2020 (7) TMI 458 - AT - Income Tax

Re-opening of assessment u/s 147 - re-opening beyond a period of 4 years from the end of the AY - Addition u/s 68 - HELD THAT - In this case, the assessee has disclosed during the course of original assessment proceedings details of all the loan creditors. The assessee has filed before us a copy of the notice issued u/s 142(1) of the Act dated 12.11.2013 along with the annexure and replies. He has also filed a copy of the unsecured loan account which contains the account of M/s. Rexnox Trexim Pvt. Ltd. The assessee has paid interest on this loan and deducted tax at source. The loan has been repaid within the same year. On these facts, it is wrong on the part of the AO to record at para 7 of his reasons that the assessee has failed to disclose fully and truly all material facts necessary for assessment. Merely alleging that there is failure to disclose, would not serve the purpose. In this case, a factually wrong allegation has been made that the amount of ₹10 lakhs has not been fully and truly disclosed. Re-opening of assessment on such wrong reasons cannot be upheld. No fresh tangible material has come into the possession of the AO, which could trigger re-opening in this case. The transaction with M/s. Rexnox Trexim Pvt. Ltd. was fully disclosed and it is not fresh material. All the other sentences in the reasons recorded are general and vague and it is not known how these observations are relevant to the assessee company. Re-opening of assessment is bad in law on this ground also. Coming to the merits of the case, the assessee had received ₹10 lakhs in cash through banking channels and he has repaid the same along with interest after deducting tax at source. The details of the company from which the amount was received were filed. Under these circumstances, the question is whether the addition can be made u/s 68 - Assessee has explained the credit in question and as the amount has also been repaid along with interest, the addition in question made u/s 68 of the Act is bad in law. Hence we delete the same. - Decided in favour of assessee.

Summary

Issues involved:
1. Re-opening of assessment beyond the 4-year period under Section 147 of the Income Tax Act.
2. Addition of ?10 lakhs as undisclosed income.
3. Validity of reasons recorded for re-opening the assessment.
4. Disclosure of material facts necessary for assessment.
5. Merits of the case regarding the cash credit received and repaid.
6. Legal precedents related to failure to disclose material facts.

Re-opening of assessment beyond the 4-year period under Section 147 of the Income Tax Act:
The appeal challenged the re-opening of the assessment beyond the stipulated 4-year period. The appellant argued that there was no failure to disclose material facts necessary for assessment and that the re-opening was unjustified. The reasons for re-opening were deemed vague and general, lacking fresh tangible material to warrant the re-assessment. Legal precedents were cited to support the contention that the re-opening of assessment was not valid beyond the prescribed period.

Addition of ?10 lakhs as undisclosed income:
The case involved the addition of ?10 lakhs as undisclosed income, which was contested by the appellant. The appellant provided evidence that the loan amount was repaid, interest was paid, and tax was deducted at the source. The appellant argued that the addition under Section 68 of the Act was unwarranted as the transaction was genuine, supported by legal precedents emphasizing the genuineness of the transaction and the repayment process.

Validity of reasons recorded for re-opening the assessment:
The reasons recorded for re-opening the assessment were scrutinized for their validity. It was argued that the reasons were general and vague, lacking specificity and fresh tangible material. The appellant contended that the allegations of failure to disclose material facts were factually incorrect, rendering the re-opening of assessment on such grounds legally unsustainable.

Disclosure of material facts necessary for assessment:
The appellant emphasized that all material facts necessary for assessment were disclosed during the original assessment proceedings. Documents were submitted to prove the loan transaction, repayment, and compliance with tax regulations. It was asserted that the allegations of non-disclosure were unfounded, as evidenced by the details provided during the original assessment.

Merits of the case regarding the cash credit received and repaid:
The appellant demonstrated that the cash credit received and repaid was legitimate, supported by banking transactions, interest payments, and repayment evidence. Legal precedents were cited to argue against the addition of the amount under Section 68 of the Act, emphasizing the proof of transaction genuineness and compliance with legal requirements.

Legal precedents related to failure to disclose material facts:
The appellant relied on legal precedents, including judgments from the Delhi High Court and Bombay High Court, to support the argument that the re-assessment based on alleged failure to disclose material facts must meet specific criteria. The cases cited emphasized the necessity of proving non-disclosure and the presence of fresh tangible material to justify re-opening assessments beyond the prescribed period.

In conclusion, the appeal was allowed, highlighting the legal flaws in the re-opening of the assessment and the addition of undisclosed income. The judgment emphasized the importance of factual accuracy, disclosure of material facts, and adherence to legal precedents in tax assessment proceedings.