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Facts
The Assessing Officer (AO) reopened the assessment for AY 2015-16 based on information about accommodation entries obtained from certain individuals. The AO alleged that the assessee had taken such entries amounting to Rs. 74 lakhs and added this amount to the total income.
Held
The Tribunal held that the reassessment proceedings were bad in law and void ab initio. The reasons recorded for reopening were vague and lacked independent application of mind by the AO. Additionally, the notice for reassessment was issued under the old law despite the new regime being in effect, and mandatory sanctions were mechanical.
Key Issues
Whether the reassessment proceedings initiated were valid, and whether the AO applied independent mind in recording reasons for reopening.
Sections Cited
147, 144, 149, 148, 151, 132, 143(3), 68, 271(1)(c), 271(1)(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in to 3014/Del/2025 for AYs 2015-16 to 2016-17, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] dated 20.03.2025 against the order of assessment passed u/s 147 r.w.s. 144 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 29.03.2022 by the Assessing Officer, National Faceless Assessment Centre, Delhi (hereinafter referred to as „ld. AO‟). As these are quantum and penalty appeals for both the years having identical issues, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, the quantum appeal for Assessment Year 2015-16 in is taken as the lead case and the decision rendered thereon shall apply mutatis mutandis for Assessment Year 2016-17 in also except with variance in figures.
2. The assessee has raised the following grounds of appeal before us:-
“1. That the Assessing Officer (AO) erred both on facts and in law in passing the impugned assessment order dated 29.03.2022 under section 147 read with section 144 and 1448 of the Income-tax Act, 1961 ("the Act"), wherein the income of the appellant was erroneously assessed at Rs. 2,26,86,550/- as against the returned income of Rs. 1,52,86,550/- The said order is bad in law, being contrary to facts and passed in violation of the principles of natural justice 2. That the reassessment is barred by limitation under section 149 of the Income Tax Act, 1961, as the notice under section 148 was issued on 01.04.2021, beyond the permissible time limit prescribed under the law.
3. That the learned Assessing Officer erred in initiating reassessment proceedings without adhering to the mandatory procedure under the amended reassessment regime introduced by the Finance Act, 2021, effective from 01.04.2021, and has also failed to comply with the binding judgment of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2022] 286 Taxman 83/444 ITR 1 (SC) 4. That the reassessment is bad in law as the same has been initiated beyond four years from the end of the relevant assessment year without recording any satisfaction regarding the alleged failure of the assessee to fully and truly disclose all material facts, as required under the first proviso to section 147 of the Act.
5. That the notice issued under section 148 dated 31.03.2021 is invalid and without jurisdiction, as the reasons recorded for reopening were not provided to the assessee either along with the notice or thereafter, thereby violating the principles of natural justice 6. That the reopening of the assessment u/s 147 is illegal and void ab initio as it was based merely on third-party information without independent application of mind by the Assessing Officer.
7. That the learned Assessing Officer (AO) erred in passing the reassessment order without providing the appellant with an adequate opportunity of hearing and without considering the appellant's submission that no transaction had been entered into with the alleged party. Furthermore, the learned Commissioner of Income-tax (Appeals) [CIT(A)] erred in confirming the reassessment and the addition without properly addressing the appellant's substantive factual and legal submissions, despite detailed representations filed on the Income Tax Portal 8. That the AO has grossly erred in making an addition of 274,00,000/- u/s 68 by treating as unexplained cash credits without considering the appellant submission that it has not entered in to any transaction with such parties.
That the mandatory sanction as required under section 151 of the Act has not been obtained in accordance with law, and the sanction granted, if any, is mechanical and without application of mind, thereby vitiating the entire reassessment proceedings.”
We have heard the rival submissions and perused the materials available on record. The Assessee filed its return of income for the assessment year 2015-16 on 30-10-2015 declaring total income of Rs. 1,47,01,230/-. The original assessment was completed under Section 143(3) of the Act on 24-12-2017 determining total income at Rs. 1,52,86,550/-. Subsequently, information was received from Joint Director of Income Tax (Investigation), Unit-1, New Delhi about certain accommodation entries obtained by the Assessee from bogus concerns managed and operated by Anand Kumar Jain and Naresh Kumar Jain, on whom search and seizure action under Section 132 of the Act was carried out by the Income Tax Department. Details of concerns who had taken accommodation entries from Anand Kumar Jain and Naresh Kumar Jain was conveyed through this information. It was seen that the Assessee M/s Ess Gee Trendz Pvt. Ltd. was one of the beneficiaries of this arrangement for tax evasion. As per this information, the Assessee had taken accommodation entries amounting to Rs. 74 lakhs. Accordingly, the reasons for reopening were recorded and case of the Assessee was reopened under Section 147 of the Act. Notice under Section 148 of the Act dated 31-03-2021 was duly issued. The reasons recorded for reopening the assessment are as under:-
“1. The assessee flied its return income of Rs. 14701230/- for the year under Act, 1961 dated 24/12/2017 at an assessed income of Rs. 15286550/-consideration on 30.10.2015. The case was scrutinized vide order u/s 143(3) of the 1.7 2. Information in this case was received in this office from the JDIT (Inv.). Unit- 1.
New Delhi vide dated 04.07.2017 in which it has been stated that Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain provided accommodation entries to various concerns. A detail of the concerns who had taken accommodation entries from Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain was also conveyed through this information. It was seen that Mis Ess Gee Trends Pvt Ltd. was one of the beneficiaries of this arrangement of tax evasion. As per the information received from the above mentioned authority, it was noted that the assessee. M/s Ess Gee Trends Pvt. Ltd., has taken accommodation entries amounting to Rs. 74,00,000/-3. In the case, the assessment u/s 143(3) of the IT Act was made on 17.03.2016 After careful perusal of ITR, assessment record and the ITS available with the department, it was found that the assessment w/s 143(3) was made at an under-assessed at income of Rs. 1,52,86,550/- during the year under consideration.
4. The audited balance sheet, P& L statement, ITR, assessment records were analysed keeping in mind the provisions of Income Tax Act 1961 and Income tax Rules. After the analysis it was found that the assessee has misrepresented his income by claiming expenses in terms of accommodation entries taken from Jain brothers. Expenses can only be claimed which are incurred in the process of generating the income of the relevant previous year. In this case bogus expenses were claimed by taking accommodation entries from Jain brothers and hence corresponding income has escaped assessment.
5. Since the provisions of Income tax Act are clear with regard to the discussion above hence the income of assessee has to be enhanced by the discussed amount. On careful perusal of the information on record as well as the ITR filed by the assessee, it is noticed that the assessee has taken accommodation entries from the Jain Brothers who are non- genuine concern amounting to Rs 74,00,000/- 6. Therefore, I have reason to believe that the amount of Rs.74,00,000/- represent income of the assessee which has escaped assessment during the F.Y. 2014-15 relevant to A.Y. 2015-16. Further after going through the assessment records and application of mind as illustrated above, it is seen that the assessment was not done keeping in mind the above facts and hence the above conclusion that income has escaped assessment is not merely based on change of opinion. Hence, necessary sanction u/s 151(1) to issue notice u/s 148 of the Act, for A.Y. 2015-16 is required to assess the escaped income and also any other income which may subsequently come to the notice during the course of assessment proceedings.”
In response to the notice issued under section 148 of the Act for assessment year 2015-16 dated 31-3-2021, no return of income was filed by the Assessee Company. Hence there was no occasion for the Learned AO to issue notice under section 143(2) of the Act and accordingly the assessment was sought to be concluded under section 144 of the Act, prior to which notice under section 142(1) of the Act was duly issued to the Assessee. Finally, a show-cause notice dated 23-2-2022 was issued to the Assessee and the Assessee was asked to show-cause why assessment proceeding should not be completed under section 144 of the Act by adding a sum of Rs 74 lakhs to the total income of the Assessee. In response to the said show-cause notice, the Assessee submitted its written reply on 8-3-2022 which is reproduced as under:-
Sir, Assessee could not respond in due time as email id was with old accountant who had already left. Kindly a time may please be provided for furnishing of information. As per assessee records no dealing with above parties were made. If there is any further information with department assessee shall respond in very short time. Assessee has been cooperating with department in previous assessment proceeding and duly paid the taxes. Delay in response is regretted which was purely unintentional. Kindly accept and oblige.
5. The Learned AO completely ignored the aforesaid submissions and proceeded to conclude the assessment by holding Assessee had not submitted any details / documents to substantiate its statement. The Learned AO in page 5 of his order vide para 8.3 observed as under:-
“8.3 Considering the facts and information available on record, the following facts are revealed in the case of assessee: “1. Assessee entered into transaction with Anand Kumar Jain and Naresh Kumar Jain in AY 2015-16. Page | 5
Assessee received Rs. 74,00,000/- from concern of Anand Kumar Jain and Naresh Kumar Jain.
3. Notices u/s 142(1) of the Act, were issued to assessee to explain the transaction with the said party in AY 2015-16. However, in response, no details were filed.
4. Assessee during the entire course of proceeding didn’t discharge its onus to prove the genuinety of transaction entered into with the Jain Brothers.
Assessee neither furnished any bills/invoices for the transactions entered into nor furnished ay proof so as to establish the creditworthiness of Anand Kumar Jain and Naresh Kumar Jain for transaction entered into in AY 2015-16. 6. The moot point in the case is the genuinety of transaction with Anand Kumar Jain and Naresh Kumar Jain and proof of involvement of goods in transactions and the business establishment of Anand Kumar Jain and Naresh Kumar Jain. Assessee has not been able to prove this. 7. Accordingly, I hold that the credits of Rs. 74,00,000/- from Anand Kumar Jain and Naresh Kumar Jain by assessee is unexplained credit under section 68 of the Act. 8. Penalty u/s 271(1)(c) of the Act, is being initiated for concealment of particulars of income. 9. Further, since assessee failed to comply with notices u/s 142(1) of the Act, penalty notice u/s 271(1)(b) is issued separately.” 6. We find that in the reasons recorded for reopening the assessment, the learned AO had stated that assessee had taken accommodation entries in the form of bogus expenses from entities controlled and operated by Jain Brothers. However, in para 8.3 of the assessment order in the concluding portion of the assessment order, the learned AO states in point number 2 that assessee had received Rs 74 lakhs from concerns of Jain brothers. This itself goes to prove that the learned AO was not even clear as to the nature of transactions, if any, the assessee had with the entities controlled and managed by Jain brothers. Whereas, the assessee had categorically stated that it had no transactions whatsoever with any of the entities controlled and Page | 6 operated by Jain brothers. The assessee could not be expected to prove the negative when it had denied having any transactions with the entities. That would result in impossibility of performance for the Assessee and the legal maxim “LEX NON COGUT AD IMPOSSIBLIA”, meaning thereby – “the law cannot expect a person to perform a task which he could not possibly perform”, would come to the rescue of the Assessee. Further, in the in the entire reasons recorded or in the entire re-assessment order, the learned AO had not even brought on record what is the name of the entity which is managed and controlled by Jain brothers and with whom the assessee had allegedly had transactions with. Hence, it could be safely concluded that the entire reasons recorded are very vague and does not pertain to the assessee herein. No independent enquiries were even made by the learned AO. In fact, in para 4 of the reasons recorded, the learned AO states that he had duly analysed the entire balance sheet, profit and loss account, ITR, assessment records of the assessee. If it had been analysed, it could have come to light that whether there is any transaction to the extent of Rs 74 lakhs, which the assessee had with the entities controlled and operated by Jain brothers. This clearly goes to prove that there was absolutely no application of mind on the part of the learned AO while recording the reasons and consequential framing of re- assessment. First, even the nature of the transaction, i.e. whether assessee had taken bogus bills in order to claim bogus expenditure to reduce its taxable income or the assessee had received any sums from the entities controlled and operated by Jain brothers, which could be sought to be taxed as unexplained cash credit under section 68 of the Act is also not coming out clearly either from the reasons or in any part of the re-assessment order. Hence, we have no hesitation to conclude that the reasons are recorded based on pure incorrect assumption of facts, which makes the entire assumption of jurisdiction under section 147 of the Act bad in law. Consequentially, the entire reassessment proceedings deserve to be quashed as void ab initio.
Further, we find that the notice under section 148 of the Act dated 31-3-2021 had been uploaded in the ITBA portal on 1-4-2021 wherein the new regime of the amended provisions of the section 148A of the Act would kick in. Whereas, the learned AO had made the re-assessment under the old law without following the decisions of Hon‟ble Supreme Court in the case of Ashish Agarwal reported in 444 ITR 1 (SC) and the decision of the Hon‟ble Supreme Court in the case of Union of India vs Rajeev Bansal reported in 469 ITR 46 (SC). This also makes the entire re-assessment bad in law and void abinitio.
For these invalid assumption of jurisdiction and incorrect recording of reasons, the competent authority had accorded sanction under section 151 of the Act, which makes the approval granted by the competent authority under section 151 of the Act also as a mechanical approval without due application of mind, which in turn also makes the reassessment void ab initio.
9. In view of the aforesaid observations, it is categorically clear that the assumption of jurisdiction under section 147 of the Act is clearly flawed, grossly invalid, illegal and not sustainable in the eyes of law for more than one reason. Accordingly, the entire reassessment proceedings initiated for assessment year 2015-16 are hereby quashed.
Since the quantum assessment itself is quashed, the penalty levied under section 271(1)(c ) of the Act would have no legs to stand and also deserve to be quashed.
In the result, the appeals of the Assessee in and 3012 /Del/ 2025 for assessment year 15-16 are allowed.
With regard to appeals of the assessee for assessment year 2016- 17, the decision rendered herein above for assessment year 2015-16 shall apply with equal force for this assessment year 2016-17 also in view of identical facts except with variance in figures.
Since the entire re-assessments are quashed as void abinitio, the other grounds raised by the assessee for both the years on merits of the additions need not be gone into and they are left open.
In the result, all the appeals of the assessee are allowed.