2022 (3) TMI 1414 - HC - Income Tax

Reopening of assessment u/s 147 - transactions entered into between the said entity Raimaladitya Textile Pvt. Ltd. and petitioner are bogus accommodation entries in nature - HELD THAT - What is strange is petitioner itself is Raimaladitya Textile Pvt. Ltd., the assessee. It is incomprehensible that petitioner would provide bogus accommodation entries to itself by loan having been given to itself which amount therefore has escaped assessment. Learned ASG submitted that there was a mistake. If that was a mistake that could certainly not be the reason to believe that petitioner s income has escaped assessment. We further note that approval under Section 151 of the Act also has been given on the same reasons, which would also indicate total non application of mind by not only the JAO but also by the Revenue Head who had recommended the case to the Principal CIT and also Principal CIT himself. One thing is evident that the approval is granted in a mechanical way without applying their mind. Petition is allowed in terms of prayer clause (a) and (b) which reads as under This Hon ble Court may be pleased to issue under Article 226 of the Constitution of India an appropriate direction, order or a writ, calling for the records of the case and after satisfying itself as to the legality thereof quash and set aside the notice issued by the Respondent No.1 under section 148 of the Income Tax Act, 1961, being Ex.- J hereto; This Hon ble Court may be pleased to issue under Article 226 of the Constitution of India an appropriate direction, order or a writ, calling for the records of the case and after satisfying itself as to the legality thereof quash and set aside the order passed by the Respondent No.1 disposing off the objections raised by the Petitioner against the reopening of assessment under section 147 being Ex.- P hereto

Summary

Issues:
Reopening of assessment under Section 147 of the Income Tax Act, 1961 based on reasons to believe that income has escaped assessment for A.Y. 2013-14 due to alleged bogus accommodation entries by the assessee company.

Analysis:
The High Court considered a petition challenging a notice issued under Section 148 of the Income Tax Act, 1961, asserting that the petitioner's income for A.Y. 2013-14 had escaped assessment. The Jurisdictional Assessing Officer (JAO) relied on information obtained from various sources like Annual Information Return (AIR), Central Information Branch (CIB), and others to allege that the petitioner, a company, engaged in transactions with a company named Raimaladitya Textile Pvt. Ltd., involving a bogus loan of Rs. 40,88,06,800/- in F.Y. 2012-13, which were deemed as bogus accommodation entries. However, it was noted that the petitioner itself was the Raimaladitya Textile Pvt. Ltd., raising doubts on the validity of the allegations.

The court highlighted the inconsistency in the JAO's reasoning, pointing out that the petitioner providing bogus accommodation entries to itself through a loan was illogical. The court also criticized the mechanical approval process under Section 151 of the Act, indicating a lack of proper evaluation by the authorities involved. The court concluded that the approval and reasoning lacked proper scrutiny and were granted without due application of mind, reflecting a flawed decision-making process.

In light of the flawed reasoning and lack of proper evaluation, the court allowed the petition, quashing the notice issued under Section 148 and setting aside the order disposing of the petitioner's objections against the reopening of assessment under Section 147. The court granted the relief sought in the prayer clause, highlighting the need for a thorough and reasoned approach in such matters to prevent arbitrary actions that could adversely affect taxpayers. The petition was disposed of with no order as to costs, emphasizing the importance of adherence to legal principles and procedural fairness in tax assessments.