ITAT Kolkata Annuls Reassessment Where “Reason To Believe” Was Purely Borrowed

Background Of The Dispute

The appeal before the Income Tax Appellate Tribunal, Kolkata Bench, concerned M/s Sumangal Jewels Private Limited and arose out of an order dated 26.09.2024 passed under Section 250 of the Income Tax Act 1961 by the Ld. Commissioner of Income Tax (Appeals), Kolkata-27. The central issue was not the quantum addition, but the very legality of the reassessment proceedings initiated under Sections 147/143(3) based on a notice issued under Section 148.

The assessee contested the reassessment on the fundamental ground that the preconditions for invoking Section 147 were never met. The assessee specifically argued that:

  • The Assessing Officer (AO) had no valid “reason to believe” that income had escaped assessment; and
  • The initiation of reassessment proceedings under Section 147, and the consequent notice under Section 148, were void ab initio, being ultra vires and contrary to law.

During the hearing before the Tribunal, the assessee’s counsel concentrated on Ground No. 1, which directly questioned the AO’s jurisdiction to reopen the assessment. Once this jurisdictional ground was pressed, the focus of the Tribunal was squarely on the legality of the reopening rather than on the merits of the addition.

Facts Leading To Reassessment

Search and survey on Bhalotia Group

On 01.12.2015, the Investigation Wing conducted:

  • A search and seizure operation under Section 132, and
  • A survey under Section 133A

in the case of Bhalotia Group of Companies, including the residential premises of its directors and partners at various locations such as Raniganj, Asansol, Durgapur, Dhanbad, Delhi and Kolkata.

M/s Sumangal Jewels Private Limited was treated as one of the group concerns and was covered in the survey action. Subsequently, the case of the assessee was centralized to the concerned central circle.

Original return and subsequent reopening

For Assessment Year 2009–10, the assessee had originally filed its return of income under Section 139(1) on 10.08.2009, declaring “Nil” income. No addition was made in the original course of assessment in relation to the share capital under dispute.

Following the search and survey on the Bhalotia group, the AO recorded that, based on “specific findings” during the investigation, there was reason to believe that certain income of the assessee had escaped assessment. On this basis, the AO:

  1. Issued a notice under Section 148 dated 22.03.2016 to reopen the assessment under Section 147.
  2. The assessee responded by stating that the return filed earlier under Section 139(1) may be treated as the return in response to the Section 148 notice.
  3. The AO then issued statutory notices and questionnaires, culminating in an addition under Section 68.

Addition made under Section 68

During the relevant previous year (F.Y. 2008-09), the assessee had issued 1,00,000 equity shares of face value Rs. 10 each, raising share capital of Rs. 10,00,000 from M/s Pavitra Trexim Pvt. Ltd.

In the reassessment order framed under Sections 147/143(3) on 29.12.2016, the AO held that:

  • M/s Pavitra Trexim Pvt. Ltd. was allegedly a mere paper entity engaged in providing accommodation entries.
  • On this premise, the AO concluded that the share capital of Rs. 10,00,000 received from that company was unexplained and treated it as unexplained cash credit under Section 68.

This addition of Rs. 10,00,000 was upheld by the Ld. CIT(A) in first appeal, which led to the assessee’s further appeal before the Tribunal.

Reasons Recorded For Reopening