ITAT Delhi: In absence of any tangible material to establish escapement of income for assessment reopening is notice invalid

Fact and Issue of the case

The assessee has filed return of income on 30.09.2011 declaring total income of Rs.1,66,73,810/-. Owing to the search conducted u/s 132 of the Income Tax Act, 1961 notice u/s 153A has been issued to the assessee. The assessee filed letter dated 07.02.2014 that the return filed u/s 139(1) dated 30.09.2011 may be treated as return filed in response to notice u/s 153A. Assessment was completed on 31.03.2014 by making addition of Rs.1,05,918/- at an assessed income of Rs. 1,67,79,730/-.

Subsequent to this, an information was received from the DIT(Investigation)-II, Mumbai vide letter no. DIT(Inv.)-II/ Information / BLJ/ SAL/ 2014-15 /458 dated 16.07.2014 through the Range regarding bogus purchases made by the assessee worth Rs.56,75,500/- from concern of Bhanwar Lal Jain Group namely M/s Lucky Exports during the A.Y. 2010-11 and worth Rs.26,26,25,669/- from concern of Bhanwar Lal Jain Group namely M/s Look at me Retail Pvt. Ltd. during the A.Y. 2011-12. On perusal of the information and case records, the case was reopened after recording reasons of reopening.

Observation of the court

We have gone through the reasons recorded. The first four lines consists of a factual information received from the DDIT (Inv.), Mumbai, the second part indicates that it has been established from the report that the assessee has taken accommodation entries and the third part consists of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The AO mentions so as to reopen the case, it was established that BL Jain Group was providing accommodation entries of unsecured loan and bogus purchases. Then, he goes on to mention that it is established from the report that the assessee has taken accommodation entries and hence he has reasons to belief that the income has escaped assessment.

Primarily, we find that the reasons recorded by the assessee are too sketchy and does not instill any confidence with regard to the reasons recorded for reopening. It is not even clear whether the assessee has received entries pertaining to loans or purchases. The details of the report wherein it was alleged that the assessee has received bogus entries could not be made as a basis for reopening. The existence of belief has to be bonafide and has to be based on material which is relevant hence specific in nature. The basis of the belief should be discernable from the facts on record and ascertainable with regard to the escapement of income. Joshi Vs. Income-Tax Officer and Another, 2010 (324) ITR 154 (Bom.) and it was held. In Hindustan Lever Ltd. vs. R.B. Wadkar, [2004] 268 ITR 332 (Bom), a Division Bench has opined. In this case, a regular assessment u/s 153B(1) has also been completed on 31.03.2014. The reasons, in the instant case recorded by the AO do not satisfy the requirements of Section 148 of the Act.

The reasons and the information referred is extremely scanty and sudden jump to the conclusions. There is no reference to any specific document except the Annexure which cannot be regarded as material or prima facie evidence to establish the link to point out escapement of income. The Annexure is not a pointer and does not indicate escapement of income per se. Hence, going through the reasons recorded of the AO on 10.10.2014 and the judicial pronouncements mentioned above, in the absence of any tangible material to establish the escapement of income for assessment, we hold that the action of the AO issuing the notice u/s 148 cannot be held to be legally valid. Since, at the outset, the reopening has been held to be invalid, we refrain to adjudicate on the merits of the case. In the result, Cross Objection of the assessee is allowed and consequently the appeal of the Revenue is dismissed.