2013 (6) TMI 423 - AT - Income Tax

Reopening of assessment - accommodation entries - CIT(A) quashed reassessment - Held that - It is an admitted fact that AO reopened the assessment of the assessee only on the basis of copy of account of Shri Bhupender Shrimali partner of assessee company in the books of M/s Abhvya Investments Pvt. Ltd., Mumbai associated concern. AO on the basis of the said copy of account suspected that the income of the assessee escaped assessment. However, nothing concrete was brought on record to substantiate that the assessee received any entry or made payment for accommodation entry. Therefore, the basis on which the re-assessment proceedings were initiated against the assessee was totally wrong and therefore, the reassessment proceedings were not sustainable and CIT(A) was fully justified in cancelling the reassessment framed in the hands of the assessee. In favour of assessee.

Summary

Issues:
Reopening of assessment under section 147 of the Income Tax Act based on suspicion of income escapement.

Analysis:
The Department appealed against the order of the ld. CIT(A), Udaipur, canceling the reassessment under section 147 of the Income Tax Act. The case revolved around the initiation of reassessment proceedings due to the suspicion of income escapement by the assessee, who had received an advance amount from M/s Abhvya Investment Pvt. Ltd. The Assessing Officer reopened the assessment based on the suspicion that the assessee failed to disclose material facts regarding the advance amount. The ld. CIT(A) observed that the basis for reopening the assessment was a copy of the account of Shri Bhupender Shrimali in the books of M/s Abhvya Investment Pvt. Ltd., which did not directly link to the assessee firm. The ld. CIT(A) concluded that the reassessment proceedings were illegal as the basis for reopening the assessment was unfounded.

The Department contended that the reassessment proceedings were valid, but the ITAT Jodhpur disagreed. The ITAT noted that the reassessment was solely based on the suspicion of income escapement without concrete evidence linking the advance amount to the assessee. The ITAT upheld the ld. CIT(A)'s decision, stating that the reassessment proceedings against the assessee were not sustainable due to the lack of substantiated grounds for suspicion. The ITAT found no merit in the Department's appeal and dismissed it, affirming the cancellation of the reassessment.

In conclusion, the ITAT Jodhpur upheld the cancellation of the reassessment under section 147 of the Income Tax Act, emphasizing the importance of concrete evidence and valid grounds for initiating reassessment proceedings. The judgment highlighted the necessity for a clear nexus between the material facts and the belief of income escapement to ensure the legality and sustainability of such proceedings.