2024 (11) TMI 155 - AT - Income Tax

Validity of reassessment proceedings - reasons to believe - Bogus loans u/s 68 - HELD THAT - In this case assessee has filed its ROI on 30.09.2012, declaring total income, the same has been processed u/s. 143(1). The aforesaid contents of the reason for reopening shows that assessing officer was not aware of the fact that the scrutiny assessment of the assessee was already carried out and order u/s. 143(3) of the Act was passed, which is part of the assessee s assessee s paper book wherein it is mentioned that after verification of various details filed by the assessee the return of income filed by the assessee is accepted and income is assessed at Rs. 6,68,55,810/-. As further noticed that before passing the original order, AO issued notice u/s. 142(1) - AO called for the details of unsecured loans along with the loan confirmation and interest paid. In response thereof assessee submitted his letters. Statement of unsecured loan is also shown of an amount of Rs. 35,00,000/-. This shows that in the reasons recorded for the reopening of the assessment, AO has formed his reason to believe on the basis of the fact that original return filed by the assessee was not picked up for scrutiny. However, the record show that return of income of the assessee was scrutinised and assessment order u/s. 143(3) was passed. Once the issue of reopening was examined in the scrutiny assessment proceedings, the reason framed under wrong facts are not valid reason, therefore such reasons to believe cannot be sustained. In view of this, assessee s ground against reopening of assessment is allowed reassessment based on such invalid reason is quashed. Assessee appeal allowed.

Summary

Issues Involved:

1. Validity of reopening of assessment under Section 147 of the Income-Tax Act, 1961.
2. Alleged violation of principles of natural justice in the assessment process.
3. Legitimacy of addition of Rs. 35,00,000/- as unexplained cash credit under Section 68.
4. Disallowance of interest payment of Rs. 2,81,688/- on the alleged bogus loan.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The primary issue was whether the reopening of the assessment under Section 147 was valid. The assessee contended that the reopening and the notice issued under Section 148 were invalid and based on erroneous premises. The original return for the Assessment Year 2012-13 had been scrutinized, and an assessment order under Section 143(3) was passed on 18.02.2015. The reopening was based on information received from the DDIT(Inv.) suggesting that the assessee had received accommodation entries from M/s. Tribhuvan Dealtrade Pvt. Ltd. The Tribunal noted that the reasons recorded by the assessing officer for reopening were flawed as they were based on the incorrect assumption that the original return was not scrutinized. The Tribunal emphasized that the concept of "reason to believe" requires tangible material, and the reopening cannot be justified on a mere change of opinion. Since the scrutiny assessment had already considered the relevant transactions, the reopening was deemed invalid, and the reassessment was quashed.

2. Alleged Violation of Principles of Natural Justice:

The assessee argued that the assessment order was passed in gross violation of the principles of natural justice. However, since the Tribunal quashed the reopening of the assessment, it did not delve into the merits of this issue. The Tribunal's decision to quash the reassessment rendered the examination of procedural fairness unnecessary.

3. Legitimacy of Addition of Rs. 35,00,000/- as Unexplained Cash Credit under Section 68:

The addition of Rs. 35,00,000/- was made by the assessing officer as unexplained cash credit under Section 68, based on the transaction with M/s. Tribhuvan Dealtrade Pvt. Ltd. The assessee had provided loan confirmation and details of the transaction, asserting that it was a legitimate loan. However, the assessing officer disallowed the loan, considering it a bogus entry. The Tribunal did not address this issue on merits, as the reopening itself was quashed due to invalid reasons.

4. Disallowance of Interest Payment of Rs. 2,81,688/- on the Alleged Bogus Loan:

The assessing officer disallowed the interest payment of Rs. 2,81,688/- on the loan from M/s. Tribhuvan Dealtrade Pvt. Ltd., treating it as part of the unexplained cash credit. The assessee argued that interest was paid, and TDS was deducted. Similar to the previous issue, the Tribunal did not adjudicate on the merits of this disallowance, as the reassessment proceedings were annulled.

In conclusion, the Tribunal allowed the appeal by quashing the reopening of the assessment, thereby rendering the other grounds of appeal moot. The decision underscored the importance of adhering to statutory requirements and ensuring that reopening of assessments is based on valid and tangible reasons.