2017 (9) TMI 384 - HC - Income Tax

Validity of reopening of assessment - non-application of mind to the objections raised by the Petitioner - non-genuine accommodation entries taken by assessee - Held that - The Court finds that the order dated 26th July 2017 rejecting the Petitioner s objections has not in fact dealt with the objections at all. It merely reiterates that the DDIT (Investigation) had intimated that the Petitioner had taken non-genuine accommodation entries from one of the dummy companies including M/s. JMD International. It then sets out Section 147 of the Act. The order proceeds to assert that the AO has in the reasons recorded, formed his opinion in writing and that this belief has been made after due diligence and considering the fresh material, evidences and facts available on the record. There is no basis for this bald assertion considering that the only material available with the AO was the letter sent by the DDIT (Inv). The order then sets out the summary of certain decisions and then simply concludes that keeping in view of above, the objections filed are not acceptable and stand disposed of. Thus the impugned order stands vitiated in law for non-application of mind to the objections raised by the Petitioner. It does not discuss any of the objections. It does not deal with the documents enclosed along with the objections. The impugned order fails to address the principal objection that the so-called entries found in the bank account of M/s. JMD International were in fact entries signifying the payment made to the Assessee for the sales made by it to M/s. JMD International. The genuineness of these transactions should easily have been verified by the AO even at this stage. AO is directed to again consider the objections of the Assessee

Summary

Issues:
Challenge to notice seeking to reopen assessment for AY 2010-11 and rejection of objections by AO.

Analysis:
The petitioner filed a writ petition under Article 226 challenging a notice issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961, to reopen the assessment for the Assessment Year (AY) 2010-11. The petitioner's objections to the reopening of the assessment, along with the order rejecting those objections, were also challenged in the petition. The petitioner had declared an income of ?19,57,290 for AY 2010-11, which was processed under Section 143(1) of the Act. The AO initiated proceedings under Section 147 based on information received from the Deputy Director of Income Tax (Investigation) regarding accommodation entries received by the petitioner from a dummy company. The AO formed an opinion that income to the tune of ?1,38,00,000 had escaped assessment for AY 2010-11, leading to the issuance of the notice under Section 148.

The petitioner's objections highlighted that the reasons for reopening were ambivalent and failed to identify the nature of the transactions accurately. The petitioner contended that the transactions were advances against goods sold, not accommodation entries. The objections were supported by invoices issued to the dummy company, showing details like truck numbers, excise duty payments, and sales tax. Despite these objections, the AO rejected them in an order dated 26th July 2017, without addressing the objections raised. The court found that the AO's order lacked a proper consideration of the objections and failed to address the key objection regarding the nature of the transactions. The court held that the order was vitiated for non-application of mind and directed the AO to reconsider the objections and pass a reasoned order afresh on merits.

Consequently, the court set aside the AO's order and instructed the AO to re-examine the objections raised by the petitioner and provide an opportunity for the petitioner to be heard. The reassessment proceedings were stayed until a fresh order was passed by the AO. The AO was mandated to pass a new order within six weeks from the judgment date and communicate it to the petitioner within one week thereafter. The petition and pending application were disposed of in accordance with these directions.