AO Must Be Satisfied That Accommodation Entries Exist Where Assessee Produces Accounts To Show That Transaction Value Isn’t As Stated In Notice U/S 148A(b) ITA: Delhi HC
The Delhi High Court allowed a Writ Petition filed against the Order passed under Section 148A(d) of the Income Tax Act, 1961.
The Delhi High Court held that the Assessing Officer (AO) must be satisfied that the accommodation entries exist where the Assessee has produced accounts to show that the value of transactions is not as stated in the notice under Section 148A(b) of the Income Tax Act, 1961 (ITA).
The Court held thus in a Writ Petition filed by a company against the Order passed under Section 148A(d) of ITA in respect of the assessment year (AY) 2015-16.
A Division Bench of Acting Chief Justice (ACJ) Vibhu Bakhru and Justice Swarana Kanta Sharma 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.”
Senior Advocate C.S. Aggarwal represented the Petitioner while Senior Standing Counsel (SSC) Aseem Chawla represented the Respondents.
Factual Background
The Petitioner Company contested the assumption that its income had escaped assessment and claimed that the value of transactions identified by the Assessing Officer (AO) was less than Rs. 50,00,000/-, making the notice beyond the period of limitation. The Petitioner was consistently filing its return of income and had filed its return for AY 2015-16 on September 26, 2015. The AO had issued a notice on June 30, 2021, which was challenged by the Petitioner, and the High Court set aside the same. However, following a Supreme Court decision, the proceedings were revived, and the AO issued a fresh notice on May 25, 2022.
According to the AO, the Petitioner was a party to the accommodation entries of a value of Rs. 66,44,134/-, from companies related to one person. The Petitioner responded to the notice, providing ledger accounts and claiming that the value of transactions was less than Rs. 50,00,000/-. The AO alleged that the Petitioner’s income had escaped assessment. Resultantly, the AO held that it was a fit case to issue a notice under Section 148 ITA and the same was served on the Petitioner. Challenging this, the Petitioner approached the High Court.
Reasoning
The High Court after hearing the arguments from both sides, noted, “This court had pointedly asked the learned counsel appearing for the Revenue whether there is any credible material, which would establish that the petitioner had received any amount in excess of what had been claimed by the petitioner during the FY 2014-15. However, the learned counsel for the Revenue fairly stated that apart from the information available on the insight portal, there was no other material which would establish the same.”
Furthermore, the Court said that it is not disputed that after receipt of the Petitioner’s response, the AO had on the basis of material on record found that it was not a fit case for issuance of the notice under Section 148 of the Act for the AY 2015-16 and a noting to the said effect was also made in the relevant file.
“The PCIT was of the view that the transactions as reported in insight portal needed further examination, thus, it would be a fit case for issuance of notice under Section 148 of the Act. As observed earlier, this view is unsustainable. The AO is required to form an opinion as to whether there is any credible information to substantiate that the petitioner’s assertion that the aggregate value of the transactions in question is less than ₹50,00,000/-, is incorrect”, it also noted.
The Court elucidated that at the stage of passing an Order under Section 148A(d) ITA, the AO was not required to form any conclusive view as to whether the entries in question represented income that had escaped assessment. It added that 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 Rs. 66,44,134/- was required to be determined on the basis of the record.
“Whilst, the petitioner had produced ledger accounts, the AO did not have any material to substantiate that deposits aggregating ₹66,44,134/- were made in the petitioner’s bank account to contradict the same”, it said.
Accordingly, the High Court allowed the Writ Petition and set aside the impugned Order.
Cause Title- Sonansh Creations Pvt. Ltd. v. Assistant Commissioner of Income Tax and Anr. (Neutral Citation: 2025:DHC:77-DB)
Appearance:
Petitioner: Senior Advocate C.S. Aggarwal, Advocates Ravi Pratap Mall, and Uma Shankar.
Respondents: SSC Aseem Chawla, Advocates Monica Benjamin, Priya Sarkar, and Pratishtha Chaudhary.
