ITAT Quashes Reassessment Based On Third-Party Statements, Deletes ₹94.5 Lakh Additions

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 7 April 2026 held that reassessment proceedings cannot survive where the Assessing Officer relies solely on general third-party statements without establishing a clear nexus with the taxpayer, as such material fails to show independent application of mind or escapement of income.

The Bench comprising Vice-President Dr. B.R.R. Kumar and Judicial Member Suchitra R. Kamble allowed the appeal filed by Crystal Quinone Pvt. Ltd. for assessment year 2009-10 and set aside the reassessment proceedings while deleting additions of Rs. 94.5 lakh. It observed:

“The reasons do not demonstrate any independent application of mind by the Assessing Officer nor establish any specific nexus between the alleged material and escapement of income in the hands of the taxpayer.”

Crystal Quinone, an Ahmedabad-based chemical manufacturer, filed its return declaring income of Rs. 1.58 crore on a turnover of Rs. 31.27 crore. The Income Tax Department reopened the case under Section 147 of the Income Tax Act based on information from the Investigation Wing following a survey on Reynolds Petro Chem Ltd., whose director allegedly admitted that the entity functioned as a paper company facilitating accommodation entries.

Relying on this material, the Assessing Officer treated Rs. 4.5 lakh paid as commission to Reynolds Petro Chem as non-genuine and also added Rs. 90 lakh towards alleged inflated purchases.

Crystal Quinone submitted that it supported the commission payments with ledger accounts, confirmations, TDS certificates, and invoices linked to purchases from Ipca Laboratories Ltd. It also asserted that it never made purchases from Reynolds Petro Chem and that it supported all transactions with bills, stock registers, excise records, and VAT documentation.

The Tribunal found that the Assessing Officer based the additions primarily on statements recorded during survey proceedings without allowing Crystal Quinone, an opportunity to cross-examine the persons concerned. It further noted that none of the statements specifically referred to Crystal Quinone or its transactions.

In the absence of any such linkage, the Tribunal held that the statements could not form the sole basis for making additions.

Accordingly, the ITAT directed deletion of both the commission and purchase-related additions.