The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that the re-assessment under section 147/148 cannot be made if the Assessing Officer has no reason to believe that the assessee
The Assessing Officer re-opened the assessment against the assessee on the basis of the information got from Director of Income Tax (I&CI) that the assessee is one of the beneficiary of the accommodation entries provided by Shri Mukesh Choksi (Mahasagar Group of cases in Mumbai) and has taken accommodation entry for loss of Rs. 2,71,500/- during the F.Y. 2009-10 relevant to AY 2010-11. So, according to the AO, since the return of income of the assessee was processed only u/s 143(1), there was no occasion to verify the said transaction which, as per the statements/evidence gathered by the department from third parties was bogus in nature.
The Tribunal noted that in the reassessment order the AO has not made any addition/disallowance on this issue.
“So, without making any addition/disallowance on this accommodation entry for loss of Rs. 2,71,500/-, the AO ought not to have proceeded to re-assess the assessee on other incomes like the addition of STCG and disallowance u/s 14A of the Act. The jurisdictional fact which empowered the AO to invoke the jurisdiction to reopen by issue of notice u/s. 148 r.w.s. 147 of the Act as deciphered from the reasons recorded is the accommodation entry of loss of Rs.2,71,500/-,” the Tribunal said.
The Tribunal noted that when AO desired to reopen this assessment year, he had information of assessee in receipt of accommodation entry of loss from Mahanagar Group, which fact was recorded to re-open the assessment.
“This precise fact was the foundation based on the information from Director of income Tax and the AO recorded the reason which warranted him to hold the belief that income chargeable to tax has escaped assessment and thereafter, the AO usurped the jurisdiction to reopen the assessment. In other words is the ‘income’ which according to the AO escaped assessment while recording reasons for reopening assessment u/s 147 r.w.s. 148 of the Act. This ‘income’ which AO records in his reasons recorded has escaped assessment and which constituted the bedrock/basis for reopening is the jurisdictional fact which empowered him to usurp the jurisdiction to reopen and reassess the escaped income as contemplate u/s 147/148 of the Act. So, when that income which was the foundation on which he based his belief of escapement of income is absent /disappeared then the AO’s very usurpation of jurisdiction is on non-existing jurisdictional fact which renders his usurpation of jurisdiction to reopen the assessment legally untenable and so null in the eyes of law and therefore, the assessee succeeds and therefore, we quash the reassessment made by the AO without jurisdiction,” the Tribunal said.
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