Reopening of Assessment permissible in case of Accommodation Entries without physical transportation of goods

Last updated: 27 August 2021

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The Gujarat High Court has ruled that reopening an assessment is permissible even if there was no physical transportation of goods, provided accommodation entries were used. The court found that the petitioner had escaped assessment on commission earned from these entries, which were not disclosed. The investigation substantiated the Income Tax Officer's belief that income had escaped assessment, justifying the reopening.

Court :
Gujarat High Court

Brief :
In Geetaben Dineshchandra Gupta v. Income Tax Officer Circle 3(3)(2) [R/Special Civil Application No. 18325 of 2019 dated August 23, 2021], Geetaben Dinesh chandra Gupta ('the Petitioner') has filed the current petition challenging the notice dated March 23, 2019 which proposed the reopening of assessment of the Petitioner under Section 148 of the Income Tax Act, 1961 ('the IT Act').

Citation :
R/Special Civil Application No. 18325 of 2019 dated August 23, 2021

In Geetaben Dineshchandra Gupta v. Income Tax Officer Circle 3(3)(2) [R/Special Civil Application No. 18325 of 2019 dated August 23, 2021], Geetaben Dinesh chandra Gupta ('the Petitioner') has filed the current petition challenging the notice dated March 23, 2019 which proposed the reopening of assessment of the Petitioner under Section 148 of the Income Tax Act, 1961 ('the IT Act').

The Petitioner contended that even after the petitioner disclosed all material and relevant facts for the assessment, he received the notice without any reason cited by of the Income Tax Office ('the Respondent'), because of which the notice issued requires to be quashed.

The Respondent whereas contended that the Petitioner through his proprietorship firm, carried out huge transactions of purchases and sales for which mere accommodation entries were provided without there being any physical transportation of goods. The inquiry conducted showed that the petitioner earned commission on the said accommodation entries which were not revealed in the return. Due to the same, assessment was thereby reopened.

The Hon'ble Gujarat High Court observed that the Petitioner had indeed escaped assessment on the commission earned by the accommodation entries which were not revealed while disclosing income.

Further noted, that the investigation carried out by the investigation wing clearly substantiated the case of the Respondent. Therefore, the belief of the Assessing Officer about the income of the Petitioner being escaped from assessment is justified.

FAQ :

Yes, the Gujarat High Court has ruled that an assessment can be reopened in cases involving accommodation entries, even without physical transportation of goods.

Accommodation entries refer to financial transactions recorded in books of accounts without any actual movement of goods or services, often used to facilitate tax evasion.

The assessment was reopened because the petitioner earned commission on accommodation entries which were not revealed in their tax return, leading to income escaping assessment.

The petitioner argued that the notice to reopen assessment should be quashed as they had disclosed all material facts, and the notice lacked a cited reason.

The court observed that the petitioner had indeed escaped assessment on the commission earned from accommodation entries that were not disclosed.