ACIT Vs Nijhawan Clothing Private Limited (ITAT Delhi)
Summary: ITAT Delhi dismissed the Revenue’s appeal and upheld the CIT(A)’s order quashing reassessment proceedings for AY 2016-17 as void ab initio. The case originated from search-related information alleging that Nijhawan Clothing Private Limited had obtained accommodation entries of Rs.2.09 crore from entities controlled by alleged entry operators Himanshu Verma and Deepak Agarwal. The AO reopened the assessment under Section 147 and ultimately added Rs.2.09 crore under Section 69A as unexplained money and Rs.6.28 lakh under Section 69C towards alleged commission. The CIT(A) found that the information and satisfaction underlying reassessment were vague and based on suspicion. The assessee’s bank statements and audited financials showed no transaction, borrowing or repayment with the entities listed by the AO. Further, the information furnished for sanction under Section 151 mentioned an amount but did not identify the entities with whom the alleged accommodation-entry transactions had occurred. Even the statutory notices and the AO’s final conclusion failed to specify such entities. The Tribunal agreed that this demonstrated uncertainty about the alleged transactions and undermined the credibility of the information relied upon. It held that reassessment under Section 147 must rest on valid recorded reasons and that general, vague or suspicion-based reasons unsupported by tangible material cannot confer jurisdiction. Finding no reason to interfere with the CIT(A)’s findings, ITAT upheld the quashing of reassessment and dismissed the Revenue’s appeal.
FULL TEXT OF THE ITAT DELHI JUDGMENT/ORDER
This appeal by the revenue is directed against the order of the Commissioner of Income Tax, (Appeal-29), New Delhi [hereinafter referred to as “Ld.CIT(A))”] dated 22-08-2025 pertaining to A.Y. 2016-17 arising out the assessment order dated 23-3-2024 u/s.147 of the Income-tax Act, 1961, (in short ‘the Act’).
2. The revenue has raised the following grounds in appeal as under:
a. Whether the Ld. CIT(A) has justified in allowing the appeal of the assessee only on technical ground and not considering the merit of the assessment order.
b. The ld. CIT(A) has not appreciated the fact that the subject Mr. Himanshu Verma is only entry provider and willfully involved in the syndicate for organized accommodation entries through there associated entities since long ago despite of many search proceedings conducted on them, hence, these entities are habitually involved in the racket without any fear of law in force.
c. The Ld. CIT(A) has not appreciated the fact that the non-descript entities involved with Sh. Himanshu Verma gives non genuine transaction, on account of accommodation entries in the form of bogus loan / purchase /sales, which were given /taken in so a sophisticated manner with taking care of each step to give the image of legal transaction by utilizing web of bank accounts of in different banks as well as books of accounts in respective entities.
d. The Ld. CIT(A) has not appreciated the fact that the existence of these entities at the address could not be established.
e. The CIT(A) as well as ITAT has upheld/confirmed that these entities are accommodation entry operator.
f. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law.
g. The grounds of appeal are without prejudice to each other.
3. The brief facts of the case are that the assessee e-filed return of income on 04-10-2016 declaring income of Rs.13,660/-. In the instant case, High Risk CRIU/VRU information has been received on the basis of the search u/s. 132 of the Act conducted on 17.11.2021 on Galaxy Group, Shri Pradeep Indra Prasad Agrawalla and entry providers Shri Deepak Agarwal and Shri Himanshu Verma. Documents seized during the search contains information which shows that the assessee has obtained accommodation entry to the tune of Rs. 2,09,40,000/- from the entities controlled by above mentioned entry operators. Accordingly, after getting approval from the competent authority u/s. 148/149/151 of the Act, a notice u/s. 148 was issued to the assessee on 30.3.2023 by the ITO, Ward 18(3), New Delhi and assessee was requested to file its return of income u/s. 148 of the Act. In response to notice u/s. 148 of the Act, the assessee has filed its return of income under section 148 on 31.3.2023 declaring total income of Rs. 13,660/-. Further notice u/s. 143(2) of the Act was also issued through ITBA to the assessee on 27.6.2023. Notice u/s. 142(1) of the Act was also issued through ITBA. In compliance to the above statutory notices issued, the assessee filed submissions through efiling portal which was examined. The case of the assessee was centralized with CC-25, Delhi. On 7.3.2024, a notice was issued to the assessee asking to file the details in respect of transaction of Rs. 2,09,40,000/- made with the entry controlled and managed by Himanshu Verma and Deepak Agarwal. Assessee was also show caused as to why the amount of Rs. 2,09,40,000/- should not be treated assessee’s unexplained income in case of non-filing of submission in this respect alongwith documentary evidence. In response to the above, assessee filed its submission which has been reproduced in Ld. CIT(A)’s order. After considering the submissions of the assessee, AO noted that assessee company has made payment of Rs. 2,09,40,000/- to the entities controlled and managed by Himanshu Verma and Deepak Agarwal and these entities are being used to provide accommodation entry in lieu of cash @3%. He also noted that the assessee has made payment of Rs. 2,09,40,000/- to non-descript companies which has no genuine business and has no creditworthiness, thus, the amount of Rs. 2,09,40,000/- is unexplained money. The section 69A of the Act deals with the issue of unexplained money, hence, he added the amount of Rs. 2,09,40,000/- to the total income of the assessee u/s. 69A of the Act and also added Rs. 6,28,000/- u/s. 69C of the Act on account of commission. Aggrieved the order of the AO the assessee preferred the appeal before the Ld. CIT(A), who vide his order dated 22-08-2025 allowed the appeal. The Ld. CIT(A) has observed in his impugned order as under:
“5. Ground No. 3: The appellant has taken legal ground and challenged the assessment proceedings u/s. 147 of the Act, in which additions of Rs. 2,09,40,000/- u/s. 69A of the Act made by AO on account of availing accommodation entries in the form of payment made to entities controlled by Sh. Himanshu Verma and Sh. Deepak Agarwal. The appellant argued that the impugned assessment order is bad in law as the information relied upon by AO and satisfaction note drawn for initiating reassessment proceedings u/s. 147 of the Act is vague and based on suspicion only.
5.1 The appellant submitted summarized detail sheet of all receipt and payment transaction undertaken by it during the year. To substantiate the same, copies of relevant bank statements of all its operative accounts are also furnished by appellant. It is noted that during the year under consideration, appellant has not undertaken any transaction with any of the entities listed by AO in assessment order after relying upon the investigation report of non-descript or paper companies, during the search operation u/s. 132 of the Act dated 17.11.2021 on Galaxy group and related persons. The appellant also submitted copy of audited financials, which further corroborated the fact that the appellant has no business activity or not having any borrowing or repayment with the listed entities in the assessment order. Finally, the appellant pleaded to quash the assessment order as without any incriminating material and valid reasons recorded.
5.2 It is seen that in the copy of Performa drawn for obtaining sanction u/s. 151 of the Act, that in the information received provided to competent authority in the enclosed annexure, there exists a certain amount but without name of entities with whom the appellant has undertaken said accommodation entries in the form of any payment or repayment.
5.3 Further, on perusal of copy of statutory notices issued to appellant by AO during the assessment proceedings, it is seen that specific name of entities with whom the appellant has transacted could not be incorporated by AO. Even in the last para in which the AO drawn conclusion and made addition of certain amount, there also a general observation without name of any entity is incorporated by AO. It eventually means that AO himself was not sure at the time of finalizing the assessment that which entities are related with appellant in the execution of said transaction due to which credibility of the information could not be established.
5.4 The position of law is very clear on this issue that reassessment proceedings under section 147 of the Act must be grounded in valid reasons recorded by the AO. If no valid reason is recorded for reopening of an assessment, or if the reasons are found to be general, vague, or based solely on suspicion without tangible material, then the reassessment proceedings are liable to be quashed as void ab intio.
5.5 In these circumstances, I find that the assessment proceedings initiated and completed in the instant case on the basis of a general recording of reason and without establishing the genuineness of the information with tangible material, are void ab initio, bad in law and are hereby quashed. Accordingly, this part of grounds of appeal is allowed.
6. Since, appeal is decided on legal grounds, therefore, the remaining grounds of appeal are not adjudicated upon.”
4. Learned authorized representative for Department of Revenue submitted that the Assessing officer has passed reasoned order, which requires to be upheld.
5. Per contra, Ld. AR relied upon the order of the Ld. CIT(A) and requested to uphold the same.
6. We have heard the rival contentions and perused the material available on record. It is an admitted fact that the assessee has challenged the assessment proceedings u/s. 147 of the Act, in which additions of Rs. 2,09,40,000/- u/s. 69A of the Act made by AO on account of availing accommodation entries in the form of payment made to entities controlled by Sh. Himanshu Verma and Sh. Deepak Agarwal. It was the contention of the assessee that information relied upon by AO and satisfaction note drawn for initiating reassessment proceedings u/s. 147 of the Act is vague and based on suspicion only. It was the further submission that the summarized detail sheet of all receipt and payment transaction undertaken by it during the year. To substantiate the same, copies of relevant bank statements of all its operative accounts are also furnished by assessee. It is noted that during the year under consideration, assessee has not undertaken any transaction with any of the entities listed by AO in assessment order after relying upon the investigation report of non-descript or paper companies, during the search operation u/s. 132 of the Act dated 17.11.2021 on Galaxy group and related persons. The assessee also submitted copy of audited financials, which further corroborated the fact that the assessee has no business activity or not having any borrowing or repayment with the listed entities in the assessment order. It is noted that the assessment order was passed without any incriminating material and valid reasons recorded. We note from the perusal of the copy of Performa drawn for obtaining sanction u/s. 151 of the Act, that in the information received provided to competent authority there exists a certain amount but without name of entities with whom the assessee has undertaken said accommodation entries in the form of any payment or repayment. On perusal of copy of statutory notices issued to assessee by AO during the assessment proceedings, it was noted that specific name of entities with whom the assessee has transacted could not be incorporated by AO. We note that in the last para in which the AO drawn conclusion and made addition of certain amount, there also a general observation without name of any entity is incorporated by AO, which demonstrates that AO himself was not sure at the time of finalizing the assessment that which entities are related with assessee in the execution of said transaction due to which credibility of the information could not be established. It is settled law that reassessment proceedings under section 147 of the Act must be grounded in valid reasons recorded by the AO. If no valid reason is recorded for reopening of an assessment, or if the reasons are found to be general, vague, or based solely on suspicion without tangible material, then the reassessment proceedings are liable to be quashed as void ab intio. Therefore, Ld. CIT(A) has rightly held that the assessment proceedings initiated and completed in the instant case on the basis of a general recording of reason and without establishing the genuineness of the information with tangible material, are void ab initio, bad in law and thus quashed. In view of above, we find that Ld. CIT(A) has examined the issue in the correct perspective and thus allowed the appeal of the assessee. Therefore, we do not find any reasons to interfere with the findings of the Ld. CIT(A), hence, we uphold the same. Accordingly, the appeal of the Revenue is liable to be dismissed. We hold and direct accordingly.
7. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court 05.06.2026. Pasted text
