Delhi HC Upholds Reopening Over Search Evidence Of Accommodation Entries, Remands Pramod Gupta’s ₹58.87 Lakh Tax Addition To ITAT for Reassessment Of The Amount

A search at the premises of Pradeep Kumar Jindal on 18 November 2015 reportedly uncovered material indicating that he arranged accommodation entries through front companies.

Relying on information from the Investigation Wing and material gathered during the search and post-search proceedings, the Assessing Officer reopened the respondent’s assessment for AY 2010–11 under Sections 147/148 of the Income-tax Act, 1961.

The recorded reasons referred to entries totalling Rs. 10,27,000, while the assessment ultimately added Rs. 58,87,000 as accommodation entries.

The CIT(A) upheld the assessment; the ITAT set it aside, finding that the Assessing Officer had merely borrowed the Investigation Wing’s satisfaction without independent application of mind.

The Revenue appealed under Section 260A.

Sections 147 and 148 of the Income-tax Act permit reassessment where the Assessing Officer has a bona fide “reason to believe,” based on relevant material, that income chargeable to tax has escaped assessment.

The belief must have a rational connection with the material and cannot be a pretence, suspicion, or conjecture; the existence of the belief is open to judicial scrutiny, although the sufficiency of the material is ordinarily not.

The Court applied the principles in ITO v. Lakhmani Mewal Das, (1976) 103 ITR 437 (SC).

The recorded reasons must disclose relevant material, a nexus between that material and the belief, and the Assessing Officer’s application of mind.

Section 260A provided the appellate route to the High Court.

The Court considered the ITAT’s finding of borrowed satisfaction against the recorded reasons and the assessment record.

It found that the recorded reasons identified specific accommodation entries, while the search and post-search proceedings had produced statements from persons said to be nominal directors of Jindal’s front companies.

The Court therefore held that material existed when the notice was issued and that the Assessing Officer had not acted solely on uncorroborated Investigation Wing information.

The later addition of Rs. 58,87,000, exceeding the Rs. 10,27,000 specified in the recorded reasons, did not by itself establish that the reopening lacked independent application of mind.

The Court nevertheless considered that the respondent should have an opportunity before the ITAT to establish the correct facts concerning the amount of escaped income.

The Court set aside the ITAT’s order and remanded the matter to the ITAT to determine, on the facts, the amount of income that had escaped assessment.

The appeal and pending applications were disposed of accordingly.