TaxTMI 
TaxTMI 
2026 (9) TMI 1788
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....ration, the assessee filed his return of income on 16.08.2010 declaring total income of Rs. 1,72,910/-. The return was processed under section 143(1) of the Act. 3. Subsequently, the AO received information from the Deputy Director of Income Tax (Investigation), Unit-7(4), Mumbai, vide communication dated 27.09.2016. As recorded in the reasons for reopening, a search and seizure action had been conducted on 05.02.2016 in the case of Shri Vipul Vidur Bhatt and his related entities. According to the information received by the AO, Shri Vipul Vidur Bhatt was engaged in providing accommodation entries in the nature of bogus sales and unsecured loans. On examination of the ledger accounts of the entities stated to be managed, controlled and operated by Shri Vipul Vidur Bhatt, the assessee was alleged to have received accommodation entries aggregating to Rs. 10,00,000/- during the financial year 2009-10. 4. On the basis of the aforesaid information, the AO recorded reasons for reopening the assessment and issued notice under section 148 of the Act on 30.03.2017. In response thereto, the assessee, vide letter dated 10.04.2017 filed on 17.04.2017, requested that the return originally....
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....h the identity and creditworthiness of Smt. Vijaya B. Bhatt and the genuineness of the loan transaction entered into with her. 9. The AO issued a show-cause notice dated 11.12.2017 proposing to treat the two loans of Rs. 5,00,000/- each as unexplained cash credits under section 68 of the Act. The assessee filed his reply dated 15.12.2017 objecting to the proposed addition and relied upon the supporting documents furnished during the reassessment proceedings. 10. The AO, however, was not satisfied with the explanation and evidence furnished by the assessee. The AO treated both the loans, aggregating to Rs. 10,00,000/-, as unexplained cash credits under section 68 of the Act. Consequently, the reassessment was completed under section 143(3) read with section 147 of the Act vide order dated 21.12.2017, determining the total income of the assessee at Rs. 11,72,910/- as against the returned income of Rs. 1,72,910/-. 11. Aggrieved by the reassessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the validity of the reopening as well as the addition of Rs. 10,00,000/- made under section 68 of the Act. The ass....
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....CIT(A) rejected the challenge to the validity of the reassessment. The learned CIT(A) observed that the reopening had been initiated on the basis of specific and tangible information received from the Investigation Wing pursuant to the search and seizure action in the case of Shri Vipul Vidur Bhatt and related entities. According to the learned CIT(A), the information identified the assessee as a beneficiary of accommodation entries aggregating to Rs. 10,00,000/- and, therefore, there was a direct nexus between the information available with the AO and the formation of the belief that income chargeable to tax had escaped assessment. 17. The learned CIT(A) further held that, at the stage of issuance of notice under section 148 of the Act, the AO was only required to form a prima facie belief regarding escapement of income and was not required to conclusively establish such escapement. For this proposition, the learned CIT(A) placed reliance upon the decision of the Hon'ble Supreme Court in Raymond Woollen Mills Ltd. v. ITO (236 ITR 34). The learned CIT(A) rejected the contention that the reopening was vitiated because the notice under section 142(1) referred to bogus purchases wh....
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....arate unit of assessment. The learned CIT(A), therefore, upheld the addition of Rs. 10,00,000/- under section 68 of the Act and dismissed Ground No. 2. 21. As regards the alleged violation of the principles of natural justice, the learned CIT(A) held that the reassessment was based upon the inference drawn from documentary evidence and information gathered during the investigation. The learned CIT(A) observed that the AO was not required to produce third parties for cross-examination when independent material was available on record. It was further observed that adequate opportunity had been afforded to the assessee to explain the transactions and furnish evidence, and that the assessee had failed to demonstrate any prejudice caused by the procedure adopted by the AO. The learned CIT(A), accordingly, rejected the allegation of violation of the principles of natural justice and dismissed Ground No. 3. 22. Consequently, the learned CIT(A) dismissed the appeal of the assessee. The assessee is now in further appeal before us. 23. The assessee has raised the following grounds of appeal: 1. a) The learned CIT(A) erred in confirming the action of the AO in re-opening of ....
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....tion authorities, which were wrong information, ii. he did not make available the copies of the said information for seeking explanation of your appellant, iii. he did not provide an opportunity to cross examine the parties on whose statements the reliance was placed by the department, iv. he did not bring any material on record to disprove the facts stated by your appellant and the overwhelming material produced before him for proving the genuineness of the alleged transaction, v. he did not examine the loan parties' income tax records with their AOs or their bankers. (b) Your appellant submits that the learned AO had violated the provisions of natural justice in every respect at every step. (c) Your appellant prays that such an order passed in total disregards of the provisions of natural justice be quashed. 4. (a) The Ld. CIT(A) erred in confirming the action of the AO in calculating income tax @30% on total assessed income amounting to Rs. 3,51,873/- in place of correct calculation of income tax at Rs. 2,55,873/-. (b) The Ld. CIT(A)erred in confirming the action of the AO in levying the interest u/s -234B a....
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....aced. Referring to the entries appearing therein, he submitted that, before the payment of Rs. 5,00,000/- was made to the assessee, an equivalent amount of Rs. 5,00,000/- had been credited to the lender's bank account. The learned DR relied upon this fund movement in support of the conclusion reached by the lower authorities and, accordingly, submitted that the impugned order deserved to be sustained. 27. In rebuttal, the learned AR submitted that the credit of Rs. 5,00,000/- appearing in the lender's bank account immediately before the advancement of the loan to the assessee had been specifically explained by the lender, Shri Akshay M. Joshi, in his affidavit dated 23.03.2021 placed on record. Referring to the affidavit, the learned AR submitted that Shri Akshay M. Joshi had affirmed that he was regularly assessed to tax under PAN AHFPJ4035N and had filed his return of income for the assessment year 2010-11. The learned AR further pointed out that the lender had affirmed that, on 15.12.2009, he had received Rs. 5,00,000/- from M/s Bhavisha Projects Pvt. Ltd., PAN AADCB1975B, through account-payee cheque No. 142719. Out of the said amount, the lender advanced Rs. 5,00,000/- to t....
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....O specifically stated: "As per the re-opening of assessment reasons, you had taken accommodation entry in form of bogus purchase from the following parties:" 31. Proceeding on that premise, the AO called upon the assessee to furnish purchase bills, transportation receipts, quantitative details, stock register, tax identification numbers and other particulars ordinarily relevant to verification of purchases of goods. However, no addition on account of bogus purchases was ultimately made. Instead, the transactions were treated as loans and added as unexplained cash credits under section 68 of the Act. 32. In our considered view, the distinction between an alleged bogus purchase and an unexplained loan cannot be regarded as a mere difference in nomenclature. A purchase transaction involves an alleged expenditure or trading transaction and requires examination of invoices, movement of goods, stock records and corresponding sales. A loan appearing as a credit in the books is examined under section 68 with reference to the identity and creditworthiness of the creditor and the genuineness of the transaction. The factual enquiry, the statutory foundation and the evidentiary ....
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....the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 35. The judgment further explains that this requirement continues to apply even where the original return was merely processed under section 143(1) of the Act. 36. In the present case, the information undoubtedly named the assessee and quantified the aggregate amount at Rs. 10,00,000/-. However, mere identification of the assessee and quantification of an amount does not, by itself, establish the necessary rational connection. The AO was also required to identify the nature of the transactions and apply the information to the facts appearing from the assessee's return and record. The reasons referred generally to two distinct types of accommodation entries, while the subsequent statutory notice unequivocally proceeded on the premise of bogus purchases. The reassessment order, on the other hand, abandoned that premise and treated the very same amounts as unsecured loans liable to be added under section 68 of the Act. 37. The notice under section 142(1) is significant not for supplementing or altering the recorded reasons, which is impermissible, but because it contempora....
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....rmation received from the Investigation Wing does not cure this jurisdictional defect. The validity of reopening must be tested exclusively on the reasons recorded before issuance of the notice under section 148. The AO's subsequent conclusion or the observations made by the learned CIT(A) cannot supply the application of mind absent from the recorded reasons. 42. In view of the foregoing discussion, we hold that the reasons recorded did not disclose the requisite live link between the information received and the belief that income chargeable to tax had escaped assessment in the form ultimately assessed. The assumption of jurisdiction under sections 147 and 148 of the Act was, therefore, unsustainable. The consequential reassessment order dated 21.12.2017 is quashed. Ground No. 1, to the extent it challenges the reopening for want of a live link, correct factual foundation and independent application of mind, is allowed. In view of this conclusion, separate adjudication of the remaining objections concerning sanction under section 151 and disposal of objections to reopening is rendered academic. 43. Although the reassessment has been quashed on the jurisdictional issue, for ....