Introduction:
In a significant win for the assessee, the Income Tax Appellate Tribunal (ITAT) has quashed a reassessment order passed under Section 147 of the Income Tax Act, 1961, for Assessment Year (AY) 2012–13. The reassessment was based on inputs from the Investigation Wing without any independent enquiry by the Assessing Officer (AO). The ITAT also ruled in favor of the assessee on merits, reinforcing the importance of fair procedure and evidence-backed decisions in tax matters.
Background of the Case:
The assessee appealed against the order passed by the CIT(A)-NFAC, Delhi dated 02.05.2023, which upheld an addition of ?25 lakhs under Section 68 of the Income Tax Act. The AO had reopened the assessment under Section 147 based on a report from the Investigation Wing. The key credit entries questioned were:
?10 lakhs received from a friend, Krishan Bans Bahadur
?15 lakhs refund from PAN India Motors Pvt. Ltd.
Assessee’s Grounds of Appeal:
The reassessment was initiated without an independent inquiry and solely relied on the Investigation Wing’s report.
The AO incorrectly treated a previously filed return under Section 139(1) as a response to the notice under Section 148.
On merits, all credit entries were explained through proper documentation including PAN, bank statements, and confirmations.
The AO failed to investigate the veracity of the credits despite being provided sufficient details.
The treatment of the credits as unexplained was arbitrary, especially when transactions were routed through banking channels.
Key Observations of the Tribunal:
On Reopening of Assessment: The Tribunal found that the AO had merely reproduced the Investigation Wing’s report without forming an independent opinion or making any factual inquiries. Relying on the precedent laid in PCIT vs. Meenakshi Overseas Pvt. Ltd., the Tribunal held that this constituted borrowed satisfaction—a legally invalid ground for reopening assessments.
On Income Discrepancy: The AO observed that the assessee declared only ?6,10,072 as income from other sources, ignoring exempt income of over ?15 lakh from dividends, which was properly disclosed in the return.
On Creditworthiness: The assessee provided credible evidence including bank statements and confirmations for both credits. In the case of Mr. Krishan Bans Bahadur, although a confirmation was not available due to his death, the bank statement showed receipt and repayment through banking channels. The refund from PAN India Motors Pvt. Ltd. was supported by detailed documentation and past transactions.
Tribunal’s Verdict:
The reassessment was quashed as invalid in law due to lack of independent application of mind by the AO.
On merits, the Tribunal held that the assessee had sufficiently discharged the onus under Section 68 by establishing identity, creditworthiness, and genuineness of the transactions.
The addition of ?25 lakhs was deleted.
Income Tax Case Law Ajay Singh Versus Assistant Commissioner of Income Tax
Citation-2025 TAXONATION 654 (ITAT-DELHI) (Click here ot read full judgement)
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