2026 (1) TMI 540 - AT - Income Tax

Share capital and banking credits questioned as non-genuine, with disallowed expenses; reassessment under ss. 143/147 upheld, appeal dismissed.

The dominant issue was the validity of reassessment and the assessment order under ss. 143/147 where the AO treated banking transactions and credits shown ... Validity of order passed u/s 143/147 - nongenuine/ bogus banking transactions and entries in the name of share capital and share premium - HELD THAT:- It is apparent on record that there was no justification for the assessee to claim bogus payments of expenditure for its business. The assessee failed to discharge the obligation under law by not filing the return of income in compliance of the statutory notice u/s 148 of the Act. Since the assessee did not file the return of income, AO was justified in passing the assessment order. Therefore, the grounds of appeal being devoid of merits are rejected. Appeal of the assessee is dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the reassessment order was liable to be invalidated for alleged non-issuance of statutory notice under section 143(2), where the return in response to notice under section 148 was filed at the fag end of limitation and the assessment proceeded with enquiry notice under section 142(1). (ii) Whether the addition of Rs. 9,41,000/- was rightly sustained as taxable in the relevant assessment year under section 68 on the finding that the payment represented a bogus/banked accommodation entry made to a paper/shell entity and not a genuine business expenditure. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Validity of reassessment despite plea of non-issuance of notice u/s 143(2) Legal framework (as discussed): The Court considered the effect of notice under section 148, the assessee's obligation to file return within the time stipulated, and the assessment machinery including enquiry under section 142(1) and the possibility of best judgment assessment under section 144 if return was not filed. Interpretation and reasoning: The Court accepted the finding that notice under section 148 was served requiring filing of return within the prescribed period, but the assessee filed the return much beyond that time and only shortly before the assessment order. It was noted that the enquiry notice under section 142(1) had already been issued before the return was filed, showing that the assessing authority was proceeding with assessment without awaiting the belated return. On these facts, the Court upheld the reasoning that the assessee, having failed to comply with the statutory notice and having filed the return at its own chosen time leaving very little time to complete assessment, could not take shelter under the technical plea regarding notice under section 143(2). Conclusion: The validity of the assessment under section 147 was upheld; the challenge based on alleged non-issuance of notice under section 143(2) was rejected on the basis of the assessee's non-compliance and belated filing in response to section 148. Issue (ii): Sustainability of addition of Rs. 9,41,000/- u/s 68 as bogus payment to a paper/shell entity Legal framework (as applied): The Court proceeded on the application of section 68 to bring to tax the impugned sum where the payment was found to be non-genuine and routed through an entry-operator controlled entity, and where the assessee failed to justify the transaction as a legitimate business outgoing. Interpretation and reasoning: The Court relied on the concurrent findings that the recipient concern was a paper/shell entity controlled/managed by entry operators who provided accommodation entries and carried out no actual business. The assessing authority's reasoning, as accepted, was that even if the assessee claimed the expenditure related to an earlier year, the department had additional material showing the recipient denied actual receipt against any service rendered, and that the transaction was a bogus payment routed through banking channels to book non-genuine expenditure and convert funds into unaccounted money. The Court agreed that, in these circumstances, there was no justification for the assessee to claim the payment as a genuine business expenditure and the amount was rightly brought to tax in the assessment year under appeal. Conclusion: The addition of Rs. 9,41,000/- under section 68 was confirmed on the finding that the payment was a bogus/accommodation entry to a shell entity and not supported as a genuine business transaction.