Recently in a decision, the Income Tax Appellate Tribunal (ITAT) of Delhi quashed a reassessment notice issued under Section 148 of the Income Tax Act, 1961 (ITA) to the assessee/ appellant, Natraj Products Pvt. Ltd. for the Assessment Year 2010-11, citing mechanical approval granted by the Principal Commissioner of Income Tax (PCIT). The reassessment was based on alleged accommodation entries amounting to ₹60 lakh, but the ITAT found that the approval granted for reopening the case lacked application of mind and was issued without satisfying the strict requirements of the law.
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The case began when the Assessing Officer (AO) reopened the assessee’s assessment after receiving information from the Investigation Wing in March 2013. The investigation revealed that the Surender Kumar Jain Group had provided accommodation entries to various companies, including the assessee, during the financial year 2009-10. The AO, based on this information, issued a notice under Section 148 of the tax legislature on March 25, 2017, just before the limitation period expired. The reassessment order added ₹60 lakh to the company’s income under Section 68 of the ITA along with ₹1.2 lakh as probable commission expenses under Section 69C of the tax statute, for a total reassessment of ₹62.62 lakh.
The assessee appealed this decision before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s actions both on jurisdiction and merit. Dissatisfied, the assessee-company further appealed to the ITAT, challenging the legality of the reassessment proceedings on multiple grounds. One of the key objections was that the reassessment was based on “borrowed satisfaction” from the Investigation Wing without the AO conducting any independent verification or inquiry into the alleged accommodation entries.
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After reviewing the case facts, the bench of Mr Pradip Kumar Kedia and Mr Yogesh Kumar US found merit in the assessee-company’s arguments, particularly in relation to the approval granted by the PCIT under Section 151 of the tax legislature, which authorizes the issuance of a notice under Section 148 of the same. The ITAT observed that the approval process was carried out in a “mechanical manner,” without proper scrutiny or due consideration of the facts. It noted discrepancies in the timeline of the alleged entries and the assessment year in question, with the AO mentioning transactions from the financial year 2008-09, which would relate to a different assessment year than 2010-11.
Additionally, the ITAT observed that the AO had not acted on the information for nearly four years, initiating proceedings only on the verge of the limitation period, indicating a lack of urgency or independent inquiry. The tribunal criticized both the AO and the PCIT for failing to properly evaluate the case before initiating reassessment. It stressed that approval under Section 151 of ITA should be granted only after careful consideration and not as a mere formality. Ultimately, the ITAT ruled that the reassessment proceedings were invalid due to improper jurisdiction under Section 147 of the tax statute and quashed the reassessment order
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