2022 (9) TMI 1461 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe that income had escaped tax - fictitious loan obtained - whether the notice issued u/s 148 deserves to be quashed or set aside for any reason whatsoever? - HELD THAT - Search was conducted in the case of M/s Dishman group of Ahmedabad and it was found that said group had indulged in huge transactions of bogus loans and advances and the ADIT's note concluded that loans and advances are received by the assessee, present writ applicant from the said M/s Dishman company as such it implies the assessee had given equal cash to M/s Dishman and was of the view that such transactions are to be construed from the angle of applicability of Section 69A apart from being treated as unexplained credits, wherever applicable. It is this fact which persuaded the AO to issue the notice stating thereunder that accommodation entry in the form of fictitious loan was reflected from M/s Dishman Pharmaceuticals to the assessee. The assessee not only in its objections statement filed to the reopening of the assessment has stated that there was no such transaction and even the books of accounts which formed part and parcel of the assessment order passed u/s 143(3) did not disclose any such loan transaction for the assessment year 2013 - 2014 insofar as the assessee is concerned. In the absence of any foundational facts, the reasons recorded for reopening of the assessment on the premises that AO had reason to believe that income had escaped to assessment and thereby there is tax evasion has to be necessarily held as a myth and it cannot be countenanced and without any foundation. Thus, without due application of mind, the AO could not have issued the impugned notice. On this short ground itself, the impugned notice is liable to be quashed. There is no foundation in the notice which formed the basis on which the AO proposed to reopen the assessment for the assessment year 2013 - 2014. Hence, point formulated hereinabove deserves to be answered in favour of the petitioner - assessee.

Summary

Issues:
- Whether the notice dated 30.03.2021 issued under Section 148 deserves to be quashed or set aside for any reason whatsoever?

Analysis:
1. The petitioner, a limited company engaged in manufacturing, exports, and trading of Dyes Intermediates, filed its return of income for the assessment year 2013 - 2014, which was processed under Section 143(1) of the Income Tax Act, 1961. Subsequently, a notice under Section 143(2) was issued, and an assessment order was passed under Section 143(3) on 21.03.2016. However, on 30.03.2021, a notice for reopening the assessment was issued, alleging that income chargeable to tax had escaped assessment. The petitioner objected to this notice, highlighting that no loan was obtained from a specific company as alleged in the notice. The petitioner argued that even if the alleged loan amount was added, it would not change the tax implication due to the Minimum Alternate Tax provision. Additionally, the petitioner contended that no sanction was obtained as required under Section 151 of the Act before issuing the notice.

2. The respondent, representing the assessee, supported the impugned notice and the order overruling the petitioner's objections. However, upon perusal of the records and arguments presented by both parties, the Court found discrepancies in the reasons for reopening the assessment. The notice was based on the premise that the petitioner received a fictitious loan from a particular company, which the petitioner denied, stating that such a transaction did not occur. The Court emphasized that without foundational facts, the reasons for reopening the assessment were baseless, indicating a lack of due application of mind by the Assessing Officer. Citing previous judgments, the Court highlighted that without a valid foundation, the Assessing Officer lacked the authority to reopen the assessment, rendering the notice unsustainable.

3. The Court referred to similar cases where it was established that incorrect or unfounded reasons for reopening assessments rendered the notices invalid. Based on the lack of foundation in the notice issued to the petitioner, the Court ruled in favor of the petitioner, quashing the notice dated 30.03.2021 and the order disposing of objections dated 11.11.2021. The Court concluded the judgment by allowing the Special Civil Application, quashing the impugned notice and order, and deciding no costs to be awarded.