The central legal point established in the judgment is the requirement for the Assessing Officer to have a valid reason to believe that income has escaped assessment before reopening the assessment under Section 147 of the Income Tax Act, 1961.

S. Muralidhar, J.

1. This is an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (‘Act’) against an order dated 12th April, 2016, passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.1596/Del/2014 for the Assessment Year (‘AY’) 2008-09.

2. The question sought to be urged by the Revenue in this appeal is whether the ITAT was justified in holding that the reopening of the assessment by the Assessing Officer (‘AO’) under Section 147/148 of the Act was bad in law?

3. The admitted fact is that the Assessee filed its return of income for the AY in question on 31st October, 2004 declaring an income of Rs.4,38,958. An intimation was sent under Section 143(1) of the Act. In other words the return was not processed under Section 143(3) of the Act.

4. Notice under Section 147 of the Act was issued by the AO to the Assessee on 25th March, 2011. The following reasons for the re-opening were furnished to the Assessee for reopening the assessment:

11.

Reasons for the belief that Information has been received from the income has escaped Investigation Wing of the Income-tax assessment.

Information has been received from the income has escaped Investigation Wing of the Income-tax assessment. Department that M/s Pine View Construction & Traders Pvt. Ltd. is a beneficiary of accommodation entries received from certain established entry operators identified by the Investigation Wing during the period relevant to A. Y 2004-05.   A comprehensive investigation was carried out by the Investigation Wing for identification of entry operators engaged in the business of money laundering for the beneficiaries and on the basis of investigation carried out and evidences collected, a detailed report has been forwarded.   In the instant case, the assessee is found to be the beneficiary of accommodation entry from such entry operators as per the transaction mentioned in the enclosed Annexure-'A' of Rs.1,56,00,000.   The accommodation entry provider; have given accommodation entries in the grab of share application money/ expenses/gift/purchase of shares etc. They have worked for commission.   The assessee is a company incorporated on 11.09.1998. It is noticed that there is no return of come is available in the AST database of Income-tax Department. Therefore. it is clear that the assessee has not filed return of income for the A. Y. 2004-05 and consequently has not offered any income for taxation.   Sources of the transactions are not explained. I, therefore, have reason to believe that on account failure on the part of the assessee to disclose truly and fully all the material facts necessary for assessment for the above assessment year, the income chargeable to tax to the extent of accommodation entry of Rs. 1,56,00,000 has escaped assessment within the meaning of section 147 of I.T. Act. 1961. To bring to tax the income which has escaped assessment, I proposed to issue notice u/s. 148 of the I.T. Act. 1961.   Since, four years has expired from the end of the relevant assessment year, and no scrutiny assessment was completed under Section 143(3) in this case for the said assessment year, the reasons recorded above for the purpose of reopening of assessment is put up kind satisfaction of Addl. Commissioner of Income Tax, Range-14, New Delhi in terms of the proviso of Section 151(2) of the I.T. Act, 1961.

5. As it transpired subsequently there were at least two glaring errors in the above reasons. The first error was that the AO proceeded on the basis that “no return of income is available in the AST database of Income-tax Department. Therefore, it is clear that the ass