Reopening of assessment: reasons targeted the principal contractor, not the alleged dummy supplier, so reassessment quashed

Reopening of assessment was contested on grounds that the AO's recorded reasons showed belief in escapement of income of a principal contractor, not the assessee alleged to be a dummy supplier. The tribunal found the AO's material described the assessee as a dummy entity created to book bogus purchases for the contractor, so the only logical belief arising was escapement of the contractor's income. Consequently the reassessment against the alleged dummy supplier lacked jurisdictional basis and the appeal was allowed for the assessee.

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Issues: Whether the reassessment initiated under Section 147 of the Income-tax Act, 1961 was validly initiated against the assessee based on the reasons recorded by the Assessing Officer.

Analysis: The reasons recorded refer to information obtained from search action at the SRA group operating as M/s Laxmi Construction which indicated that M/s Laxmi Construction had booked bogus purchase/expense entries through dummy sub-contractors; the assessee was identified in the reasons as one of the dummy entities used by M/s Laxmi Construction for booking such bogus expenses. The recorded analysis by the Assessing Officer treats the assessee as a dummy entity used by Laxmi Construction to introduce unaccounted money into Laxmi Construction's books. The information and analysis thus disclose a belief directed to escapement of income of M/s Laxmi Construction rather than any belief that income of the assessee has escaped assessment.

Conclusion: The reassessment proceedings under Section 147 were without valid jurisdiction and the assessment order passed pursuant thereto is set aside; the grounds challenging the reopening are allowed in favour of the assessee.

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