2024 (11) TMI 93 - HC - Income Tax

Assessee wins as reopening based on accommodation entries lacks factual support from ledger accounts

Gujarat HC ruled in favor of the assessee in a case involving reopening of assessment based on alleged accommodation entries. The AO received information ... Reopening of assessment - reasons to believe - information received by the AO that the petitioner has obtained the accommodation entries - HELD THAT:- The objections raised by the petitioner alongwith the copy of the ledger accounts placed on record, it is evident that the petitioner had repaid the amount towards the opening balance as on 01.04.2014 during the year under consideration and there is no other transaction which is shown in the ledger account. It is therefore apparent that the information which was received by the respondent Assessing Officer with regard to the alleged accommodation entry received by the petitioner assessee seems to be not borne out from the reasons recorded. Thus, from the above reasons, it is clear that the same is contrary to the facts available on record and therefore, the Assessing Officer could not have assumed the jurisdiction for both the years as for the Assessment Year 2016-17 also the amount as already part of the ledger account for the Financial Year 2015-16 and admittedly, there is no transaction with the said entity by the petitioner during the relevant previous years to the Assessment Year 2016-17. Decided in favour of assessee. Issues:Challenging notice under Section 148 of the Income Tax Act, 1961 for Assessment Years 2015-16 and 2016-17.Analysis:The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Years 2015-16 and 2016-17. The reasons for reopening were based on information that the petitioner received accommodation entries from a company alleged to be a paper/dummy entity. The petitioner contended that the information was incorrect as they had repaid the opening balance to the company. The Assessing Officer disposed of objections without considering the petitioner's reply, leading to the challenge. The petitioner argued that the Assessing Officer lacked jurisdiction to reopen the assessment, as the reasons recorded did not align with the facts on record. The petitioner had submitted ledger accounts showing no transactions with the entity in the relevant years, except for the repayment of the opening balance. The petitioner asserted that the Assessing Officer formed a reason to believe without proper application of mind, relying on borrowed satisfaction.On the other hand, the Respondent argued that the notices were issued based on information gathered from the system, with proper satisfaction and approval from the competent authority. They contended that the Assessing Officer had considered all facts before deciding to reopen the case. The Respondent maintained that the information available was adequate to establish the escapement of income, and any contentions by the petitioner could be addressed during reassessment proceedings.The Court noted that the reasons recorded were based on information about accommodation entries received by the petitioner, but the ledger accounts showed repayment of the amounts in question, indicating no further transactions with the entity. The reasons recorded for both years were found to be contrary to the facts on record, as the amounts mentioned were already part of the ledger accounts. The Court concluded that the Assessing Officer did not apply proper judgment in reopening the assessment, especially for the year 2016-17, where no live nexus with the information was evident. As a result, the Court allowed the petitions, quashed the notices issued under Section 148 of the Act, and made the rule absolute, with no order as to costs.