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 suggesting the petitioner obtained accommodation entries, but the court found this information was not supported by the ledger accounts on record. The petitioner had repaid the opening balance amount during the relevant year with no other transactions shown. The court held that the AO's reasons for assuming jurisdiction were contrary to available facts, and no transactions occurred with the entity during the previous years for AY 2016-17.

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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.

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