LABH COMBINES PVT. LTD.,KOLKATA V. DCIT, CIRCLE 7(1), KOLKATA

ITA 2382/KOL/2025

AI Insights

The case involves Labh Combines Pvt. Ltd., which appealed against the reopening of its assessment for the Assessment Year 2017-18 under section 147 of the Income Tax Act, 1961. The reopening was based on information from the DDIT (Inv.), Unit-1(3), Kolkata, suggesting that the company had taken accommodation entries in the form of unsecured loans amounting to Rs. 2,00,35,589 during the financial year 2015-16. The AO issued a notice under section 148 on 30.03.2021, and after the assessee's compliance, added the amount as unexplained cash credit under section 68 of the Act, which was upheld by the CIT(A). The Tribunal, however, found that the AO had not properly applied his mind to the facts and legal provisions, leading to the quashing of the reopening and the assessment order.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 837944 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 23-10-2025
• Other Referred Cases: PCIT Vs. Meenakshi Overseas Pvt. Ltd., PCIT Vs. Shodiman Investments Pvt. Ltd., Sarthak Securities Co. Pvt. Ltd. Vs. ITO, CIT Vs. SFIL Stock Broking Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Unexplained cash credit; Reopening of assessment; Search and seizure; Accommodation entries; Reason to believe; Tangible material; Borrowed satisfaction
• Section: 147; 148; 143(3); 142(1); 132; 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH,KOLKATA SHRI RAJESH KUMAR, ACCOUNTANT MEMBER SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER I.T.A. No.2382/Kol/2025 (Assessment Year 2017-18) Labh Combines Pvt. Ltd., 391, Block ‘G’ Shyam Sadan, New Alipore, Kolkata - 700053 [PAN: AAACL4352M] ……..…...…………….... Appellant vs. Deputy Commissioner of Income Tax, Circle 7(1), Aayakar Bhawan, P-7, Chowringhee Square, Kolkata – 700069 ……..…...…………….... Respondent Appearances by: Assessee represented by : S.K. Tulsiyan, Advocate & Puja Somani, AR Department represented by : Sandip Sarkar, JCIT, Sr. DR Date of concluding the hearing : 28.01.2026 Date of pronouncing the order : 17.02.2026 O R D E R Per Rajesh Kumar, AM The present appeal filed by the assessee arises from order dated 06.10.2025 passed u/s 250 of the Income Tax Act, 1961 (hereafter referred to as “the Act”) by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter referred to as “the Ld.CIT(A)]. 2. The assessee has challenged the reopening of assessment u/s 147 of the Act by issuing notice u/s 148 of the Act on 30.03.2021 based on incorrect information received from the DDIT (Inv.), Unit-1(3), Kolkata and Printed from counselvise.com 2 ITA Nos.2382/Kol/2025 Labh Combines Pvt. Ltd. without any application of mind by the AO and without there being any tangible material showing live link with escapement of income. 3. The facts in brief are that the assessee filed return of income u/s 139(1) of the Act on 13.10.2017 showing total income at Rs. 1,72,78,870/-. Thereafter, AO received information from DDIT (Inv.) Unit- 1(3), Kolkata that the assessee has taken accommodation entry in the form of unsecured loan or an in other forms to the tune of Rs. 2,00,35,589/- during financial year 2015-16. It was also mentioned that out of the said amount Rs. 1,80,00,429/- was taken from M/s M A Finance Services Pvt. Ltd. and Rs. 55,00,160/- was taken from M/s Zenith Fiscal Services Pvt. Ltd. Accordingly, assessment was reopened and notice u/s 148 of the Act was issued on 30.03.2021. Thereafter, the assessee filed return of income in compliance on 16.04.2021 declaring the same income as declared in the return filed u/s 139(1) of the Act and requested for the reasons. Thereafter, the AO issued notice u/s 143(2) and 142(1) of the Act along with questionnaire and called for the assessee to furnish the details/evidences qua the unsecured loans received from the year under consideration. The assessee duly submitted before the AO all the documents qua the loan creditors. However rejecting the reply evidences furnished by the assessee , the AO made an addition of Rs. 2,00,35,589/- as unexplained cash credit u/s 68 of the Act on the ground that the assessee has failed to prove the three limbs of section 68 of the Act i.e. identity of creditworthiness of the land creditors and the genuineness of the transaction. 4. In the appellate proceedings, the Ld.CIT(A) affirm the said order of the AO. 5. After hearing the rival contention and perusing the material available on record, we find that the AO has reopened the assessment u/s 147 of the Act after recording the reasons to believe u/s 148(2) of the Printed from counselvise.com 3 ITA Nos.2382/Kol/2025 Labh Combines Pvt. Ltd. Act. The copy of the reason recorded is available at page no. 96 of the paper book which is extracted below: “The Assessee company filed its return of income on 13 10.2017 declaring total income at Rs 1,72,78,870/-. No assessment u/s 143(3) of the Income-tax Act, 1961, or u/s 147 of the act has been made in this case. 2. Subsequently information was received on 14.12.2018 from DDIT (Inv.), Unit- 1(3) Kolkata that the assessee company has availed the accommodation entry in from of unsecured loan or and in other forms to the tune of Rs.2,35,00,589/- during the F. Yr. 2045,16. Out of which Rs. 1,80,00,429/- was taken from Mis M A Finance Services Pvt. Ltd. and Rs.55.00.160/- was from M/s Zenith Fiscal Services Pvt. Ltd. 3. Search & seizure operation u/s 132 of the Income-tax Act 1961 was carried out on 21.05.2018 in the case of Banka Group of concerns. It was informed on the basis of findings & information gathered on records by the Investigation officer that accommodation entries were provided by Shri Mukesh Banka through his managed & controlled paper/shell concerns to several beneficiaries including the assessee company in the guise of unsecured loan and or other forms. It was also shared that the concerns involved in rotating of such unaccounted money had no business activities, no profit was accumulated over the years, negligible turnover reported in their respective return under the head Income from other source, the directors of those companies were dummy directors and moreover most of those companies were found non-existent. These facts had been accepted by Shri Mukesh Banka in his statement recorded u/s 132(4) of the act 4. It is true that the assessee has filed its return of income where various information weredisclosed. However, the requisite full and true disclosure of all material facts related to the informationhad not been made as noted above in the reasons for reopening were embedded in such a manner that maternal evidence could be discovered by the then AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the act. 5. It is evident from the above discussion that in this case, the information under consideration was not available before the AO at that point of time. The material facts regarding accommodation entry involve in the information was not disclosed by the Assessee company during the course of regular assessment. 6. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income of chargeable to tax has escaped assessment. Hence, I have reason to believe that 55.00.160- chargeable to tax has escaped assessment for the AY 2017-18.” 6. A perusal of above reasons, reveals that the AO in para 2 has stated that as per the information received from DDIT (Inv.), Unit-1(3), Kolkata assessee has received accommodation entry in the form of unsecured Printed from counselvise.com 4 ITA Nos.2382/Kol/2025 Labh Combines Pvt. Ltd. loan or in other form to the tune of Rs. 2,0035,589/- during FY 2015-16 and also given the details from whom the money was received by the assessee. We note that the AO has reopened the case on the basis of wrong information which pertained to FY 2015-16 relevant to AY 2016-17 whereas the impugned assessment order is A.Y. 2017-18. Similarly, we note that the Ld. CIT(A) in the appellate order at page no. 9 para 13.7 noted the same facts and finally affirmed the addition by dismissing the appeal of the assessee. 7. We also note that in the notice issued u/s 142(1) of the Act dated 17.12.2021 calling upon the assessee furnish the details and information, the AO again noted that the money was taken by the assessee in FY 2015-16. Therefore, considering the above facts and underlying circumstances, we are of the considered view that assessment has been made without any application of mind by the AO and mistake is committed repeatedly by the AO in the reasons recorded, in the notice u/s 142(1) of the Act as well as assessment order dated 17.03.2022 passed u/s 147 r.w.s. 144B of the Act. In our opinion, there is complete non application of mind by the AO. The case of the assessee is squarely covered by the decision of Hon’ble Delhi High Court in the case of PCIT Vs. Meenakshi Overseas Pvt. Ltd. (2017) 82 taxman.com 300 (Del) dated 26.05.2017, wherein it has been held as under: “The reopening of assessment under section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the Assessing Officer that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of section 147 (1). [Para 24] The first part of section 147(1) of the Act requires the Assessing Officer to have \"reasons to believe\" that any income chargeable to tax has escaped assessment. It is thus formation ofreason to believe that is subject-matter of examination. The Assessing Officer being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he Printed from counselvise.com 5 ITA Nos.2382/Kol/2025 Labh Combines Pvt. Ltd. forms the reasons to believe, the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre-condition to the assumption of jurisdiction under section 147. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. [Para 26] In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed, it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 8. Similarly, the Hon’ble Bombay High Court in the case of PCIT Vs. Shodiman Investments Pvt. Ltd. (2018) reported in 93 taxmann.com 153 dated 16.04.2018 has held as under: The submission of the Dept that in view of Rajesh Jhaveri 291 ITR 500 (SC), the AO can reopen the assessment for \"whatever reason\" is preposterous. The AO cannot reopen on the basis of info received from DIT (Investigation) that a particular entity has entered into suspicious transactions without linking it to the assessee having indulged in activity which could give rise to reason to believe that income has escaped assessment. Such reopening amounts to a fishing inquiry. The AO has to apply his mind to the information received by him from the DDIT (Inv.) and cannot act on borrowed satisfaction. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is evidence of a fishing enquiry and not a reasonable belief that Income chargeable to tax has escaped assessment.\" 9. Judgment of Hon’ble Delhi High Court in the case of Sarthak Securities Co. Pvt. Ltd. Vs. ITO (2010) 329 ITR 110, wherein it has been held as under: \"The law postulates that AO (and not the Addl. Director of IT) to have reason to believe. Blind acceptance of the information furnished by the Addl. Director of IT cannot form reasons leading to the belief by the AO of any escapement of income. Your goodself has to independently apply his mind to the information received from the Addl. Director of IT and arrive at the belief that income has escaped assessment.\" 10. The same issue was held by the Hon’ble Delhi High Court in the case of CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), wherein it has been held as under: Printed from counselvise.com 6 ITA Nos.2382/Kol/2025 Labh Combines Pvt. Ltd. From the above, it is clear that the Assessing Officer referred to the information and the neo directions as \"reasons\" on the basis of which he was proceeding to issue notice under Section 148. We are afraid that these cannot be the reasons for proceeding under Section 147/148 of the said Act. The first part is only an information and the second and the third parts of thebeginning paragraph of the so-called reasons are mere directions. From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on the facts. The law is well settled. There is no substantial question of law which arises for our consideration. 11. We therefore, respectfully following the ratio laid down in the above decisions are inclined to quash the reopening of assessment and the consequent assessment order framed by the AO as bad in law and nullity. Since, we have allowed the appeal of the assessee and other issues raised on merits are not being adjudicated at this stage and are left open to be decided at later stage if the need arise for the same. 12. In the result, the appeal of the assessee is allowed. Order pronounced on 17.02.2026. SD/- SD/- (Pradip Kumar Choubey) (Rajesh Kumar) Judicial Member Accountant Member Dated:17.02.2026 AK,Sr. P.S. Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. CIT(DR) //True copy// By order Assistant Registrar, Kolkata Benches Printed from counselvise.com "