2023 (3) TMI 1149 - AT - Income Tax

Reopening of assessment u/s 147 - addition on account of unsecured loan from 3 parties - source of information available with the AO was the letter of the DDIT, INV, New Delhi wherein it has been stated that the accommodation entries in the name of paper companies were debited - HELD THAT - Accommodation entry was mentioned as purchase/ investment/ advance and the assessee was described as beneficiary from the above transactions. On going through the bank statement, it is noted that the assessee has made payment through RTGS to both the parties. These demonstrative facts clearly show that the AO has reopened the assessment based upon wrong facts, wrong appreciation of facts and without any application of any mind, in as much as, the assessee has not taken any credit entry but, in fact, have made debit entries and, therefore, by no stretch of imagination provisions of section 68 of the Act can be applied. A perusal of the reasons recorded for reopening of assessment clearly show that the Assessing Officer has reasons to belief that the assessee was beneficiary of accommodation entries. AO has accepted the objections of the assessee, and has not assessed or reassessed the income, which was the basis of the notice. Therefore, in light of the judgment of Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY it would not be open to the Assessing Officer to assess income under some other issue independently. No error or infirmity in the findings of the ld. CIT(A). Assessment order deserves to be quashed and has been rightly done so by the ld. CIT(A), which calls for no interference. Decided against revenue.

Issues Involved:

1. Jurisdiction under Section 148 of the Income Tax Act, 1961.
2. Validity of reasons for issuing notice under Section 148.
3. Tangible material to show nexus between reasons recorded and belief.
4. Examination of merits regarding identity, creditworthiness, and genuineness of the transaction.

Summary:

Issue 1: Jurisdiction under Section 148 of the Income Tax Act, 1961

The Revenue contended that the CIT(A) erred in holding that the Assessing Officer wrongly assumed jurisdiction under Section 148, disregarding the fact that at the stage of reopening, the sufficiency of material is not to be seen, only prima facie material is required.

Issue 2: Validity of reasons for issuing notice under Section 148

The CIT(A) quashed the assessment as void ab initio, holding that the notice under Section 148 was issued on the basis of invalid reasons. The Assessing Officer recorded reasons and obtained approval from the competent authority before issuing the notice.

Issue 3: Tangible material to show nexus between reasons recorded and belief

The CIT(A) held there was no tangible material showing the nexus between the reasons recorded and the belief formed by the Assessing Officer. The Revenue argued that the submissions and details provided by the assessee fanned the reason to believe, and there was no sufficient material to grant any benefit of doubt to the assessee.

Issue 4: Examination of merits regarding identity, creditworthiness, and genuineness of the transaction

The CIT(A) did not examine the merits regarding the identity, creditworthiness, and genuineness of the transaction after adjudicating the appeal regarding the validity of the assessment under Section 147. The Revenue argued that the proceedings under Section 147 were initiated after duly recording reasons and obtaining approval, thus surviving the reopening of assessment.

Details:

Jurisdiction and Validity of Reasons:

The Assessing Officer reopened the assessment based on information from the DDIT, INV, New Delhi, indicating that the assessee received accommodation entries from dummy companies. The notice under Section 148 was issued after recording reasons and obtaining approval from the PCIT, Gurgaon. However, the assessee explained that it had not received any loan or amount from the mentioned companies but had given loans instead. The CIT(A) found that the reopening was based on incorrect facts and without proper application of mind.

Tangible Material and Examination of Merits:

The CIT(A) held that there was no tangible material showing the nexus between the reasons recorded and the belief formed by the Assessing Officer. The Assessing Officer made additions based on unsecured loans from other parties, which were not the basis for reopening the assessment. The CIT(A) quashed the assessment, stating that the Assessing Officer did not assess the income which was the basis of the notice, thus invalidating the jurisdiction to assess other income independently.

Legal Precedents:

The judgment referred to the Bombay High Court's decision in CIT Vs. Jet Airways [I] Ltd and the Delhi High Court's decision in Ranbaxy Laboratories Limited versus CIT, which clarified that the Assessing Officer must assess the income for which the notice was issued before assessing any other income that comes to notice subsequently.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, quashing the assessment order and dismissing the Revenue's appeal, as the Assessing Officer did not assess the income which was the basis for reopening the assessment, thus lacking jurisdiction to assess other income independently.

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