Income Tax Appellate Tribunal - Kolkata
Faithful Dealer P. Ltd.,Kolkata vs I.T.O., Ward - 5(4),, Kolkata on 7 November, 2025
आयकर अपील य अ धकरण, कोलकाता पीठ, कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH KOLKATA
Before Shri Rajesh Kumar, Accountant Member and
Shri Pradip Kumar Choubey, Judicial Member
ITA No.1285/Kol/2025
Assessment Year: 2012-13
Faithful Dealer Pvt. Ltd................................................................Appellant
C/o S. N. Ghosh & Associates, Advocates
2, Garstin Place, 2nd Floor Suite No.203,
Kol-700001.
[PAN: AABCF4250F]
vs.
ITO, Ward-5(4), Kolkata.................................................................Respondent
Appearances by:
Shri Somnath Ghosh, Advocate, appeared on behalf of the appellant.
Shri Manas Mondal, DR, appeared on behalf of the Respondent.
Date of concluding the hearing : October 16, 2025
Date of pronouncing the order : November 07, 2025
ORDER
Per Pradip Kumar Choubey, Judicial Member:
This appeal filed by the assessee is directed against the order dated 21.02.2025 of the National Faceless Appeal Centre ['CIT(A)'] passed under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year 2012-13.
2. At the very out set it reveals that appeal has been filed after a delay of 43 days, for this assessee/appellant has filed condonation petition. Grounds taken in the petition for delay seems to Bonafide, accordingly delay is hereby condoned.
3. Brief facts of the case are that the assessee being a private limited company carrying business of computer consultancy and software development and filed its return of income declaring a total income of ITA No.1285/Kol/2025 Faithful Dealer Pvt. Ltd Rs.2,68,700/-. The case of the assessee was reopened and a notice u/s 148 of the Act was issued after obtaining approval based on information received from Investigation Wing that a credit entry of Rs.1,56,99,000/- received by the assessee through layering of funds during the relevant assessment year. Notice was sent to the assessee but there was no compliance, as a result, of which the Assessing Officer added the amount of Rs.1,56,00,000/- as unaccounted income of the assessee.
4. Aggrieved by the said order, the assessee filed an appeal before the CIT(A) wherein also the assessee was non-responsive accordingly the appeal was dismissed.
5. Aggrieved and dissatisfied, the assessee is in appeal before us. The ld. AR in the course of arguments has challenged the very assessment order thereby submitting that reasons recorded by the Assessing Officer for initiating proceedings u/s 147 of the Act are not similar to the reasons provided in the assessment order. Hence, the initiation of proceedings u/s 147 of the Act do not satisfy the test of justification. The ld. AR further submits that reasons recorded by the Assessing Officer do not postulate any reference whereby any person can infer of escapement of income and there are factual mistakes in the contents of the reasons in so far as the fact that no investment is shown in the return filed. He further submits that it is evident from the assessment order that the information supplied by the investigation wing was not even verified by the Assessing Officer and there should be prima facie 'reason to believe to satisfy the conditions to issue notice u/s 148, otherwise it vitiates the entire proceedings and accordingly, the justification for initiating proceedings u/s 147 is not valid. The ld. AR placed reliance on the following decisions:
1. CIT vs. Insecticides (India) Ltd. [2013] 38 taxmann.com403(Delhi) 2 ITA No.1285/Kol/2025 Faithful Dealer Pvt. Ltd
2. CIT vs. Atul Jain [2008] 299 ITR 383 (Delhi)
3. PCIT vs. Meenakshi Overseas (P) Ltd. [2017] 82 taxmann.com 300 (Delhi)
6. Contrary to that, the ld. DR supports the impugned order thereby submitting that the assessee being non-responsive before the Assessing Officer or the ld. CIT(A), hence the issue raised by the assessee cannot be permitted to be taken at this stage.
7. Upon hearing submission of the counsels of the respective parties and perused the material available on record, we find that in the instant case, the Assessing Officer assumed jurisdiction by issuing notice u/s 148 of the Act on 30.03.2019 on the following grounds:
"In this case, the assessee company has electronically furnished the return of Income for the A.Y. 2012-13 on 29-09-2012 declaring total income of at Rs/ 2.68,700/-. The same was processed u/s. 143(1) by CPC Bengaluru on 22-02-2013.
On the basis of enquiry and information in possession of the undersigned, it is seen that, during the FY. 2011-12, the assessee company current bank account No.03222090005940 got credit of Rs.13.25 lakhs through cheque deposit, Rs.215 lakhs through RTGS and Rs.26 lakhs through fund transfer from different entities and subsequently funds were transferred to other entities. Also, on various occasions the credited fund is auto transferred to Term Deposit. The assessee had Term Deposit of Rs. 1.24,00,000/- during the FY 2011-12. From the analysis of the return of the assessee for A.Y. 2012-13, it is seen that the company had shown income of Rs.2,68,703/- under the head business and profession only and no investment is shown. This clearly shows that the assessee had suppressed Investment made during the FY. 2011-12 and further amount of Rs.1,56,00,000/- credited in the bank account of the assessee remained unexplained.
Hence, on the basis of information correlated and analysis done I am of the view that the assessee has not disclosed its true and full accounts, therefore, I have reason to believe that the assessee income of Rs.1,56,00,000/- has escaped assessment.......
7.1 While perusing the assessment order, we find that it has been stated as "As per information received from the Investigation wing, 3 ITA No.1285/Kol/2025 Faithful Dealer Pvt. Ltd Kolkata the assessee company was beneficiary of Rs.1,56,00,000/- by way of raising bogus loss through layering of funds through accounts of other companies during the financial year 2011-12". It is evident from the records that the reasons recorded by the Assessing Officer for initiating proceedings u/s 147 are not similar to the reasons recorded in assessment order. We have gone through the decision of Hon'ble High Court of Delhi in the case of CIT vs. Insecticides (India) Ltd. (supra) wherein the Hon'ble High Court has held as under:
"8. The Tribunal gave detailed reasons for concluding that the proceedings under Section 147 were invalid. Instead of adding anything to the said reasons, we think it would be appropriate if the same are reproduced: "In the case at hand, as is seen from the reasons recorded by the AO, we find that the AO has merely stated that it has been informed by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 that the above named company was involved in giving and taking bogus entries/transactions during the relevant year, which is actually unexplained income of the assessee company. The AO has further stated that the assessee company has failed to disclose fully and truly all material facts and source of these funds routed through bank account of the assessee company. In the reasons recorded, it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee. What was the information given by the Director of Income-tax (Inv.), New Delhi, vide letter dated 16.06.2006 has also not been mentioned. In other words, the contents of the letter dated 16.06.2006 of the Director of Income-tax (Inv.), New Delhi have not been given. The AO has vaguely referred to certain communications that he had received from the DIT(Inv.), New Delhi; the AO did not mention the facts mentioned in the said communication except that from the informations gathered by the DIT (Inv.), New Delhi that the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company is actually unexplained income of the assessee company or that it has been informed by the Director of Income-tax (Inv.), New Delhi vide letter dated 16.06.2006 that the assessee company was involved in giving and taking bogus entries/transactions during the relevant financial year. The AO did not mention the details of transactions that represented unexplained income of the assessee company. The information on the basis of which the AO has initiated proceedings u/s 147 of the Act are undoubtedly vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that 4 ITA No.1285/Kol/2025 Faithful Dealer Pvt. Ltd income had escaped assessment. In other words, the reasons recorded by the AO are totally vague, scanty and ambiguous. They are not clear and unambiguous but suffer from vagueness. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. As already noted above, it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. The reasons recorded by the AO are totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. In this respect, we may rely upon the decision of Hon'ble jurisdictional Delhi High Court in the case of CIT vs. Atul Jain (2000) 299 ITR 383, in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts, the Hon'ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law. The recent decision of Hon'ble jurisdictional High Court of Delhi in the case of Signature Hotels (P) Ltd. (supra) also supports the view we have taken above."
9. We do not see any reason to differ with the view expressed by the Tribunal. No substantial question of law arises for our consideration. The appeals are dismissed. There shall be no order as to costs."
7.2 We have gone through the decision of Hon'ble High Court of Delhi in the case of CIT vs. Atul Jain (supra) wherein the Hon'ble High Court has held as under:
"Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the 5 ITA No.1285/Kol/2025 Faithful Dealer Pvt. Ltd assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague. In so far as the basis for the reasons is concerned, even this is absent. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under section 148 of the Act. Read in this light, what has been recorded by the Assessing Officer as his "reasons to believe" is nothing more than a report given by him to the Commissioner of Income-tax. As held by the Supreme Court in Chhugamal Rajpal [1971] 79 ITR 603, the submission of a is not the same as recording of reasons to believe for issuing a notice. The Assessing Officer has clearly substituted form for substance and, therefore, the action of the respondent falls foul of the law laid down by the Supreme Court in Chhugamal Rajpal [1971] 79 ITR 603 which is clearly applicable to the facts of these appeals."
7.3 It is pertinent to mention here that the reasons recorded u/s. 148(2) of the Act must be based on credible material and have a live link or nexus with the belief that there was escapement of income and also there should be an independent application of mind on such material before recording the reasons and issuing notice u/s 148 of the Act and the belief should be held in good faith and not to be a mere pretence. We note that two ingredients are required to be satisfied for assuming jurisdiction u/s. 147 of the Act as "reason to believe" and there must be evidence that income has escaped assessment. We further note that the failure to satisfy or fulfil these conditions simultaneously would vitiate the entire proceeding. It is a settled position of law that the Assessing Officer must have reasons to believe that some income has escaped assessment and he should have relevant material to draw a conclusion of escapement of income and merely on suspicion or assumption that there might have been some escapement of income from assessment is not sufficient. In the present case as it is evident the Assessing Officer 6 ITA No.1285/Kol/2025 Faithful Dealer Pvt. Ltd had made an addition of Rs. 1,56,00,000/- alleging "unexplained monies" invoking the provisions of section 69A of the Act by conceiving that the assessee had earned unaccounted money from transactions through paper/jamakharchi companies.
8. We further find that the assessee has maintained the books u/s. 44AA of the Act which are duly audited and the investment in shares was duly reflected in the balance sheet as on 31-03-2011 accompanying the return of income of the assessee for the assessment year 2011-12.
9. Going over the discussion made above and keeping in view the judicial pronouncements, we do not find any hesitation to hold that initiation of proceedings u/s 147 of the Act do not satisfy the test of justification as the reasons recorded by the Assessing Officer for imitating proceedings u/s 147 of the Act are not similar to the reasons provided in the assessment order. Accordingly, the reassessment u/s 147 is not sustainable in law and the entire assessment proceedings u/s 148 is hereby quashed only on this issue.
10. In the result, the appeal of the assessee is allowed.
Kolkata, the 7th November, 2025.
Sd/- Sd/-
[Rajesh Kumar] [Pradip Kumar Choubey]
Accountant Member Judicial Member
Dated: 07.11.2025.
RS
Copy of the order forwarded to:
1. Appellant -
2. Respondent -
3. CIT(A)-
4. CIT- ,
5. CIT(DR),
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ITA No.1285/Kol/2025
Faithful Dealer Pvt. Ltd
//True copy//
By order
Assistant Registrar, Kolkata Benches
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