Facts of the Case

The assessee was subjected to reassessment proceedings for Assessment Years 2012–13 to 2014–15 based on information received from the Investigation Wing alleging that the assessee had received accommodation entries through bogus transactions.

The Assessing Officer issued notices under Section 148 of the Income-tax Act, 1961 and completed reassessments making additions under Section 68 (unexplained cash credits) and Section 69C (unexplained expenditure), treating the transactions as non-genuine.

Issues Involved

  1. Whether the reassessment proceedings initiated under Section 147 were valid when based solely on information from the Investigation Wing.
  2. Whether additions under Sections 68 and 69C could be sustained without independent verification or evidence establishing non-genuineness of transactions.

Petitioner’s Arguments (Assessee)

  • The reopening was based on borrowed satisfaction and lacked independent application of mind by the Assessing Officer.
  • No tangible material existed linking the assessee to any alleged accommodation entry operators.
  • All transactions were duly recorded in books and supported by documentary evidence.
  • Principles of natural justice were violated as no opportunity for effective cross-examination of alleged entry providers was granted.
  • Additions were made merely on suspicion and third-party information without corroborative evidence.

Respondent’s Arguments (Revenue)

  • The reassessment was initiated on credible information received from the Investigation Wing indicating involvement in accommodation entry transactions.
  • The Assessing Officer had reason to believe that income chargeable to tax had escaped assessment.
  • The assessee failed to discharge the burden of proving the genuineness of transactions.
  • Therefore, additions under Sections 68 and 69C were justified.

Court Order / Findings (ITAT)

  • The Assessing Officer had merely relied on information from the Investigation Wing without conducting independent enquiry.
  • There was no application of mind to form a bona fide “reason to believe.”
  • Reopening based on borrowed satisfaction is impermissible.
  • No direct evidence was brought on record to establish that the assessee had received accommodation entries.
  • Additions under Sections 68 and 69C were made without proper verification or substantiation.

Important Clarification

  • Information from external agencies can trigger enquiry but cannot substitute independent satisfaction of the Assessing Officer.
  • Reassessment must be based on tangible material and a rational nexus between the material and formation of belief.
  • Suspicion, howsoever strong, cannot replace evidence.

Link to download the order  https://itat.gov.in/public/files/upload/1651216833-128%20to%20130%20kdazmi.pdf

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