2020 (1) TMI 620 - AT - Income Tax

Reopening of assessment us 147 - addition u/s 68 - proceedings u/s 153A have been initiated against assessee - HELD THAT - It is an admitted fact that in the present case the agreement in question was found during the course of search in the case of Shri Naresh Sabharwal and proceedings u/s 153A have been initiated against him. Therefore the agreement in question have been transferred by A.O. of the person searched to the A.O. of the assessee for the purpose of taking remedial action in the matter. It is well settled Law that in the case of assessment made on assessee consequent to the search in another case A.O. is bound to issue notice under section 153C and thereafter proceed to assess the income under section 153C and if A.O. had proceeded with re-assessment under section 147/148 and passed the Order under section 143(3)/148 the same would be illegal and arbitrary and without jurisdiction. It is clear that loan agreement was found during the course of search in the case of Shri Naresh Sabharwal which is handed-over to the A.O. of the assessee and addition is made only on that basis. Therefore there was no justification for the A.O. to have been initiated proceedings under section 147/148. The correct course of action would have been to proceed against the assessee under section 153C. Therefore initiation of re-assessment proceedings under section 147/148 is wholly invalid void and bad in Law. Since the correct procedure have not been adopted by the A.O. and there is no justification to initiate the re-assessment proceedings against the assessee we set aside the Orders of the authorities below and quash the reopening of the assessment. Resultantly all additions stands deleted. Appeal of Assessee allowed.

Summary

Issues Involved:
1. Validity of Reopening of Assessment
2. Addition of ?1 Crore on Account of Cash Loan
3. Addition of ?6,96,774/- on Account of Interest

Issue-Wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The primary issue was whether the reopening of the assessment under section 147/148 of the Income Tax Act, 1961 was valid. The reassessment was initiated based on information from a search conducted under section 132 in the case of another individual, where a loan agreement was found indicating that the assessee had given a cash loan of ?1 crore to the said individual. Both parties denied the transaction, and the loan was not accounted for in the books of account. The assessee contended that the reassessment should have been conducted under section 153C, which is a special provision applicable when documents are seized during a search in another case. The Tribunal noted that the agreement was only a photocopy and not corroborated by any concrete evidence such as examination of witnesses or a handwriting expert's report. Citing various judicial precedents, the Tribunal concluded that the reassessment proceedings under section 147/148 were invalid and void, as the correct procedure under section 153C was not followed.

2. Addition of ?1 Crore on Account of Cash Loan:
The Assessing Officer (A.O.) made an addition of ?1 crore based on the loan agreement found during the search, which indicated that the assessee had given a cash loan to another individual. Both parties denied the transaction, and the agreement was not supported by any corroborative evidence. The Tribunal observed that the agreement was a photocopy, and its genuineness was not verified. The Tribunal emphasized that the A.O. did not examine the witnesses who signed the agreement or obtain a handwriting expert's report. Given the lack of concrete evidence and the denial of the transaction by both parties, the Tribunal held that the addition of ?1 crore was unjustified and deleted the addition.

3. Addition of ?6,96,774/- on Account of Interest:
In addition to the principal amount of ?1 crore, the A.O. also made an addition of ?6,96,774/- on account of interest at 24% per annum, as mentioned in the loan agreement. Since the Tribunal found the loan agreement itself to be unreliable and unsupported by concrete evidence, the addition on account of interest was also deemed unjustified. Consequently, the Tribunal deleted the addition of ?6,96,774/-.

Conclusion:
The Tribunal concluded that the reopening of the assessment under section 147/148 was invalid as the correct procedure under section 153C was not followed. The additions of ?1 crore on account of cash loan and ?6,96,774/- on account of interest were deleted due to the lack of corroborative evidence and the denial of the transaction by both parties. The appeal of the assessee was allowed, and the reassessment proceedings were quashed.