M/s. Ambica Timber Trade Pvt. Ltd vs ITO

PER M. BALAGANESH, AM

The appeal in ITA No.6180/Del/2025 for AY 2012-13, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 22.07.2025 against the order of assessment passed u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 24.12.2018 by the Assessing Officer, ITO, Ward-2(3), Delhi (hereinafter referred to as ‘ld. AO’).

The assessee apart from challenging the addition of Rs. 7,39,62,714/- on merits, had also challenged the validity of initiation of assessment proceedings u/s 147 of the Act. Since, this is a jurisdictional issue, we proceed to adjudicate the issue of assumption of jurisdiction u/s 147 of the Act first.

We have heard the rival submissions and perused the material available on record. The assessee company filed its return of income for AY 2012-13 on 25.09.2012 declaring taxable income of Rs. 9,73,470/-. Subsequently on receipt of information from Investigation Wing, Gurgaon, the case of the assessee was sought to be reopened u/s 147 of the Act after recording the reasons for reopening. The reasons recorded for reopening the assessment are enclosed in pages 42 to 44 of volume-1 of the Paper Book. The ld AO noted that as per the report of the Investigation Wing, the assessee company had received monies from the following entities belonging to Spaze Group:-

We find from the reasons recorded, the ld AO himself admits that assessee company had received monies from the aforesaid parties in AY 2010-11 which are to be construed as accommodation entries and that the said entries are not disclosed in the ITR filed by the assessee company for AY 2012-13. Hence, in order to verify the source of aforesaid alleged accommodation entries of Rs.7,39,62,714/-, this reopening was made.

The ld AR submitted that the very assumption of jurisdiction is totally flawed as the monies were received from the aforesaid entities towards sale proceeds against sale of goods made by the assessee company to the aforesaid 8 parties totaling to Rs. 12,50,45,247/-. The ld AR drew our attention to the profit and loss account and the details of sales which admittedly included the sales made to aforesaid entities. Hence, we are convinced that the assessee had indeed made sales to the aforesaid parties and had received monies from them. It is not in dispute that the sales disclosed by the assessee company credited in profit and loss account by the assessee had been offered to tax by the assessee and assessed as such by the revenue. Hence, there is no question of any income escaping assessment. Accordingly, there cannot be any valid formation of belief on the part of the ld AO that income of the assessee had escaped assessment warranting reopening.

The ld DR vehemently relied on the following case laws before us:-

The various case laws relied upon by the ld DR were on the aspect of sufficiency of reasons not to be looked into at the time of recording of reasons for reopening the assessment. Further, in all the case laws relied upon by the ld DR, the monies received were not in the nature of trading receipts for those assessees, whereas, in the instant case the monies were received from the aforesaid 8 entities only against sales made by the assessee which are trading receipts and already offered to tax by the assessee. Hence, none of the case laws relied upon by the ld DR would advance the case of the revenue as they are factually distinguishable. The case before us merely hinges upon the fact as to whether at all there was any income escaping assessment. Since, the monies were received against sale proceeds which has already been offered to tax in the return, we conclude that there cannot be any income escarpment at all in the sum of Rs. 7,39,62,714/- and consequential estimated commission expenditure of Rs. 7,39,637/-. Accordingly, the entire assumption of jurisdiction u/s 147 of the Act is totally flawed. Hence, the reassessment proceeding deserves to be quashed as void ab initio. Either way, on perusal of the reasons recorded for reopening, it is very clear that the ld AO had sought to reopen only to verify the source of transactions with the aforesaid entities which amount to making fishing and roving enquiries. The law is very clear that no reopening could be validly done for the purposes of making fishing and roving enquiries. Reliance in this regard is placed on the decision of Punjab and Haryana High Court in the case of Vipan Khanna v. Commissioner of Income Tax reported in 255 ITR 220. Hence, we have no hesitation to quash the reassessment in the facts and circumstances of the instant case. Accordingly, grounds raised in that regard are allowed.

Since, the reopening is quashed, the grounds raised by the assessee on merits need not be adjudicated and they are left open.

In the result, the appeal of the assessee is partly allowed.