Bogus Loan Entry: ITAT upholds Reopening under Revised Section 147 [Read Order]
ITAT observed that the Assessing Officer had tangible material forming a reasonable belief that income had escaped assessment. The Tribunal rejected the assessee’s contention that the reopening was based on borrowed satisfaction

ITAT Mumbai, Bogus Loan Entry, Bogus Loan
ITAT Mumbai, Bogus Loan Entry, Bogus Loan
The Mumbai bench of Income Tax Appellate Tribunal (ITAT) held that the reopening of assessment based on information from the Investigation Wing regarding a bogus loan entry from M/s Aneri Fincap Ltd. was valid.
The assessee, Jayantilal Rajmal Seth, filed his return of income for AY 2018–19 declaring a total income of ₹4,24,550. The case was reopened by the Assessing Officer under Section 148, based on information from the Investigation Wing alleging that the assessee had received a bogus accommodation entry from M/s Aneri Fincap Ltd.
The assessee contended that he had not received any fresh loan during the year, and that the transaction in question was merely repayment of an old loan taken in AY 2017–18 through proper banking channels. Supporting documents, including loan confirmations, bank statements, NBFC registration certificate of Aneri Fincap Ltd., and an affidavit, were submitted to demonstrate the genuineness of the transaction.
Despite the evidence, the AO proceeded with the reassessment proceedings but made no additions, effectively concluding that the income declared was correct. Subsequently, the PCIT invoked Section 263, asserting that the assessment order was erroneous and prejudicial to the interests of the Revenue, primarily on the ground that the AO had failed to conduct a proper inquiry into the alleged bogus loan.
The assessee challenged the revision before the Tribunal, arguing that the reopening itself was invalid, as it was based on unverified third-party statements and no independent inquiry was conducted.
The assessee challenged the very validity of the reassessment proceedings undertaken under section 147 of the Act, contending that if the reassessment order itself is void ab initio, proceedings initiated under section 263 cannot survive. It was urged that the reasons recorded by the Assessing Officer were founded on incorrect information, namely, that the assessee had received a loan from M/s Aneri Fincap Ltd., whereas, in fact, the assessee had only effected repayment of an existing loan during the relevant year. On this premise, it was argued that the reassessment order was unsustainable in law..
The Revenue submitted that at the stage of reopening, what is to be examined is whether the information received was relevant to the assessee and whether, on such information, a reasonable person could form the belief that income chargeable to tax had escaped assessment.
The Revenue relied upon the authoritative pronouncements of the Hon’ble Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) and Raymond Woollen Mills Ltd. v. ITO (1999) wherein it has been categorically held that sufficiency or correctness of the material cannot be gone into at the stage of reopening.
The Tribunal observed that the argument of the assessee proceeds on the footing that the earlier reassessment proceedings were invalid. However, such contention overlooks the fact that the initial reassessment order passed on 25.02.2022 under the unamended provisions of section 147/148 has been rendered infructuous by virtue of the judgment of the Supreme Court in Union of India v. Ashish Agarwal.
Pursuant to the ratio therein, all notices issued during the period 01.04.2021 to 30.06.2021 under the old regime stood transmuted into notices under section 148A(b) of the Act, requiring the Assessing Officer to follow the amended procedure
The Tribunal did not agree with the contention that was passed under the old provisions; the Assessing Officer could not have continued proceedings under the amended provisions. By operation of the law declared in Ashish Agarwal (supra), the earlier order became infructuous, and the Assessing Officer was fully justified in continuing and completing proceedings under the amended framework, culminating in the reassessment order.
It was also noted that Under the amended scheme, before issuing notice under Section 148 the Assessing Officer is mandated to, firstly, conduct such enquiry as may be warranted under section 148A(a); secondly, issue notice under section 148A(b) providing opportunity to the assessee; thirdly, consider the reply under section 148A(c); and fourthly, pass a speaking order under section 148A(d) determining whether it is a fit case for issuance of notice under section 148.
In the present case, the Assessing Officer, while disposing of the assessee's objections under section 148A(d), specifically noted the failure of the assessee to explain the sources of repayment of the loan to M/s Aneri Fincap Ltd., which was prima facie in the nature of an accommodation entry. Such order constitutes the “reason to believe” contemplated under the amended law.
The two-member bench comprising Raj Kumar Chauhan (Judicial Member) and Om Prakash Kant Accountant Member) held that there is no substance in the plea that reassessment proceedings are invalid in law.
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