Reassessment Proceedings Initiated Without Documentary Evidence and Based on Borrowed Satisfaction: ITAT Quashes Proceedings [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ),quashed reassessment proceedings initiated without any documentary evidence and based solely on borrowed satisfaction.

The Revenue-appellant appealed against the order passed by CIT(A) dated 03.10.2016 for AY 2007–08. In this case,Vishal Gold & Precious Stones Pvt. Ltd,respondent-assessee,argued that the reassessment under Section 147 was initiated without any documentary evidence found or impounded during the survey conducted on 06.10.2010 under Section 133A.

The assessee pointed out that the statement relied upon by the Assessing Officer(AO) was illegible and lacked key details such as the name of the person examined, who recorded it, where and when it was recorded, and under what proceeding.

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Despite this, the AO completed the reassessment on 26.03.2013 under Section 143(3) read with Section 147, determining the income at ₹6.66 crore against the returned income of ₹16.04 lakh. The additions included ₹3.82 crore towards share application/share premium, ₹13.14 lakh for claim, ₹4.29 lakh for sundry creditors, and ₹50 lakh as net profit.

On appeal, the Commissioner of Income Tax (Appeals)[CIT(A)] deleted the additions on merits and quashed the reassessment.

In this case, the notice under Section 148 was issued on 19.03.2012 based only on statements from alleged entry operators recorded by the Investigation Wing. These statements were not shared with the assessee in a readable format, showing that the reassessment was based on borrowed satisfaction.

During the survey, some documents like blank share transfer forms and receipts were found, but they were not related to the relevant year. The CIT(A) noted this and deleted the addition for share capital and share premium.

The AO rejected the books under Section 145(3) but still made additions for commission and sundry creditors using the same books. Since profit was already estimated, separate additions were not justified. The CIT(A) deleted them.

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The officer also added ₹50 lakh as estimated profit based on a 20% gross profit rate, without using any comparable cases. The CIT(A) held that this ad hoc addition was not valid and deleted it.

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The AO informed the CIT(A) that documents related to four companies were found during the survey: Brightview Buildcon, Trinetra International, Kushal Infratech, and Sachet Media. He confirmed this was the only information available when reopening the assessment.

The assessee explained that none of these companies had any connection with it and were not investors. It argued there was no reason to believe any income had escaped assessment.

The CIT(A) found that the reopening was based only on information from the Investigation Wing. No evidence was found during the survey that related to the year in question. The statement included in the assessment order was unreadable, and no proper copy was given despite several attempts.

The CIT(A) held that the AO had not applied his mind and acted on borrowed satisfaction. So, the reassessment notice was quashed. Since the reassessment was invalid, there was no need to consider other grounds on merits.

The two member bench comprising Yogesh Kuamr U.S(Judicial Member) and M.Balaganesh(Accountant Member) noted that the department only challenged the quashing of the reassessment and not the deletion of additions. It held that the CIT(A) rightly quashed the reassessment, which was based on incorrect and insufficient information.

Therefore the appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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