2017 (12) TMI 254 - HC - Income Tax

Reopening of assessment - accommodation entry - validity of jurisdiction to initiate reassessment proceeding against the petitioner - 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. - Decided against assessee.

Summary

Issues:
Challenge to reassessment proceedings for Assessment Year 2010-11 based on notice under Section 148 of Income Tax Act; Jurisdiction under Section 147 for escapement of income; Validity of reasons to believe for initiating reassessment proceedings.

Analysis:
The writ petition was filed to contest reassessment proceedings for the Assessment Year 2010-11 initiated through a notice under Section 148 of the Income Tax Act. The Assessing Officer received information indicating that the petitioner obtained accommodation entries from specific companies during the financial year 2009-10, part of a group known as Himanshu Verma group. The petitioner's original assessment for the year was under Section 143(1), not Section 143(3), making the proviso to Section 147 inapplicable. The petitioner argued that the notice was issued mechanically without proper application of mind. The revenue contended that the information received was sufficient to support the belief of income escapement.

For jurisdiction under Section 147 to arise, there must be necessary material or information leading a prudent person in the Assessing Officer's position to believe in income escapement. In this case, the Assessing Officer had relevant material, like denials of investment, to form a belief that the entries represented escaped income. The Assessing Officer recorded detailed reasons for his belief based on specific information regarding accommodation entries received by the petitioner.

The petitioner's counsel raised objections regarding the Assessing Officer not adequately addressing the objections and relying on specific material from the Investigation Wing. However, the court found that the reassessment was initiated based on direct and specific information of escapement, and no final conclusion had been reached yet. The court cited a Delhi High Court judgment to argue that mere allegations of accommodation entries without proper basis are insufficient for reassessment.

The court distinguished a Delhi High Court case where the lack of a basis for believing an entry was an accommodation entry led to setting aside the reassessment. In contrast, the information received by the petitioner's Assessing Officer was specific and included denials of the entry's genuineness, providing a valid reason to believe in escapement. The court concluded that the Assessing Officer validly exercised jurisdiction in initiating reassessment proceedings.

The judgment emphasized that the observations were limited to the jurisdictional issue, and the merits of the dispute regarding the addition of income would be examined in subsequent reassessment proceedings. The court dismissed the writ petition for lacking merit, leaving the petitioner the opportunity to defend against the allegations during the reassessment process.