In Pr.CIT v. RMG POLYVINYL (I) LTD, a division bench of the Delhi High Court recently held that the information received from the Investigation Wing of Income Tax Department cannot be treated as a “Tangible Material” for the purpose of re-assessment under sections 147/148 of the Income Tax Act.
In the instant case, the AO has completed assessment against the assessee on the basis of information received from the Investigation Wing regarding the alleged bogus accommodation entries pertaining to 16 entities.
Before the High Court, the department contended that at the stage of reopening of the assessment, the AO is not expected to undertake any detailed inquiry and it was sufficient if on the basis of the information received he was prima facie satisfied that a case was made out for reopening the assessment as income had escaped assessment.
The bench comprising Justice S. Muralidhar and Justice Prathiba M Singh found that there was a failure of application of mind by the AO to the facts. According to them, the AO proceeded on two wrong premises – one regarding alleged non-filing of the return and the other regarding the extent of the so-called accommodation entries.
The bench further relied on its recent decision in the case of Principal Commissioner of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd, wherein it was held that re-assessment under Sections 147/148 of the Income Tax Act cannot be made only on the basis of information received from the Investigation Wing of IT Department.
“The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a ‘known’ accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions “one after the other” and that the satisfaction arrived at by the AO was a “borrowed satisfaction” and at best “a reproduction of the conclusion in the investigation report.”
Read the full text of the Judgment below.
