ITAT Quashes Reopening Due to Vague Reasons Under Section 147

Kalpesh Babubhai Viradiya Vs ITO (ITAT Ahmedabad)

Summary: The ITAT Ahmedabad quashed the reassessment proceedings under Section 147 for A.Y. 2014–15, holding that the reasons recorded by the Assessing Officer were vague and lacked essential details. The reopening was based on information from a survey indicating that the assessee allegedly received accommodation entries amounting to ₹3.47 crore from an entry operator. However, the reasons failed to specify the nature of transactions, relevant dates, or names of parties involved. The Tribunal found that the AO did not apply independent mind and merely relied on general information without establishing a clear nexus between the assessee and alleged escapement of income. Relying on jurisdictional High Court precedents, it held that absence of specific and cogent material invalidates reopening. Consequently, the reassessment order was quashed, and other grounds, including estimation of profit on alleged bogus purchases, were treated as academic and not adjudicated.

Core Issue: Whether the reopening of assessment under Section 147 of the Income-tax Act, 1961 was valid when the reasons recorded by the Assessing Officer were vague and lacked specific details regarding the nature of alleged accommodation entries, parties involved, and basis of computation. A consequential issue was whether the addition on account of alleged bogus purchases (restricted to 12.5% by CIT(A)) could survive if the reopening itself was held invalid.

Facts:-The assessee, an individual engaged in trading business, filed return of income for A.Y. 2014–15 declaring income of ₹4,59,680, which was assessed under Section 143(3). Subsequently, the case was reopened under Section 147 based on information from the Investigation Wing alleging that the assessee was a beneficiary of accommodation entries provided by Shri Shripal Vora amounting to ₹3.47 crore. The Assessing Officer treated the same as bogus purchases.

In appeal, the CIT(A) restricted the addition to 12.5% (₹43,39,445) treating it as profit element embedded in such purchases. The assessee challenged the reopening itself on the ground that the reasons recorded were vague and devoid of material particulars such as nature of transaction, dates, and identity of parties.

AO Findings:-The Assessing Officer, relying on information from survey/search conducted on Shri Shripal Vora and inputs from the Investigation Wing, concluded that the assessee had taken accommodation entries of ₹3.47 crore which were not disclosed in the return. Accordingly, the AO formed a belief that income had escaped assessment and initiated proceedings under Section 147, making addition of such alleged bogus purchases.

CIT(A) Findings:-The CIT(A) upheld the validity of reopening and restricted the addition to 12.5% of the alleged bogus purchases, considering only the embedded profit element instead of the entire purchase amount.

ITAT Findings:-The ITAT Ahmedabad held that the reopening was invalid in law as the reasons recorded by the AO were vague and reflected complete non-application of mind. The Tribunal noted that the reasons failed to specify: the nature of accommodation entries, the parties involved, and the manner in which the assessee was connected with such transactions.

It was held that mere reliance on general investigation information without independent verification or specific details cannot constitute valid “reason to believe.” Accordingly, the reassessment proceedings were quashed. Since the reopening itself was held invalid, the issue of addition on bogus purchases became academic and was not adjudicated.

Cases Relied Upon

The Tribunal relied upon judicial precedents including Paresh Babubhai Bahalani vs. ITO, Jambuwala Commodities Pvt. Ltd. vs. ITO, Ashishbhai Jashwantbhai Desai (HUF) vs. ITO, Surani Steel Tubes Ltd. vs. ITO, Vertool Consultancy LLP vs. DCIT, and ITO vs. Kapil Arun Agrawal, which consistently held that reopening based on vague, non-specific reasons without independent application of mind is invalid in law.

Final Outcome: Appeal of the assessee allowed; reassessment proceedings quashed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 09.06.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2014-15.

2. The grounds of appeal raised by the assessee are as under:

“1. The Learned Commissioner of Income Tax Appeals has erred in law and in facts in confirming the reopening u/s 147 of the Income Tax Act, 1961.”

2. The Learned Commissioner of income Tax Appeals has erred in law and in facts restricting the addition u/s 69A to the tune of Rs 43,39,445/ by estimating the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities Le. Rs.3,47,15,561/, as the suppressed profit element embedded in such purchases.

3. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

3. Brief facts relating to the case are that the assessee’s case for the impugned year i.e. A.Y. 2014-15 was reopened on the basis of information in the possession of the AO that the assessee was the beneficiary of accommodation entry from entities run by one Sri Shripal Vora who had been subjected to search / survey action and which revealed that he was in the business of providing accommodation entry to various parties. The assessee was noted to be beneficiary of accommodation entry of bogus purchases from Sri Shripal Vora to the tune of Rs.3,47,15,561/-. Assessment was framed u/s.147 of the Act making addition of the alleged accommodation entry availed by the assessee. The Ld. CIT(A), however, restricted the addition to the extent of profit element embedded in the alleged bogus purchase made by the assessee @12.5% of Rs.3.47 Crores amounting to Rs.43,39,445/-.

4. Before us, Ld. Counsel for the assessee has raised a legal ground challenging the validity of the assessment framed in Ground No.1 as under:

“1. The Learned Commissioner of Income Tax Appeals has erred in law and in facts in confirming the reopening u/s 147 of the Income Tax Act, 1961.”

5. The argument of the Ld. Counsel for the assessee with respect to the validity of the reopening was that the reasons were vague in so far as the information with regard to the nature of transaction, the date of transaction, the name of party whom with such transaction was entered into. That there is no basis as to how the magical number of Rs.3,47,15,561/- was derived. Reliance was placed on various judgments, as under, to the effect that reopening cannot be resorted to on the basis of vague reasons:

1. Paresh Babubhai Bahalani R/Special Civil Application No. 19280 of 2021

2. Jambuwala Commodities Private Limited R/Special Civil Application No. 2488 of 2022.

3. Surani Steel Tubes Limited R/Special Civil Application No. 13245 of 2021

4. Ashishbhai Jashwantbhai Desai HUF R/Special Civil Application No.1998 of 2022

5. Kapil Arun Agrawal ITA No. 672/And/2025

6. Agneshkumar Ivrajbhai Patel ITA No. 1622/A hd/2024

7. Vertool Consultancy LLP vs. DCIT (ITAT Ahmedabad) I.T.A. No. 1131/A hd/2024

6. Copy of reasons for reopening the case of the assessee were placed before us in Paper Book -2 at page nos.88 to 93, the contents of which are reproduced hereunder:

“Reasons for reopening of the assessment in case of Shri Kalpeshbhal Babubhai Viradia for A.Y. 2014-18 u/s 147 of the Act.

Brief details of the Assesse

The assessee is an individual and the address of the assessee as per ITBA/ITD is Plot No. 1217/3, Jay Gopal Gogha Circle Road, Amtwadi Bhavnagar The PAN of Assessee is ADOPV5338M and assessee has filed his return of income for A Y 2014-15 on 29.11.2014 showing total income at Rs.4,59,680. The assessment Us 14.3(3) was completed on 29.9.2016 on assessed income of Rs 5 20,970/-

a. Nature of business activity:

b. Details of previous filing of ROI/processing and scrutiny:

2. Brief details of information collected/ received by the AO:

Information made available with this office through Insight Portal alongwith Report of Assil Commissioner of Income Tax, Cont. Cir.1(2), Ahmedabad Bhavnagar reveals that a Survey action under section 133A of the IT Act, 1961 was carried out on 14/12/2016 at the office premises of Shri Shripal Vora. During the course of Search, several incriminating documents were found and seized which reveal that assessee was involved in accommodation entry business and was charging commission towards the same The beneficiaries of these accommodation entries have been identified based on bank statements of the paper concerns through whom such entries were given The list of beneficianes containing details of accommodation entry provider by whom various type of accommodation entnes were provided in the year under consideration with details of payment made by entry provider to beneficiary and payment made to entry provider to beneficiary The assessee is one of the beneficiary of accommodation entry for an amount of Rs 3,47,15,561-

3. Analysis of information collected/received:

In this case, on verification of ITD/ITBA, it is noticed that assessee has filed his return of income for A.Y. 2014-15 on 29.11.2014. Assessment has been completed in this case for A.Y. 2014-15 on 29.9.2016 on assessed income of Rs.5,20,970/- According to the (report of the ACIT the assessee is one of the beneficiary of accommodation entry for go amount of Rs 3,47,15,5617, The assessee has filed the return and assessment completed, but assessee has failure to disclose the details of accommodation entry of Rs. 3,47,15,561-/in the return filed

4. Enquiries made by the AO as sequel to information collected/received:

In this case, necessary enquiries/verification were conducted by the Investigation Wings well as Central Circle. On going through the return file profile and assessment particulars, it is noticed that these high volume transaction by way of accommodation entry does not commensurate with the income profile of assessee.

5. Findings of the AO:

The assessee has filed the return and assessment completed, but the enquiries and verification resulted into unaccounted accommodation entry transaction of Rs.3,47,15,561/- for the year under consideration which were not disclosed by the assessee in the return. Thus, it represents income of the assessee which has escaped assessment. T hus I have reason to belief that income to the tune of Rs.3,47,15,561/- has escaped assessment within the meaning of section 147 of the I.T. Act.

6. Basis of forming reason to believe and details of escapement of income:

In this case, the assessee has filed his return of income for A.Y. 2014-15 on 29.11.2014. The assessment in this case was completed U/s.143(3) on 29.9.2016 on assessed income of Rs.5,20,960/-. Information made available with this office through Insight Portal alongwith Report of a Survey action under section 133A of the IT Act, 1961 was carried out on 14/12/2016 at the office premises of Shri Shripal Vora, During the course of Search, several incriminating documents were found and seized which reveal that assessee was involved in accommodation entry business and was charging commission towards the same The beneficiaries of these accommodation entries have been identified based on bank statements of the paper concerns through whom such entries were given, The list of beneficiaries containing details of accommodation entry provider by whom various type of accommodation entries were provided in the year under consideration with details of payment made by entry provider to beneficiary and payment made to entry provider to beneficiary. The assessee is one of the beneficiary of accommodation entry for an amount of Rs 3:47.15.561 and the assessee has not disclosed the same in the return. Moreover, this new tangible material/information was not available with the Department while finalizing the assessment U/s. 143(3) of the Act dated 29.09.2016.

7. On going through the reasons recorded by the AO as above, we agree with the Ld. Counsel for the assessee that the reasons are vague. They do not specify the nature of accommodation entry availed by the assessee whether by way of loans, purchases, sales, share application money etc. neither do they mention the name of the parties from whom the assessee had availed the said accommodation entry. The only information referred in the reasons is in relation to the search action / survey action conducted on one Sri Shripal Vora revealing the said party to be in the business of providing accommodation entry and the assessee to be one of the beneficiary of the same. The exact detail as to how the assessee was noted to be a beneficiary, mentioning the exact nature of the transaction through which the accommodation entry was taken, through which entity of Sri Shripal Vora the alleged entry was provided, find no mention in the entire reasons. It is clear therefore that the AO has not applied his mind at all to the information available with him nor to the facts relating to the assessee, but has in fact brought out a very general reason for the reopening the case of the assessee. The AO himself was not aware of the form and manner in which the assessee had availed accommodation entry from Sri Shripal Vora and through which entities. The said reasons, we have no hesitation, therefore, are not sufficient for a valid assumption of jurisdiction to frame assessment u/s.147 of the Act. The case laws relied upon by the Ld. Counsel for the assessee duly support the contention of the assessee, wherein in the case of Paresh Babubhai Bahalani (supra), it was categorically held by Hon’ble Jurisdictional High Court that where the reasons recorded reveal no information with regard to the nature of the transaction, date of transaction or the name of the party with whom such transactions entered into, it would render the entire exercise of reopening as vitiated. The relevant portion of the order of the Jurisdictional High Court at para no.13 to 15 is as under:

“13. In view of the above conspectus of law, the entire exercise of re-opening would depend upon the reasons recorded by the Assessing Officer and therefore the reasons recorded to the assessment by re­open the Assessing Officer must disclose all relevant facts to the assessee so as to refute the reasons by filing objections. Unless the Assessing Officer records his independent satisfaction in the reasons recorded on the basis of the Information received and communicates the same to the assessee, right of the assessee to file objections would remain an empty formality.

14. Therefore, recording of reasons in the facts of the case not disclosing the nature of the transactions, date of transactions and other relevant details would render the entire exercise of reopening vitiated as respondent-assessing officer has failed record independent income chargeable reason to the to believe that to tax has escaped the assessment.

15. In view of the foregoing reasons, impugned notice issued under Section 148 of the Act for Assessment Year 2017-18 is liable to set aside on the aforesaid ground alone. The petitions accordingly succeed. The Notice dated 31st March, 2021 Issued by the respondent under Section 147 of the Act for Assessment Year 2017-18 for reopening of the assessment of the petitioners in both the cases are set aside. Rule is made absolute to the aforesaid extent. No orders as to cost.

In view of the disposal of the Special Civil Application No.19280 of 2021, Civil Application (For Orders) No. 1 of 2022 in Special Civil Application No.19280 of 2021 also stands disposed of. ”

8. In view of the above, the jurisdiction assumed by the AO to frame assessment u/s 147 of the Act is held to be invalid in the absence of valid and cogent reasons revealing escapement of income of the assessee. The order passed u/s 147 of the Act is therefore quashed.

9. Since, we have quashed the assessment order, the other grounds raised by the assesse are mere academic in nature and are therefore not being adjudicated upon by us.

10. In the result, appeal filed by the assessee is allowed in above terms.

This Order pronounced on 23/04/2026