ITAT upholds Reopening of Assessment u/s 148 of Income Tax Act on Reason to Believe Tax Escapement [Read Order]

In a recent case, the Income Tax Appellate Tribunal (ITAT) of Ahmedabad upheld the reopening of assessment under section 148 of the Income Tax Act 1961 (ITA) as the tribunal observed that the Assessing Officer (AO) had sufficient reason to believe that the assessee’s income that was chargeable to tax escaped assessment.

L.K.S. Bullion (Import and Export) Pvt. Ltd, the assessee,  filed its income tax return for AY 2010-11, declaring a total income of ₹19,75,190. The return was initially processed and accepted under section 143(1) of the Income Tax Act, meaning that no detailed scrutiny was done at this stage.

After some time, the Deputy Director of Income Tax (Investigation) [ DDIT ] in Mumbai conducted an investigation into the activities of several entities and discovered transactions that were allegedly linked to L.K.S. Bullion. The investigation indicated that the assessee company might have been involved in unaccounted transactions, potentially leading to undisclosed income.

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The DDIT shared the findings with the Assessing Officer (AO), providing details about the unverified transactions and suspicious entries in the company’s accounts.

Based on the information received from the DDIT, the AO decided to reopen the assessment under section 148 of the Income Tax Act. The AO issued a notice to the assessee, indicating that there was reason to believe that income had escaped assessment due to the alleged undisclosed transactions and recording the reasons for the same.

As per the recorded reasons in the assessment order, The inquiry focused on Shri Anil Kumar Jain, Shri Pravin Kumar Jain, and related entities. It was found that high-value transactions were credited through RTGS, clearing, cash, or transfers from various accounts, followed by immediate withdrawals via cash or multiple transfers.

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Bank statements were obtained, and the statements of Shri Anil Kumar Jain and Shri Pravin Kumar Jain were recorded under section 131 of the ITA, where they admitted to operating a business of providing cheque entries. One such entity, M/s Vishnu Trading Co., handled by them, was found to have transacted with the assessee company.

Upon issuing notices under sections 143(2) and 142(1), the assessee was asked to submit the ledger account extract of M/s Vishnu Trading Co. for FY 2009-10. The assessee denied any transactions with the entity.

However, the AO verified the assessee's bank statements and found two credit entries on 10-10-2009 and 12-10-2009 totaling Rs.1,92,29,000/-. A show-cause letter was issued to the assessee regarding why this amount should not be treated as income. The assessee claimed that these amounts were credited to the sales account and debited to the bank account for sales, providing supporting sales bills and registers.

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The AO noted that the documents furnished by the assessee pertained to transactions with M/s Edelweiss Commodities Ltd. This made the AO suspect that the assessee of submitted these to mislead and confuse the department.

A notice  under section 133(6) was also issued to M/s Vishnu Trading Co., which couldn’t be served as it returned back.

Citing judicial precedents, the AO treated the amount as unexplained cash credit and added it to the assessee's total income under section 68 of the ITA. The AO concluded that the transactions linked to entities like M/s Vishnu Trading Co. were not genuine and represented unaccounted income.

Dissatisfied with the reassessment order, the assessee company filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], challenging both the reopening of the assessment and the addition made under section 68 of the ITA

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However, the CIT(A) also upheld the AO’s decision, observing that the assessee failed to give any explanation regarding the nature of the credit entries. Aggrieved, the assessee took the matter to the Income Tax Appellate Tribunal (ITAT).

Before the ITAT, the assessee submitted that the AO’s decision to reopen the assessment was based solely on the information from the DDIT without independent verification or application of mind.

The assessee further contended that the profits from the transactions with entities like M/s Vishnu Trading Co had already been offered for taxation and that the AO’s addition was unwarranted. They also argued that the AO did not allow them the opportunity to cross-examine the individuals or entities whose statements were used against them.

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After hearing the contentions, the bench comprising  Ms Suchitra Kamble and Mr Makarand V Mahadeokar observed that the AO had a valid reason to believe that income chargeable to tax had escaped assessment.

The bench noted that the information received from the DDIT (Inv.) about the transactions between the assessee company and M/S Vishnu Trading Co. provided a substantial basis for the AO's belief, and his decision to reopen the assessment was justified.

It was further noted that the AO’s action was not merely based on borrowed satisfaction but on specific information  that required further investigation to ascertain the correctness of the transactions. Accordingly,  the reopening of the assessment under Section 148 of the ITA was upheld.

In light of this observation , the appeal of the assessee on this ground was dismissed.

To Read the full text of the Order CLICK HERE

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