2017 (12) TMI 132 - HC - Income Tax

Reopening of assessment - accommodation entry - Held that - The information received by the petitioner s Assessing Officer is specific, both as to the amount as also to the character of it being an accommodation entry. Not only that the information states that the entries are accommodation entries but that information further states that the person who is shown as a creditor in books of account of the assessee has himself denied the genuineness of that entry. Prima facie, therefore, there is both material as also a reason to believe that the said entries are accommodation entries. In that view of the matter, we find that the jurisdiction appears to have been validly exercised by the Assessing Officer. However, the observations made by us are only confined to the issue whether the jurisdiction to initiate reassessment proceeding had validly arisen against the petitioner for the Assessment Year 2010-11. No part of the observation made would be relevant to the merits of the dispute i.e. whether an addition on the above count is warranted in the entirety of the facts and circumstances of the case. That issue would remain to be examined in the consequential reassessment proceedings to be now conducted by the Assessing Officer in which the assessee would be within its right to rebut the allegation made against him and to lead such evidence in its defence as it may desire to establish that the aforesaid entries were in fact genuine entries and not accommodation entries.

Summary

Issues:
Challenge to reassessment proceedings for the Assessment Year 2010-11 initiated under Section 148 of the Income Tax Act based on accommodation entries received from specific companies.

Analysis:
The petition challenges the reassessment proceedings for the Assessment Year 2010-11 initiated under Section 148 of the Income Tax Act based on accommodation entries received from M/s Peak Infocom Pvt. Ltd. and M/s DRS Impex Pvt. Ltd. The Assessing Officer received information from the Additional Director of Income Tax (Investigation) regarding these entries being part of a group of companies known as Himanshu Verma group. The petitioner's original assessment for the same year was made under Section 143(1), not Section 143(3), making the proviso to Section 147 inapplicable. The petitioner argues that the notice was issued mechanically without proper application of mind by the Assessing Officer. The revenue contends that the information received was definite, indicating the entries were accommodation entries, and the denial of investment by the alleged investor supports the reason to believe in initiating reassessment.

The jurisdiction under Section 147 requires the existence of material or information leading to a reasonable belief of income escapement. In this case, the Assessing Officer had relevant material, such as denial of investment, to form a belief that the entries represent escaped income. The Assessing Officer's reasons to believe were specific, mentioning the companies, amounts, and nature of the entries, justifying the initiation of reassessment proceedings. The objections raised by the petitioner were considered, and the Assessing Officer's reliance on specific information from the Investigation Wing was deemed sufficient given the ongoing reassessment process.

The petitioner argues that a reason to believe cannot solely rely on alleging accommodation entries without proper explanation. Citing a Delhi High Court judgment, the petitioner emphasizes the need for a detailed basis for such conclusions. However, the court distinguishes this case from the cited judgment, noting the specific and detailed information received by the Assessing Officer in the present matter. The court finds that the jurisdiction was validly exercised based on the specific nature of the information and the denial of investment by the alleged creditor.

The court concludes that the validity of the reassessment proceedings' initiation has been established, but the final decision on the addition of income based on the accommodation entries will be subject to further examination during the reassessment process. The petitioner is granted the opportunity to defend against the allegations and present evidence to support the genuineness of the entries. Consequently, the writ petition is dismissed without costs, focusing solely on the jurisdictional aspect of reassessment initiation for the Assessment Year 2010-11.