Sharad Agarwal Vs ITO (ITAT Jaipur)
Reopening Quashed for Borrowed Satisfaction: AO Added ‘Share Capital, Loan and Premium’ Without Even Knowing the Nature of Transaction
The Jaipur ITAT quashed the reassessment proceedings and also deleted the addition of ₹1.07 crore made on account of alleged accommodation entries, holding that the Assessing Officer had acted merely on borrowed satisfaction received from the Investigation Wing without conducting any independent enquiry or applying his own mind.
The reassessment was initiated on the basis of information received from the Investigation Wing, Gurgaon, alleging that certain concerns including South Asia Impex Pvt. Ltd. and G.T. Comex Pvt. Ltd. were accommodation entry providers and that the assessee had received entries aggregating to ₹1.07 crore from them. However, the Tribunal found that the Assessing Officer had not undertaken any verification of the assessee’s records and had expressly recorded that no further enquiries were conducted because the information from the Investigation Wing was considered sufficient.
The Tribunal observed that the reasons recorded did not reveal any independent examination of the nature of the transactions, the treatment given in the assessee’s books, or any nexus between the information received and escapement of income. Relying on settled principles that the law requires “reason to believe” and not “reason to suspect”, the Tribunal held that the reopening was based on borrowed satisfaction and therefore lacked valid jurisdiction. Consequently, the reassessment order was quashed.
On merits also, the Tribunal found that the assessee had consistently explained that the amounts represented unsecured loans, furnished PAN details, income-tax returns, bank statements and financial statements of the lenders, and demonstrated that the loans had been repaid through banking channels along with interest in subsequent years. Despite these evidences, the Assessing Officer ignored them completely and made the addition solely on the basis of the investigation report.
The Tribunal made a telling observation that even in the assessment order the Assessing Officer was unsure whether the impugned amount represented share capital, unsecured loan or share premium, as all three descriptions were used interchangeably. This itself demonstrated complete non-application of mind. Holding that an addition made in such a mechanical manner cannot survive, the Tribunal deleted the entire addition of ₹1,07,50,000.
The Tribunal, however, rejected the assessee’s contention that proceedings should have been initiated under Section 153C, holding that the reopening was based on investigation into alleged entry-provider companies and not on any seized material belonging to or pertaining to the assessee.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The present appeal has been preferred by the assessee against the order of Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”) (hereinafter referred to as “Ld. CIT(A)”) dated 12.09.2025.
