Application of Section 147 of Income Tax Act by AO having Tangible Material in Possession indicating Escapement of Income Chargeable to Tax is Valid: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the application of Section 147 of the Income Tax Act 1961, by an Assessing Officer (AO) having tangible material in possession indicating escapement of Income chargeable to tax is valid.

The assessee,Lakshman Tools Pvt. Ltd. was a resident corporate entity stated to be engaged in the business of manufacturing, assembling, fabricating, dealing, distributing, buying, selling of fasteners of all kinds of description, tools, appliances bolts, nuts, studs and other related items. For the assessment years under dispute, the assessee filed its returns of income in regular course.

The returns filed by the assessee were initially processed under section 143(1) of the Income-tax Act, 1961. Subsequently, the Assessing Officer received information from the Investigation Wing of the Department indicating that certain purchases shown by the assessee in the relevant assessment years were not genuine, as, purchases are in the nature of accommodation entries availed by the assessee through bogus purchase bills from hawala traders.

The information received revealed that in assessment year 2009-10, assessee received accommodation entries. Based on such information, the Assessing Officer reopened the assessments under section 147 of the Income Tax Act. . However, as observed by the Assessing Officer, the notices issued to the concerned parties on the address provided by the assessee returned back unserved.

However, as alleged by the Assessing Officer, the assessee failed to furnish the evidence relating to transportation charges paid and evidence of sale/purchase of similar goods in earlier and subsequent assessment years. Thus, the Assessing Officer, treating the purchase as non-genuine and in the nature of accommodation entries, added back to the income of the assessee. Further, he observed that for availing such accommodations entries, the assessee must have paid commission to the entry providers.

Ram Avatar Sharma, appearing for the assessee submitted that reopening of assessments under Section 147 of the Income Tax Act was invalid, as, there was no material before the Assessing Officer to form belief that the income had escaped assessment. He submitted, merely based on the information received from Investigation Wing, the Assessing Officer had proceeded to reopen the assessments without making any independent inquiry and also the payments were made and received through normal banking channel.

Virendra Singh, on behalf of the revnue submitted that the, the objections raised by the assessee against reopening were duly considered and rejected by the Assessing Officer. Therefore, the assessee could not challenge the validity of assessment under Section 147 of the Income Tax Act. He submitted that, neither in course of assessment proceedings nor before the appellate authorities, the assessee was able to furnish any credible evidence to establish the genuineness of the purchases.

The two-member Bench of G.S. Pannu, (President) and Saktijit Dey, (Judicial Member) dismissed the appeal filed by the assessee and upheld the addition holding that the the Assessing Officer had tangible information in his possession indicating escapement of income chargeable to tax accordingly, he exercised his powers under Section 147 of the Income Tax Act.

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