ITAT quashes Reassessment based on vague Accommodation Entry Information  

SFS Infinite Ltd Vs DCIT (ITAT Delhi)

The appeal filed by SFS Infinite Ltd against the order of the Commissioner of Income Tax (Appeals)-X, New Delhi (CIT(A)), emerges from the assessment order passed by the Assessing Officer (AO) under Section 143(3) r.w. Section 147 of the Income Tax Act, 1961 for AY 2003-04. The case revolves around the legitimacy of the AO’s jurisdiction under Section 147 and the validity of additions under Section 68 of the Act.

In this case, the AO invoked jurisdiction under Section 147 based on information suggesting that SFS Infinite Ltd had benefitted from accommodation entries provided by certain operators. An alleged receipt of Rs. 2,15,220 from S.J. Capital Ltd was presented as evidence of the supposed accommodation entry, leading to the reopening of the assessment.

However, the ITAT Delhi held that the AO had acted on vague and insufficient information, without any substantial material to corroborate the alleged accommodation entry. Critically, the tribunal emphasized the absence of ‘reasons to believe’, which must be supported by written reasons – a requirement that was found to be unmet in this instance.

Further, the tribunal observed that the alleged information lacked tangible connections and rational links to support the AO’s belief. Highlighting the crucial fact that the formation of belief cannot be relegated and requires mindful application, the tribunal concluded that the AO had invoked jurisdiction under Section 147 without legal justification.

The ruling in the SFS Infinite Ltd Vs DCIT case by ITAT Delhi underscores the importance of accurate and substantial evidence in reassessment proceedings. The tribunal’s decision demonstrates a robust commitment to the principle that the exercise of jurisdiction under Section 147 must be based on ‘reasons to believe’, rather than vague and unsubstantiated information. This case sets a strong precedent for future reassessments, stressing the necessity for judicious application of mind in tax cases.

FULL TEXT OF THE ORDER OF ITAT DELHI

The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-X, New Delhi (‘CIT(A)’ in short) dated 26.06.2013 arising from the assessment order dated 16.12.2010 passed by the Assessing Officer (AO) under Section 143(3) r.w. Section 147 of the Income Tax Act, 1961 (the Act) concerning AY 2003-04.

2. As per the grounds of appeal, the assessee has challenged the assumption of jurisdiction under Section 147 as well as additions of Rs.2,15,220/- under Section 68 of the Act on merits.

3. Having perused the case records, we shall address ourselves to the challenge of jurisdiction under Section 147 of the Act.

3.1 The reasons recorded under Section 148(2) for invoking jurisdiction under Section 147 of the Act read as under:

“Information has been received from DIT(Inv.) that M/s. SFS Infinite Ltd., New Delhi has been beneficiary of accommodation entries being provided by certain entry operators. On the basis of the information chart forwarded by the DIT(Inv.), New Delhi it is seen that the assessee is involved in the following bogus transactions detailed in the chart forwarded by the DIT(Inv.), New Delhi.

I have therefore reason to believe that an amount of Rs.2,15,220/- has escaped assessment within the meaning of Section 147(a) of the IT Act, 1961.”

4. On perusal of the reasons recorded, it is observed that the assessment was reopened after a gap of nearly seven years from the end of relevant financial year. As per the recorded reasons under Section 148(2) of the Act, the action under Section 147 has been taken on the basis of some alleged information that a receipt of Rs. 2,15,220/- has been obtained by the assessee from S.J. Capital Ltd. on 03.04.2002 and that such receipt is an accommodation entry. Based on such alleged information, the Assessing Officer has invoked the reopening provisions.

4.1 Apparently, the Assessing Officer has acted on some obscure, vague and innocuous information without reference to any material or content of information to support the so called information. Needless to say, holding of ‘reason to believe’ must be reflected and supported by reasons recorded in writing. This is totally absent here. To reiterate, no substantive material or any content has been referred to support the alleged information that impugned receipt is an accommodation entry. The allegation is thus bald and unsubstantiated. The tabulated information of the other officer of the Department reeks of opinion of other officer. It appears that the purported believe is that of the person sending the information and not that of Assessing Officer. There is no reference to any cogent information either which may possibly give birth to believe. There appears to be no tangible nexus or rational connection between so called reasons and believe thereon.

4.2 It is trite that formation of believe is a statutory function which cannot be relegated. Also, the formation of believe being statutory power and quasi judicial function cannot be exercised without application of mind.

4.3 Hence, action of the Assessing Officer in resorting to Section 147 has trampled the inbuilt safeguard of expression ‘reason to believe’. We are thus of the view that the Assessing Officer has purported to usurp jurisdiction under Section 147 without legal foundation.

5. The challenge to usurption of jurisdiction under Section 147 thus succeeds.

6. In view of the lack of very jurisdiction assumed under Section 147, we do not consider it necessary to examine the additions on merits.

7. In the result, the appeal of the assessee is allowed ex-parte.

Order pronounced in the open Court on 31/05/2023