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Judgment
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 22.10.2025 of the Ld. Commissioner of Income-tax (Appeals)-3, Gurgaon (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in appeal No.10157/CIT(A)-3/GGN/2019-20, filed before him against the order dated 25.11.2019 passed u/s 147 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Central Circle, Karnal (hereinafter referred to as the Ld. AO, for short).
Heard and perused the records. The assessee is a Private Limited Company engaged in the business of manufacturing of textile and rags. The appellant’s name was changed to M/s. RG Home Furnishings Pvt. Ltd. and earlier it was known as Akash Home Furnishing Pvt. Ltd. and even earlier it was named as GSM Spuntex Pvt. Ltd. The assesse filed its return of income on 22.08.2012. The case was originally assessed u/s 143(3) of the Act, wherein the ld. AO has issued Notices u/s 133(6) to the directors of M/s Simplex Commosale Pvt. Ltd. on 16.12.2014. In response, the replies were filed confirming the investment amount in the assessee company, duly supported with the ITR Acknowledgement, financial statements and Bank Statements. Accordingly, the ld. AO has passed the assessment order u/s 143(3) of the Act on 27.02.2015 wherein the ld. AO has not made any adverse inference in respect of the amount received from M/s Simplex Commosale Pvt. Ltd.
The case of the assessee was reopened u/s 147 of the Act. Accordingly, a notice under section 148 of the Act was issued on 28.03.2019 and the copy of reasons recorded are placed at PB pg. 63-65 show that the ld. AO on the basis of information received from the Investigation Wing, Kolkata alleged that the assessee has received Rs. 1,00,00,000/- from M/s Super Commotrade Pvt. Ltd. and same was considered accommodation entry. The assessee, vide reply dated 14.10.2019 (PB Pg. 84-94), denied any such transaction with M/s Super Commotrade Pvt. Ltd. and clarified that the amount was received from M/s Simplex Commosale Pvt. Ltd., The assessee also submitted Certificate of Incorporation, MOA/AOA, ITR Acknowledgement, Audited financial statements and Bank statement of M/s Simplex Commosale Pvt. Ltd. (PB pg. 95-129). The assessee vide reply dated 24.10.2019 has also submitted its bank statement for the entire financial year 2011-12 to substantiate that the amount has been received from M/s Simplex Commosale Pvt. Ltd. and not M/s Super Commotrade Pvt. Ltd. However, in the impugned assessment order passed u/s 147, the ld. AO has made the addition of Rs. 1 crore on account of amount received from M/s Simplex Commosale Pvt. Ltd. u/s 68 of the Act.
Ld. Counsel has primarily stressed at outset that the reasons as stand recorded show utter non application of mind. It was submitted that once established that no amount what so ever was received from M/s Super Commotrade Pvt. Ltd. then it shows that if for once ld. AO had gone through the assessment records it would have come up that amount were received from Simplex Commosale Pvt. Ltd., and already examined in assessment u/s 143(3) of the Act
Ld. DR relied the reasons and has defended the reasons by submitting that reasons are quite descriptive and only prima facie facts need to be disclosed at the time of reopening.
We have considered the rival contentions and gone through the record and we find that admittedly the foundation of reopening is based on alleged receipt from M/s Super Commotrade Pvt. Ltd. while the addition has been made in respect of receipt from M/s Simplex Commosale Pvt. Ltd.. The audited financial statements are placed at PB Pg. 6–23 and from perusal of PB pg. 12, it can be seen that during the assessment year under consideration, the assessee had received Rs. 1 crore as share capital and share premium from M/s Simplex Commosale Pvt. Ltd.
Ld. DR has submitted that the modus operandi and the channeling of the funds clearly establish that the two entities are involved in the transaction. However, nothing could be established by learned DR from the record that the two entities are in any way are similar or connected in composition so to allege that while mentioning the name of the entry provider in the reasons, the discrepancy pointed out on behalf of the assessee is of no consequence.
Reason as stand recorded show that the assessing officer was well informed of the two entities as their names are shown to be part of the alleged channeling of the transaction. But that seems to be only a reproduction of the investigation wing report. The perusal of the reasons recorded clearly reveals that the Ld. AO did not apply his own mind and merely adopted the findings of the Investigation Wing as sacrosanct. The investigation report formed the sole basis for reopening the case, with no evidence of any independent inquiry by the Ld. AO. The reasons as recorded do not contain any independent analysis of the material considered to say there was live link between information and the escapement. Ld. AO did not specify date or nature of alleged transaction. The ld. AO has passed the assessment order u/s 143(3) of the Act on 27.02.2015 wherein the ld. AO has not made any adverse inference in respect of the amount received from M/s Simplex Commosale Pvt. Ltd. and if records were examined before recording reasons AO would have definitely examined that the transaction is involves two entities at different stages. But continue to be separate. Ld. AO has apparently not applied its mind on any surrounding fact but the investigation report facts, which were incomplete in themselves were relied. It is settled law that the AO must form his own belief and cannot act merely on borrowed satisfaction, which is clearly evident in the present case.
Rather it is a settled position that where no addition is made on the issue for which the case was reopened, no addition can be sustained on any other issue. Here the reopening was on account of alleged transaction with one entity and the addition has been made on account of another entity. Certainly without there being anything in the reasons at the time of reopening or otherwise during the assessment that the two entities are not actually separate the additions cannot be considered to be one arising out of the reasons recorded. Reliance in this regard has been made on the judgement of Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. 2010 (4) TMI 431-Dated 12-4-2010 and Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs CIT [2011] 12 taxmann.com 74 (Delhi), wherein it has been categorically held that if the AO does not make any addition on the issue forming the basis of reopening, he cannot proceed to make additions on other issues.
The decisions which ld. DR has relied in the case of Chetan Sabharwal Vs. ACIT, Circle-28 (1) (2019) 110 taxmann.com 57 (Delhi) and of Coordinate Bench in the case of Global Stainless Vs. ACIT vide ITA No. 3990/Del/2025 order dated 20.03.2026 and the decision in Reymond Woolen Mills Ltd. Vs. ITO (1999) 236 ITR 34 (SC), however, same do not assist the case of department. Here, it is not the case of mere prima facie material being relied for reopening or sufficiency or correctness of the material cannot be considered at the stage of reopening. However, here the issue is that assessing officer has not at all applied its mind at the time of reopening to the facts and merely relied investigation wing report which were in regard to a transaction in which assessee was not party. It is also not a case of merely change of opinion but the issue was examined u/s 143(3) with regard to one entity M/s Simplex Commosale Pvt. Ltd. from whom the assessee had received share capital and share premium but without verifying as to who was investor investigation wing report alleging investment by M/s Simplex Commosale Pvt. Ltd. was made basis. Thus establishing non application of mind.
In the light of aforesaid discussion we are inclined to sustain the ground No. 2 to 4 the impugned reassessment order is quashed.