2019 (1) TMI 1069 - HC - Income Tax

Reopening of assessment - Held that - Reasons recorded, the Assessing Officer could not have formed the belief that the income chargeable to take has escaped assessment. It is further submitted that the Assessing Officer seeks to reopen the assessment on the basis of audited accounts and hence, the reopening is bad in law. Having regard to the submissions advanced by the learned advocate for the petitioner, issue Notice, returnable on 7th January 2019. Mrs. Mauna Bhatt, learned Senior Standing Counsel for the respondent waives service of notice. By way of ad-interim relief, the respondent may further proceed in pursuance to the impugned notice, however, not pass any final order without prior permission of the court.

Summary

Issues:
1. Reopening of assessment based on interest paid on unsecured loan and loan advanced without charging interest.

Analysis:
The judgment by the Gujarat High Court involved the Assessing Officer's decision to reopen the assessment of the petitioner based on two counts. Firstly, the officer sought to disallow the interest paid on an unsecured loan to a company treated as a dummy company for the Assessment Year 2013-14. Secondly, the officer aimed to disallow the interest on a loan advanced without charging interest, requiring it to be added back to the total income under section 36(i)(iii) of the Income Tax Act, 1961. The petitioner argued that the company providing the unsecured loan was not a dummy company, as evidenced by scrutiny assessment and audited accounts. Additionally, the petitioner contended that the loan advanced without interest was from reserved surplus, making the reopening of assessment unjustified.

In response to the reasons recorded for reopening the assessment, the petitioner highlighted that the company providing the unsecured loan had undergone scrutiny assessment and was not a dummy company. The petitioner emphasized that the Assessing Officer relied on a communication without conducting further inquiry, despite the company's existence and proper assessment. Regarding the loan advanced without interest, the petitioner pointed out the reserved surplus of &8377;36.19 crore, indicating that the amount advanced was from this reserve. The petitioner argued that the reopening based on audited accounts was legally flawed, as it did not warrant the belief that income had escaped assessment.

Consequently, the Gujarat High Court issued a Notice returnable on 7th January 2019, acknowledging the submissions made by the petitioner's advocate. The respondent's counsel waived the service of notice, allowing the respondent to proceed with the impugned notice but prohibiting the passing of any final order without prior court permission. Direct service was permitted on the same day for further action in the matter.