2021 (10) TMI 269 - AT - Income Tax

Validity of reopening of assessment u/s 147 - tangible material to prove the income escapement of income found or not? - Exercise for ascertaining the unsecured loans accepted during the year - Assessee submitted before the ld. CIT(A) that the notice u/sec. 148 was issued in the case of the Assessee on suspicion and there was no material to believe that the income had escaped from assessment - outstanding unsecured loans in the balance sheet and the AO suspected the entire outstanding of unsecured loans on the basis of admission given by the assessee for earlier years i.e. 2009-10 to 2015-16 - HELD THAT - In the wording for reopening the assessment the AO used the words that unsecured loans appears to be suspicious and disproportionate to the turnover/gross receipts of the Assessee. Assessee reported the turnover of ₹ 290 crores and excess of income over expenditure was ₹ 5.30 cores. How the AO landed in a conclusion that 23.40 crores unsecured loans were suspicious and disproportionate to the turnover was not mentioned. As in reasons, the AO held that outstanding unsecured loans of ₹ 23.40 crores was believed to be escapement of income chargeable to income tax, whereas in the assessment order the AO found that unsecured loans accepted during the year was only ₹ 9,14,37,645/-. Thus, the AO has not even made minimum exercise for ascertaining the unsecured loans accepted during the year, under consideration before reopening of the assessment. AO has not even made minimum exercise for ascertaining the unsecured loans accepted during the year, under consideration before reopening of the assessment. Without even ascertaining the unsecured loans accepted during the year in the reasons recorded, the AO viewed that the entire sum of ₹ 23.40 crores outstanding as per the balance sheet was suspicious and escaped from the assessment chargeable to tax. Thus, the above facts clearly show that the AO reopened the assessment only with a suspicion without having sufficient reasons to form the belief for escapement of income - CIT(A) has rightly quashed the notice Unsecured loans outstanding in year under consideration need not be suspected merely because the assessee had admitted the same as income in the earlier years . For Income tax purpose each year is independent and the issue has to be decided on facts independently. From the above, it is very clear that the AO reopened assessment merely on suspicion - Decided in favour of assessee.

Issues Involved:
1. Validity of issuing notice under Section 148 of the Income Tax Act.
2. Tangible material for reopening the assessment.
3. Reason to believe versus suspicion for income escapement.
4. Adherence to procedural requirements for reopening the assessment.

Detailed Analysis:

1. Validity of Issuing Notice under Section 148 of the Income Tax Act:
The primary issue revolves around the validity of the notice issued under Section 148. The Assessee argued that the notice was issued without any tangible material and was based merely on suspicion. The Assessee contended that the Assessing Officer (AO) did not have a reasonable belief that income had escaped assessment, which is a prerequisite for issuing such a notice. The AO had issued the notice after conducting a survey and based on the observation that the Assessee had shown unsecured loans which appeared suspicious and disproportionate to the gross receipts.

2. Tangible Material for Reopening the Assessment:
The Assessee submitted that there was no specific issue indicating the escapement of income and that the AO had considered the entire outstanding unsecured loans as suspicious without any concrete basis. The AO must have a reasonable belief, supported by tangible material, to form an opinion that income chargeable to tax had escaped assessment. The Tribunal noted that the AO's reasons were based on the suspicion that the unsecured loans were disproportionate to the turnover, without any specific evidence or detailed examination. The Tribunal emphasized that each assessment year is independent and must be decided based on its facts.

3. Reason to Believe versus Suspicion for Income Escapement:
The Tribunal highlighted the difference between "reason to believe" and "appears to be suspicious." For reopening an assessment, the AO must have a strong belief based on concrete evidence that income has escaped assessment. In this case, the AO's use of the term "appears to be suspicious" indicated a lack of concrete evidence and was based on mere suspicion. The Tribunal referred to its previous decision in the case of DCIT Vs. Dr. M.J. Naidu, where it was held that mere suspicion or surmises are not sufficient grounds for reopening an assessment.

4. Adherence to Procedural Requirements for Reopening the Assessment:
The Tribunal scrutinized the procedural adherence by the AO in recording the reasons for reopening the assessment. It was observed that the AO had not conducted a minimum exercise to ascertain the actual unsecured loans accepted during the year under consideration before reopening the assessment. The Tribunal noted that the reasons recorded by the AO were vague and general, lacking specific material indicating escapement of income. The Tribunal emphasized that reopening of an assessment must be based on tangible material and not on mechanical or casual observations.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had quashed the notice issued under Section 148 and canceled the assessment. It was concluded that the reopening of the assessment was based on suspicion without sufficient reasons or tangible material. The Tribunal reiterated that for issuing a notice under Section 148, the AO must have a reasonable belief supported by concrete evidence, and mere suspicion or guesswork is not adequate. Consequently, the appeal filed by the revenue was dismissed, and the cross-objection filed by the Assessee was deemed infructuous and dismissed.

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