Vashisht Alloys Vs DCIT (ITAT Chandigarh)
ITAT Chandigarh held that reopening of assessment under section 148 of the Income Tax Act merely on the basis of ‘reasons to suspect’ rather than on ‘reason to believe’ is invalid in the eye of law. Held that passive reliance on third-party intelligence would render the reopening invalid as it reflected merely a ‘reason to suspect’.
Facts- The assessee is stated to be engaged in manufacturing of metal products. The case of the assessee was reopened and notice u/s. 148 was issued. It was alleged that the income of Rs.80.59 Lacs was received as accommodation entry from M/s Rima Trading Co. and accordingly, income to that extent escaped assessment. Post, rejecting assessee’s submissions and explanations, the credit of Rs.80.59 Lacs was treated as unaccounted income of the assessee and the assessment was framed.
Conclusion- Held that the assessee had furnished full and complete disclosure pertaining to sales, consignment transactions, ledger accounts and bank statements including RTGS receipts. The Ld. AO examined financial statements and no discrepancies were noted in the consignment sales or sale proceeds. The assessee discharged its statutory obligation by placing all primary facts before the department and Ld. AO had full opportunity to draw any inferences on those facts. On these facts, it was to be concluded that reopening was merely on ‘reasons to suspect’ rather than on ‘reasons to believe’ which is sine-qua-non to reopen the case of the assessee. In the absence of any information regarding cash exchange, the allegation of accommodation entry could not be established. The Ld. AO acted mechanically on the information so received form investigation wing regarding alleged accommodation entries received from M/s Rima Trading Co. However, no independent enquiry or investigation was conducted by Ld. AO to verify the veracity or applicability of the said information to the assessee’s case. Such passive reliance on third-party intelligence would render the reopening invalid as it reflected merely a ‘reason to suspect’ rather than ‘reasons to belief’. Therefore, we would hold that reassessment proceedings had no underlying material leading to formation of belief of escapement of income. This being so, the assessment is liable to be quashed.
