT that the assessee had taken accommodation entry of Rs.47,65,476/- through M/s K.G. Finvest Pvt. Ltd. Notice u/s 148A(b) of the ld. AO rejected the objections without any information or material.
7.2 A coordinate Bench in held in paras 4 and 5 as under:- “4. On perusal of the particulars, it is found that the assessee has received neither any share capital nor any share premium during the year. The balance sheet particulars which are as per the records are under:
A.Y. 2009-10 A.Y. 2010-11 Increase S. No. Particulars (+)/ Decrease (-) 1. Authorized 50,00,000 50,00,000 Nil Share Capital
2. Issued 6,00,000 6,00,000 Nil Subscribed and Paid up Capital 3. Security 25,00,000 25,00,000 Nil Premium Account
Thus, it is clearly proves that there was no amount has been received or introduced on account of either share capital or share premium as alleged by the Assessing Officer in his satisfaction note and hence, the “reasons to believe” as contemplated as per the provisions of the Income Tax Act, 1961 have not been met by the Assessing Officer either on facts or legality. Hence, the order of the Assessing Officer is treated as void ab inito, in the absence of any valid reasons recorded.”
7.3 In view of the above material facts, by respectfully following the judicial precedent, it is held that the ld. AO, in the satisfaction note, in the ‘reasons to believe’ has not stated either facts or illegality. Therefore, the order of the Ld. AO is illegal in the absence of valid reasons. Accordingly, the grounds of appeal No.1 to 3 are allowed.
8. Ground Nos.4 to 7 being academic are left open.