2024 (10) TMI 857 - AT - Income Tax

Validity of the reopening of the assessment u/s 147 - reason to believe v/s reason to suspect - assessee has booked bogus loss or bogus profit - HELD THAT - In this case, a perusal of the assessment order would reveal that the AO has not discussed a word about the bogus accommodation entries in the assessment order, therefore, it is apparent that the information of the Investigation Wing in relation to the accommodation entries received by the AO was not correct, so far as the case of the assessee was concerned. As observed above, the information that the assessee had booked loss/profit by misusing the platform of NMCE is concerned, the said information, in itself, is a vague information. Even, the said information does not suggest as to whether the assessee has booked bogus loss or bogus profit, what to say of the quantum of such loss or profit booked by the assessee. There is no mention of the name of the parties, no details of the transactions etc. in the reasons recorded and no amount has been mentioned. The reopening on the basis of such a vague information and even without knowing whether the assessee has booked bogus loss or bogus profit, cannot be said to be an information for forming the belief that the income of the assessee has escaped assessment. Therefore, the reasons pointed out by the Assessing Officer cannot be said to be the reasons to form the belief that income of the assessee had escaped assessment. In the case Meenakshi Overseas (P.) Ltd 2017 (5) TMI 1428 - DELHI HIGH COURT has held that where reassessment was resorted to on basis of information from DIT(Investigation) that assessee had received accommodation entry but and there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified. Similarly G G Pharma India Ltd. 2015 (10) TMI 754 - DELHI HIGH COURT has held that where the Assessing Officer after receiving of information from the Investigation Wing that the assessee has received accommodation entries and the AO without describing those materials and without applying his mind to the alleged materials and therefore, without forming a prima facie opinion, reopens the assessment, the same was not sustainable. Reopening in this case is held as bad in law and, therefore, the consequential assessment framed u/s 147 is not sustainable and the same is hereby quashed. Bogus commodity loss and accommodation entries from shell companies - Even, on merits, a perusal of the assessment order would reveal that the AO has simply relying to the modus operandi adopted by certain entry providers and without pointing out any defect or infirmity in the transactions done by the assessee, has made the impugned additions, which, otherwise are not sustainable on merits also. Assessee appeal allowed.

Summary

Issues:
Reopening of assessment u/s 147 of the Income Tax Act based on alleged bogus commodity loss and accommodation entries from shell companies.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre confirming additions made by the Assessing Officer. The assessee contested the additions on legal grounds and merits. The reopening of the assessment was based on information from the Investigation Wing regarding accommodation entries and alleged bogus commodity loss. The counsel argued that the reasons for reopening were vague and did not meet the standard of "reasons to believe" for income escapement. The Assessing Officer's reliance on borrowed satisfaction from the Investigation Wing was deemed unlawful. Various case laws were cited to support this argument.

The Tribunal emphasized that for reopening an assessment, there must be tangible material supporting the belief of income escapement, not mere suspicion. Fishing and roving inquiries are not permitted. The Assessing Officer failed to correlate the information received with the case records, rendering the reopening invalid. The judgment referenced the Supreme Court's stance on "reason to believe" and highlighted a High Court decision stating that without sufficient material, a notice u/s 148 is invalid. The lack of discussion on the accommodation entries in the assessment order indicated incorrect information from the Investigation Wing. The vague nature of the information regarding the alleged commodity loss further weakened the basis for reopening.

On the merits, the Tribunal noted that the Assessing Officer made additions without identifying any defects in the assessee's transactions. Consequently, the impugned additions were deemed unsustainable on merits as well. Ultimately, the appeal was allowed, and the consequential assessment framed u/s 147 was quashed. The impugned additions were ordered to be deleted.

This detailed analysis of the judgment showcases the legal arguments presented, the evaluation of the reopening of assessment, and the decision reached by the Tribunal based on both legal grounds and merits of the case.