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2022 (10) TMI 787 - AT - Income TaxValidity of reopening of assessment u/s 147 - assessee availed the loan is an accommodation entry provider - HELD THAT - Assessee did whatever it could do to comply with the query raised by the Assessing Officer. However, the Assessing Officer has simply brushed aside all the evidences filed by the assessee by stating that the entities from whom the assessee availed the loan is an accommodation entry provider. AO has not made any independent inquiry or brought any contrary material on record to disprove the evidences brought on record by assessee. Even, the assessment order does not reveal that the AO made any preliminary inquiry u/s 133(6) of the Act either with the lender or with the concerned bank to ascertain the genuineness of the loan transaction or to unearth the money trail. Without making any inquiry the AO cannot treat the loan transaction as non-genuine on mere conjuncture and surmises. More so, when the lender is an income-tax assessee. The least the AO could have done is to obtain necessary information from the Assessing Officer having jurisdiction over the lender. In any case of the matter, when the lender is an income-tax assessee, he can be hauled up in case he is unable to explain the source of fund from which he advanced the loan to assessee. The bona fide of the assessee is further proved from the fact that not only the assessee paid interest on the loan availed and deducted tax at source, but, the entire loan amount was repaid to the lender in the financial year 2013-14, even, prior to the completion of the original assessment and much before initiation of proceedings u/s 147 of the Act. Thus, addition made in the given facts and circumstances of the present case is unsustainable. Assessee appeal is allowed.
Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income-Tax Act, 1961. 2. Merits of the addition made by the Assessing Officer (AO). Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147: The assessee challenged the reopening of the assessment under Section 147, arguing that the original assessment was completed under Section 143(3) and that the reopening occurred after four years from the end of the assessment year. It was contended that there was no failure on the part of the assessee to disclose fully and truly all material facts, making the reopening invalid under the proviso to Section 147. The assessee also argued that the objections raised against the reopening were not disposed of by the AO through a speaking order, contrary to the Supreme Court's decision in GKN Driveshaft. Moreover, the reasons recorded for reopening did not mention the lender company's name or the nature of the transaction correctly, indicating mechanical action without application of mind. The Tribunal noted that the reasons recorded by the AO indicated that the assessee had entered into bogus purchase transactions amounting to Rs.40,00,000 with entities controlled by entry operators. However, the assessment order dealt with the genuineness of a loan transaction of Rs.40,00,000 from a different entity, New Wave Commercial Pvt. Ltd. This inconsistency between the reasons recorded and the assessment order demonstrated a factual misconception and non-application of mind by the AO. Consequently, the Tribunal found the reopening of the assessment invalid. 2. Merits of the Addition Made by the AO: The AO added Rs.40,00,000 as unexplained cash credit and Rs.80,000 as commission paid for availing accommodation entries. The assessee provided various documents to establish the identity, creditworthiness of the lender, and genuineness of the transaction. These included PAN details, ITR copies, audited financial statements, bank statements, confirmation from the lender, and proof of interest paid and TDS deducted. Despite these submissions, the AO dismissed the evidence, labeling the lender as an accommodation entry provider without conducting any independent inquiry or obtaining contrary material. The Tribunal noted that the AO did not make any preliminary inquiries under Section 133(6) with the lender or the bank to verify the transaction. The Tribunal emphasized that without such inquiries, the AO could not treat the loan transaction as non-genuine based on conjecture and surmises, especially when the lender was an income-tax assessee. Furthermore, the Tribunal observed that the assessee had paid interest on the loan, deducted TDS, and repaid the entire loan amount before the initiation of proceedings under Section 147. This demonstrated the bona fide nature of the transaction. Consequently, the Tribunal found the addition of Rs.40,80,000 unsustainable and deleted it. Conclusion: The Tribunal allowed the appeal, ruling that the reopening of the assessment under Section 147 was invalid due to factual misconceptions and non-application of mind by the AO. Additionally, the Tribunal found the addition made by the AO unsustainable on merits, as the assessee had provided sufficient evidence to establish the genuineness of the loan transaction. Order Pronounced: The appeal was allowed, and the order was pronounced in the open court in August 2022.
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