The Income Tax Appellate Tribunal, New Delhi in a recent case held that an assessment u/s 148 of the Income Tax Act, 1962 cannot be initiated against the assessee merely on the basis of information. The Assessing Officer, should also have a “reason to believe” that proceedings under the said section is sustainable against the assessee.
In the instant case, proceedings under section 147/148 was initiated against the assessee on the basis of information from the Investigation Wing, New Delhi that assessee is one of the beneficiaries of the bogus accommodation entries amounting to Rs.75,00,000/-.
In response to the notice issued u/s 148 of the Act, assessee has neither field any return of income nor opted to treat his return filed u/s 139(1) as reply to the notice. AO in the reasons recorded stated that there was some clerical mistake as certain single transactions were appearing in multiple resulting in working of the escaped income to the extent of Rs.75,00,000/- which stands corrected for the purpose of completion of the proceedings.
Bank statements of the assessee revealed that that there are credit entries of approximately equivalent amount in cash or transferred prior to clearance of cheques issued to the assessee company and in none of the accounts, there was sufficient balance on any day but the cheques have been honouredby way of cash deposit or transfer entry. There were regular cash deposits or transfer entries of equivalent amount before the clearance of cheques issued by them which is not possible in a natural course of business to have debit or credit transactions in lakhs of rupees on daily basis. These transactions are carried out by the entry operator only. The onus lies on the Director of the private limited companies from where funds were arranged to prove the identity, genuineness and creditworthiness of the funds of such provider u/s 68 of the Act. Assessee has failed to produce such persons for cross-examination nor furnished any document. It is established by Investigation Wing that the parties with whom the assessee had transactions operate through paper companies and have no real identity. So, the amount of Rs.22,00,000/- received by the assessee from the entry operators is treated as assessee’sincome from undisclosed sources and consequently, AO made an addition of Rs.22,00,000/- to the total income of the assessee.
The CIT(A), on first appeal preferred by the assessee, sustained the impugned order and therefore, the assessee approached the appellate Tribunal for relief.
The Tribunal observed that it is settled principle of law that the AO is required to reach at an independent conclusion by applying his own mind that he has reason to believe that the income of the assessee has escaped assessment to assume the jurisdiction for reopening of the assessment u/s 147 / 148 of the Act.
The Appellate Tribunal, following a catena of decisions of the apex courts, held that the AO has merely acted in mechanical manner on receipt of information from Addl. Director of Income-tax(Inv.), Unit-1, New Delhi that he has reason to believe that income of Rs.22,00,000/- has escaped assessment for the year 2004-05 due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Further, it was observed that forming an opinion merely on the basis of information supplied to the AO by Addl. Director of Income-tax (Inv.), Unit-1, New Delhi that Deepak Gupta has provided accommodation entries to the assessee to the tune of Rs.22,00,000/- does not amount to satisfaction of the AO to reopen the case u/s 147 of the Act. On this basis, the Tribunal allowed the appeal filed by the assessee and quashed the impugned order.
Read the full text of the order below.
