If Assessee Produces Accounts, AO Must Be Satisfied That Accommodation Entries Exist Before Proceeding U/S 148 Of Income Tax Act: Delhi HC

The Delhi High Court has held that an Assessing Officer is required to be satisfied that accommodation entries as alleged in show cause notice under Section 148A(b) of the Income Tax Act 1961 exist, particularly where the assessee produces its accounts. In doing so, a division bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma heavily relied on its recent ruling in Sonansh Creations Pvt Ltd. v. Assistant Commissioner Of Income Tax And Anr. where it was held that to initiate reassessment proceedings under the Act, the AO must conduct an enquiry with respect to the information that suggests escapement of income, to ascertain its correctness. In the facts of the present case, the Court observed, “The fundamental basis on which the petitioner's assessment is sought to be reopened is that it had entered into the transactions of a value of ₹66,44,134/- during the FY 2014-15. Clearly, the AO is required to be satisfied that such entries exists particularly where the petitioner had produced its accounts to show that the value of transactions is not as stated in the notice under Section 148A(b) of the Act” The AO had issued notice to the Petitioner under Section 148A(b) of the Act alleging that its income had escaped assessment. The Petitioner responded to the said notice stating that the value of transactions with three entities in question, which according to the AO was suggestive of accommodation entries, were less than ₹50,00,000/-. [where three years have lapsed since relevant assessment year, reassessment proceedings can be initiated under Section 149 only in cases where the income chargeable to tax which has escaped assessment, amounts to or is likely to amount to ₹50,00,000/- or more.] Thereafter, the AO prepared a draft order holding that it was not a fit case for issuance of notice under Section 148 of the Act. A noting to the said effect was also made in the relevant file. The aforesaid conclusion was also approved by the Additional Commissioner of Income Tax. However, the Principal Commissioner of Income Tax (PCIT) did not agree with the same and found that it is a fit case for issuance of notice under Section 148 of the Act. The High Court noted that the Petitioner had produced its accounts admitting the transactions with the three entities in question but, the aggregate value of those transactions was ₹47,39,128/-, i.e. less than threshold prescribed under Section 149. Thus it held that unless the AO had any credible material that would controvert the Petitioner's claims, issuance of reassessment notice would not be permissible. It held, “The contention that the AO is not required to form an opinion as to the correctness of the information available with it, is erroneous. ” “Clearly, at the stage of passing an order under Section 148A(d) of the Act, the AO was not required to form any conclusive view as to whether the entries in question represented income that had escaped assessment. The question whether the said entities are accommodation entries may be a contentious issue. However, the fundamental facts – that the petitioner had transactions with the named companies of an aggregate value of ₹66,44,134/- was required to be determined on the basis of the record,” it added and allowed the petition. Appearance: Mr C.S. Aggarwal, Senior Advocate with Mr Ravi Pratap Mall and Mr Uma Shankar, Advocates for Petitioner; Mr Aseem Chawla, Senior Standing Counsel with Ms Monica Benjamin, Ms Priya Sarkar and Ms Pratishtha Chaudhary, Advocates for Respondent Case title: Sonansh Creations Pvt. Ltd. v. Assistant Commissioner Of Income Tax And Anr.Citation: 2025 LiveLaw (Del) 35 Case no.: W.P.(C) No.17570/2022Click Here To Read/Download The Order

If Assessee Produces Accounts, AO Must Be Satisfied That Accommodation Entries Exist Before Proceeding U/S 148 Of Income Tax Act: Delhi HC

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