ITAT Ahmedabad Quashes Reassessment Based on Generalized Third-Party Statements; Deletes ₹94.5 Lakh Additions

April 7, 2026 : The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has set aside reassessment proceedings initiated against Crystal Quinone Pvt. Ltd., holding that reliance on generalized third-party statements without establishing a direct nexus with the assessee is legally unsustainable. The Tribunal also deleted additions aggregating to ₹94.5 lakh made towards commission payments and alleged inflated purchases.

The ruling came in Crystal Quinone Pvt. Ltd. v. DCIT (ITA No. 1452/Ahd/2025) for Assessment Year 2009–10, decided on April 7, 2026. The Bench comprised Vice-President Dr. B.R.R. Kumar and Judicial Member Suchitra R. Kamble.

Background

The assessee, engaged in manufacturing chemicals, had filed its return declaring an income of ₹1.58 crore on a turnover of ₹31.27 crore. The assessment was later reopened under Section 147 of the Income-tax Act based on information from the Investigation Wing regarding a survey conducted at Reynolds Petro Chem Ltd., where its director allegedly admitted that the company was engaged in providing accommodation entries.

Relying on this material, the Assessing Officer made additions of ₹4.5 lakh towards commission payments and ₹90 lakh towards alleged bogus or inflated purchases. These additions were upheld by the Commissioner of Income Tax (Appeals).

Tribunal’s Findings on Reassessment

The Tribunal examined the recorded reasons for reopening and found that they were entirely based on information received from the Investigation Wing and statements recorded during survey proceedings. Crucially, it noted that:

• The reasons did not reflect any independent application of mind by the Assessing Officer.
• There was no specific or “live nexus” between the material relied upon and any alleged escapement of income by the assessee.
• The statements relied upon did not directly implicate the assessee.

Further, the Tribunal observed that the assessee was not given a proper opportunity to file objections against the reopening, and no separate speaking order was passed disposing of such objections. On this ground as well, the reassessment proceedings were held to be invalid.

Findings on Additions

On merits, the Tribunal found that the assessee had substantiated the commission payment with documentary evidence including ledger accounts, confirmations, TDS certificates, and invoices. No defects were identified in the books of account.

Regarding the ₹90 lakh addition towards alleged inflated purchases, the Tribunal noted:

• No specific show-cause notice was issued before making the addition.
• The assessee had not made any purchases from Reynolds Petro Chem Ltd.; instead, purchases were made from Ipca Laboratories Ltd., supported by proper documentation such as bills, stock records, excise records, and VAT documents.
• The addition was primarily based on third-party statements recorded during survey proceedings.

Importantly, the Tribunal emphasized that reliance on such statements—without granting the assessee an opportunity to cross-examine and without any reference to the assessee’s transactions—cannot form the sole basis for making additions.

Conclusion

Holding both the reassessment proceedings and the additions to be unsustainable in law and on facts, the Tribunal set aside the order of the CIT(A) and directed deletion of the entire addition of ₹94.5 lakh. The assessee’s appeal was accordingly allowed.