2024 (2) TMI 280 - HC - Income Tax

Reopening of assessment u/s 147 - allegation of accommodation entries receipts and Bogus Financial Transactions - reliance on the statement recorded U/s 133A of a person who is claimed to be accommodation entry provider - What is tangible or cogent material on record leading to formation of belief? - HELD THAT - From the record of reasons communicated to the Petitioner it appears that there is no nexus between the material before the assessing authority and the formation of belief by him. There is no direct nexus or live link between the material on record and formation of belief and no tangible or cogent material on record leading to formation of such belief. As per the recorded reasons Sri Sharma has stated that he provided accommodation entries to certain persons ; however the name of the Petitioner has never been taken by him. The date on which statement of Sri Sharma is recorded is not known to Assessing Officer and also whether it relates to the assessment year in question is also not known. Date of statement of Sri Sharma is neither mentioned in the recorded reasons nor in the show cause notice nor in the Assessment Order. The Counter Affidavit is also silent hence on its basis no reasonable belief could be formed that the said statement relates to the assessment year in question in which the income has escaped the assessment. In the absence of date of statement it is far-fetched to assume that it relates to the assessment year in question as held in ITO Vs. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT It further transpires from records that the proceedings in the instant case is initiated for verifications and roving enquiry which is clearly impermissible under section 147/148 as held by this Court in the case of PCIT Vs. Maheswari Devi 2022 (11) TMI 1117 - JHARKHAND HIGH COURT It is also not clear whether the statement of Sri Ajay Kumar Sharma is recorded U/s 132(4) or Section 133A inasmuch as a statement recorded U/s 133A has no evidentiary value. The recorded reasons have been supplemented by using the word for bill purchase which means amount has flown-out of books not a case receipt of accommodation entry. Further the said finding says that the Petitioner is provider of accommodation entry which is opposite of the recorded reasons. Further the recorded reasons reveals that the proceeding is initiated on the basis of information gathered from Insight Module while in the Order dated 16-03- 2022 disposing objection it is held that the assessment is reopened on the basis of information received from Director of Income Tax (I CI) Ahmedabad. As further transpires that from the recorded reasons and the impugned assessment Order it is not clear whether the Petitioner is recipient of any accommodation entry/bogus financial transaction. The recorded reasons and findings in the impugned Order are also silent about the provisions under which addition are sought to be made as the assessing officer himself is not sure whether financial transactions sought to be added are debit entries or credit entries in the books of the Petitioner. In the instant case there is no material on the basis of which a reasonable belief could be formed that the cash has been deposited by the Assessee into the bank of the accommodation entry provider. Hence it cannot be presumed to be an accommodation entry. - The expression accommodation entry and bogus financial transaction in the recorded reasons are not reason for formation of reasonable belief but are conclusions. Assessment Order is passed on pure guess work without any relevant material which is contrary to mandates of Section 144 dealing with Best Judgment Assessment. From a perusal of the findings recorded in the impugned Order it is clear that there is not even a scrap of material to hold that any accommodation entry have been provided to the Petitioner by Sri Ajay Kumar Sharma. We are having no hesitation in holding that in the instant case the belief formed by the Assessing Officer suffers from lack of bona fides is vague far-fetched irrelevant based on conjecture and surmises and also arbitrary and irrational. - Decided in favour of assessee.

Summary

Issues Involved:
1. Quashing the Assessment Order dated 31.03.2022.
2. Quashing the Notice of Demand under Section 156.
3. Quashing the Notice for Penalty under Section 274 read with Section 271(1)(c).
4. Direction to produce records pertaining to reassessment.
5. Declaration of reassessment proceedings as violative of the Principles of Natural Justice and the Income-Tax Act, 1961.

Summary:

1. Quashing the Assessment Order dated 31.03.2022:
The petitioner challenged the assessment order dated 31.03.2022, which added Rs. 15,54,42,417/- to the petitioner's income for the Assessment Year 2015-2016 under Section 147 read with Sections 144 and 144B of the Income-Tax Act, 1961. The petitioner argued that the reassessment was initiated without material and reasons to form a reasonable belief that income had escaped assessment. The court found that there was no nexus between the material before the assessing authority and the formation of belief, and no tangible or cogent material on record leading to such belief. The reliance on the statement of Ajay Kumar Sharma, without evidence of the petitioner's involvement, was deemed insufficient.

2. Quashing the Notice of Demand under Section 156:
The petitioner sought to quash the Notice of Demand dated 31.03.2022. The court observed that the reassessment proceedings were initiated on vague and far-fetched grounds, lacking a direct nexus or live link between the material on record and the formation of belief. The court held that the reassessment proceedings were initiated for verification and roving enquiry, which is impermissible under Section 147/148.

3. Quashing the Notice for Penalty under Section 274 read with Section 271(1)(c):
The petitioner also sought to quash the Notice for Penalty dated 31.03.2022. The court found that the entire proceeding was carried out in gross violation of the principles of natural justice, as the petitioner was given only 24 hours to file an objection/reply to the Show Cause Notice. The court held that the recorded reasons and the impugned assessment order were silent about the provisions under which the additions were sought to be made, rendering the proceedings arbitrary and irrational.

4. Direction to produce records pertaining to reassessment:
The petitioner requested a direction for the respondents to produce the entire records pertaining to the reassessment proceedings. The court noted that the petitioner was denied access to the relied-upon documents, which violated the principles of natural justice. The court emphasized that the petitioner is entitled to a copy of the investigation report and other relevant documents.

5. Declaration of reassessment proceedings as violative of the Principles of Natural Justice and the Income-Tax Act, 1961:
The petitioner argued that the reassessment proceedings were conducted in gross violation of the Principles of Natural Justice and the Income-Tax Act, 1961. The court agreed, stating that the reasons for reopening the assessment were vague and lacked a rational connection with the formation of belief. The court held that the reassessment proceedings were initiated on borrowed satisfaction without independent application of mind.

Conclusion:
The court quashed the impugned notice issued under Section 147 dated 31.03.2021, the impugned assessment order dated 31.03.2022, the notice of demand dated 31.03.2022, and the notice for penalty under Section 274 read with Section 271(1)(c) dated 31.03.2022. The penalty order and demand notice dated 28.09.2022, and the order disposing of objections dated 16.03.2022, were also quashed. The writ application was allowed, and any pending interlocutory applications were closed.