ITAT Delhi Quashes Reassessment Based Solely On Investigation Wing Report

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently quashed reassessment proceedings against V & S International Pvt. Ltd., a readymade garments manufacturer and exporter.

It held that the Assessing Officer reopened the completed assessment solely on information received from the Investigation Wing, without independently examining the material. The tribunal observed that the absence of a "live link" between the information and the reasons recorded made the reopening unsustainable.

A bench of Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra held that the Assessing Officer had not undertaken any independent verification before issuing the reassessment notice.

"It was incumbent upon the AO to establish a 'live link' between the specific, tangible materials found and the 'reasons to believe' recorded for reopening the assessment. From the perusal of the reasons recorded by the AO, we find that there is absence of any 'live link' between the tangible materials/information found with escaped income," the tribunal observed.

The company's assessment for the assessment year 2005-06 had originally been completed after scrutiny. It was later reopened on the allegation that it had received accommodation entries worth ₹1.49 crore from the Surender Kumar Jain Group.

Before the tribunal, the company argued that the reasons recorded for reopening were based entirely on information supplied by the Investigation Wing. It contended that the Assessing Officer had conducted no independent enquiry before reopening the assessment.

The tribunal noted that the recorded reasons were undated. It also found that they did not identify the companies from whom the alleged accommodation entries were received, explain how or when the transactions took place, disclose details of the Investigation Wing's report, or quantify the alleged escapement of income.

"The only basis on which the reasons recorded by the AO was based on the DDIT(Inv.) report. The AO has not even given the details of the report which is the basis for reopening of assessment to believe that there is escapement of income. In fact, the AO has not even quantified escapement of income," the tribunal held.

Relying on the Delhi High Court's rulings in CIT v. Kamdhenu Steel & Alloys Ltd. and Pr. CIT v. RMG Polyvinyl (I) Ltd., the tribunal quashed the notice issued under Section 148 and the consequential reassessment order. Since the appeal succeeded on the legal issue, it did not examine the additions on merits

For Assesse: Advocate Salil Kapoor, Ananya Kapoor, Shri Shivam Yadav

For Revenue: Om Prakash, Senior Departmental Representative.