2025 (2) TMI 496 - HC - Income Tax

Reopening of the assessment - interest free loans and advances to sister/related concerns and claimed interest on borrowed funds in the profit and loss account - HELD THAT - This Court is of the view that the exercise in the impugned notice dated 28.03.2021 issued under Section 143 of the Income Tax Act and the consequential speaking order dated 29.07.2021 which is impugned in the present are unsustainable primarily because the petitioner has made adequate declarations not only in the returns filed by the petitioner on 29.09.2013 which accompanied the balance sheet profit and loss account. Even though the assessment order dated 29.06.2015 has not discussed all the points that were raised before the assessment was completed the information obtained by the petitioner under RTI which was narrated above and indicates that the assessing officer formed an opinion regarding the interest free loans to group company. Thus was true and full disclosure of all intimation by the petitioner along with the return filed by the petitioner on 29.07.2021. The information available on file particularly the information secured by the petitioner under RTI clearly indicates that the invocation of Section 148 r/w Section 147 was unwarranted. The officer has also justified the conclusion arrived in the assessment order dated 29.06.2015 in his response to audit objection. Unless there was a failure on the part of the petitioner to fully and truly disclosure all material facts necessary for completing the assessment the invocation of the machinery u/s 148 r.w.s.147 was not available. Thus the impugned notice and speaking order are liable to be quashed. Decided in favour of assessee.

Summary

The petitioner challenged an income tax notice issued under Section 148 for the assessment year 2013-14, along with the subsequent order overruling the objection to the reopening of the assessment completed under Section 143(3) of the Income Tax Act in 2015. The notice was based on interest-free loans given to related concerns while claiming interest on borrowed funds in the profit and loss account. The court considered whether the reopening of the assessment was justified and analyzed the legal framework, precedents, evidence, and reasoning provided by both parties.The petitioner argued that the reopening was contrary to Section 147 of the Income Tax Act as it was issued before 01.04.2021, despite adequate disclosure in the Return of Income regarding the interest-free loans. The petitioner highlighted disclosures in the balance sheet and profit and loss account, citing relevant case law supporting their actions. Additionally, the petitioner provided information on audit objections related to the interest-free loans.In response, the respondent defended the reopening, stating it was justified due to the lack of examination of certain issues during the initial assessment and the necessity for further information to be provided by the assessee. The respondent also mentioned the extension of deadlines by the CBDT as a factor in the case.The court found that the petitioner had made sufficient declarations in the returns filed before the assessment order was passed, indicating full disclosure of relevant information. The court considered the information obtained through RTI and concluded that the invocation of Section 148 was unwarranted. The court emphasized that unless there was a failure to disclose all material facts necessary for assessment, the reopening was not justified. Therefore, the court allowed the writ petition, quashing the impugned notice and speaking order.In conclusion, the court held that the reopening of the assessment was not justified based on the evidence and disclosures made by the petitioner, leading to the decision to quash the notice and order.