Reassessment proceedings under Section 147/148 of the Income Tax Act are a powerful tool in the hands of the Revenue to reopen past assessments where income is believed to have escaped taxation. However, such power is not unfettered and must be exercised with due diligence, based on concrete material and not mere suspicion. In a significant judgment, the Calcutta High Court quashed a reassessment notice issued to M/s. RPG Sanjiv Goenka Group Skill Academy, holding that the Assessing Officer (AO) failed to demonstrate the chain or layers through which the alleged unaccounted money reached the assessee’s bank account. This decision reaffirms that reopening of assessments must be rooted in evidence, not conjecture, especially in cases involving alleged accommodation entries.
🔍 Case Background:
The Assessing Officer (AO) initiated reassessment proceedings under Section 147 of the Income Tax Act against M/s. RPG Sanjiv Goenka Group Skill Academy alleging that the assessee received accommodation entries in the form of unsecured loans through a web of shell companies.
However, the assessee challenged the reassessment proceedings before the Calcutta High Court on the ground that the AO had not established any nexus or demonstrated the flow of funds from the alleged entry providers to the assessee.
⚖️ High Court’s Observations:
- The court noted that the AO merely named certain companies suspected to be entry providers.
- However, no material evidence or explanation was provided showing the actual route or “layers” through which money was routed to the assessee’s bank account.
- Mere mention of a search or survey report against third parties was not sufficient without a clear link to the assessee.
📢 Verdict:
The Calcutta High Court quashed the reassessment notice under Section 148, holding that:
“In the absence of any cogent material or the identification of the flow of funds, the reassessment is a mere fishing expedition, which cannot be sustained.”
📌 Key Takeaway:
This ruling reinforces that reassessment must be based on tangible material facts, and AOs must clearly establish a link between alleged entry operators and the assessee, including tracing the flow of funds—not just rely on general suspicion or third-party investigations.
📌 Case Name:
M/s. RPG Sanjiv Goenka Group Skill Academy vs Income Tax Officer
📍Court:
Calcutta High Court
📅 Date of Judgment:
July 5, 2024
📑 Citation:
[2024] 158 taxmann.com 347 (Calcutta)
🧑⚖️ Coram:
Justice T.S. Sivagnanam & Justice Hiranmay Bhattacharyya