2021 (8) TMI 941 - AT - Income Tax

Reopening of assessment u/s 147 - multiple entries in the information received from INV Wing where the additions were made by reopening assessment - HELD THAT -The contention of the ld. DR that the Assessing Officer has applied his mind while framing assessment order does not hold any water because the application of mind is required while issuing notice u/s 148 of the Act and not during assessment proceedings because the challenge is of the notice for reopening the assessment which when served sets the law into motion. The original return was selected for scrutiny assessment and the assessment was framed u/s 143(3) of the Act obviously after scrutinising the return of income qua the details furnished therewith. Assessee made a statement at Bar that the balance sheet filed with the return of income clearly showed unsecured loans in liability side and therefore it cannot be said that the assessee has not disclosed true and material facts in the original return of income. As carefully gone through the decisions relied upon by the first appellate authority. We find that in none of the decisions the issue was of multiplicity of the entries in the information received by the Assessing Officer which formed the basis for reopening the assessment. In all the decisions relied upon by the ld. DR the issue was whether the information received amounts to tangible material evidence for reopening the assessment. Whereas the facts of the case in hand relates to the very information itself which contains 11 entries as mentioned elsewhere where the total amount of escaped income is mentioned at 2.05 crores which is part of the reasons recorded for reopening the assessment. We are of the considered view that the assumption of jurisdiction by issue of notice u/s 148 of the Act is bad in law which makes the assessment order framed u/s 147 r.w.s 143(3) of the Act void ab initio. - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Addition of ?75 lakhs on account of unsecured loans under Section 68 of the Act.
3. Disallowance of ?4,25,194/- on account of interest paid for unsecured loans.

Issue-Wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961:
The assessee challenged the reopening of the assessment under Section 147 of the Act. The original return was filed on 28.09.2011, and the assessment was completed under Section 143(3) on 13.03.2014. The reopening was based on information received from the ADIT, INV Wing, indicating that the assessee had received accommodation entries from entities controlled by Sh. Pradeep Kumar Jindal. The reasons for reopening included details of various accommodation entries amounting to ?2.05 crores and an additional commission of ?5,12,500/-.

The assessee argued that the Assessing Officer (AO) did not apply his mind before issuing the notice under Section 148, as evidenced by the repetition of entries and the discrepancy between the amounts considered for reopening (?2.05 crores) and the actual addition made (?75 lakhs). The assessee relied on the decision of the Hon'ble Delhi High Court in the case of RMG Poly Vinyl India Ltd., which emphasized the need for the AO to apply his mind to the material available before deciding to reopen the assessment.

The Tribunal found that the AO did not apply his mind while issuing the notice under Section 148, as required by law. The Tribunal referred to the decisions of the Hon'ble Delhi High Court in RMG Poly Vinyl India Ltd. and Synfonia Trade Links Pvt. Ltd., which highlighted the necessity of a rational connection between the information received and the formation of the belief that income had escaped assessment. The Tribunal concluded that the assumption of jurisdiction by issuing the notice under Section 148 was bad in law, rendering the assessment order void ab initio.

2. Addition of ?75 Lakhs on Account of Unsecured Loans under Section 68 of the Act:
The AO had added ?75 lakhs to the assessee's income on account of unsecured loans received from various entities. The assessee contended that the balance sheet filed with the original return of income clearly showed the unsecured loans, and thus, there was no failure to disclose material facts. The Tribunal did not delve into the merits of this issue, as it had already quashed the assessment order on the grounds of invalid reopening.

3. Disallowance of ?4,25,194/- on Account of Interest Paid for Unsecured Loans:
The AO had disallowed ?4,25,194/- claimed by the assessee as interest paid on the unsecured loans. Similar to the addition of ?75 lakhs, the Tribunal did not examine the merits of this disallowance, given that the assessment order was quashed due to the invalid reopening.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the assessment order dated 18.12.2018 framed under Section 147 read with Section 143(3) of the Act. The Tribunal concluded that the reopening of the assessment was invalid due to the lack of application of mind by the AO while issuing the notice under Section 148. Consequently, the Tribunal did not address the merits of the additions and disallowances made in the assessment order. The order was pronounced in the open court on 06.08.2021.

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