Borrowed Satisfaction Cannot Justify Section 147 Reassessment, Rules ITAT Delhi

The ITAT Delhi has recently held in favour of Peakwood Reality Private Limited by deleting the impugned addition amounting to Rs 72.45 crore made by the Income Tax Authorities under Section 68 of the Income Tax Act on the grounds that the loans received by the company from Focus Realcon Private Limited and Starlite Builders Private Limited were bogus accommodation entries linked to the M3M Group investigation.

When the assessee, Peakwood Reality Private Limited, challenged the Rs 72.45 crore addition before the ITAT Delhi, the tribunal noted that the tax authorities had reopened the case merely based on the information received from the Investigation Wing without conducting any independent inquiry. Consequently, the tribunal held that reopening under Section 147 cannot be based on “borrowed satisfaction”, and there must be a direct link between the material available and the belief that income escaped assessment. Since the department failed to provide the underlying investigation material to the assessee and did not conduct fresh verification, the reassessment proceedings were consequently declared invalid.

When the tribunal analysed the case on its merits, it observed that the assessee had furnished all the relevant evidence proving the genuineness of the loans taken by it, including bank statements, confirmations, income tax returns, financial statements, and Memorandums of Understanding (MOUs) showing that the money was received as advances for land procurement and development projects. Furthermore, the transactions in question were made through banking channels, and the amounts were later repaid, which supported the genuineness of the transactions.

It was further noted that statements on which the tax authorities had relied were given by individuals who were no longer directors of the lender companies during the year in consideration, making such statements unreliable. To announce the final decision, the tribunal cited several earlier judgements of the High Court and the Supreme Court in cases based on a similar issue and held that the assessee had successfully proved the identity, genuineness, and creditworthiness of the lenders. In conclusion, the impugned addition amounting to Rs 72.45 crore was deleted in full, and the appeal was allowed.