1991 (6) TMI 94 - AT - Income Tax

Summary

Issues: Reopening of assessment under section 147(a) of the Act and addition of Rs. 1,05,000 being a loan taken from M/s. Modem Savings & Trading Unit Pvt. Ltd. (M.S.T.U.) and interest paid thereon.

The judgment involves the assessment year 1976-77 where the assessee contested the reopening of assessment under section 147(a) of the Act and the addition of Rs. 1,05,000 representing a loan taken from M.S.T.U. and interest paid. Initially, the assessee filed its return of income declaring total income of Rs. 1,70,731, which was later assessed at Rs. 1,79,500. The assessee had taken a loan of Rs. 1 lakh from M.S.T.U., supported by confirmation letters and repayment through Account Payee Cheques. Subsequently, statements made by the Secretary of M.S.T.U. suggested that the loan was bogus, leading to the reopening of assessment by the ITO. The CIT (Appeals) upheld the action of the ITO, resulting in the assessee appealing to the Tribunal.

The assessee argued that there was no failure to disclose material facts during the original assessment, and the loan's genuineness was supported by documentary evidence. The assessee also highlighted the repayment details and the lack of cooperation from the ITO in producing the Secretary of M.S.T.U. for examination. The department, however, supported the ITO's actions, citing relevant legal precedents and emphasizing the lack of proof regarding the loan's identity, creditworthiness, and genuineness.

The Tribunal found that while the assessment could be reopened under section 147(a) based on the statements regarding the loan's bogus nature, the lack of opportunity to examine the Secretary of M.S.T.U. raised doubts. The Tribunal noted the conflicting stands and lack of additional evidence supporting the loan's fraudulent nature. Given the documentary evidence and the circumstances, the Tribunal ruled in favor of the assessee, accepting the explanation regarding the loan and interest. Consequently, the appeal was allowed, overturning the addition of Rs. 1,05,000 to the total income.