2023 (11) TMI 999 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - scope of roving enquiry - accommodation entries in the form of unsecured loan given to the assessee company - HELD THAT - Perusal of the record would indicate that the petitioner s case was selected for scrutiny and the issue as to unsecured loans was considered threadbare. The statement of audit produced in Form 3CA and 3CD together with the petition indicated that the company accepted unsecured loan from Directors / Shareholders of the company and relatives, names thereof were listed in their statement of accounts. Perusal of the notice would indicate that the revenue had sought for details and supporting material to establish the genuineness of source and creditworthiness in respect of receipt and refund of unsecured loans during the year. Even while responding to the notice it was specifically pointed out by the assessee-petitioner that in context of unsecured loans, the details of 25 parties confirming the copies of the accounts of the Directors and Shareholders from whom such loans were taken was attached. What is therefore evident from perusal of the material and the disclosure of income and the questions which were asked and respondend to by the petitioner in the scrutiny assessment would indicate that there was ample justification brought out by the petitioner in the context of unsecured loans. Perusal of the reasons would indicate that except making a statement that the petitioner had an access with Shri Kamal Zaveri and that the tainted concerns, namely, Jay Traders and Shubham Enterprise were conduits for securing unsecured loans. No material came forth in terms of any statement or details to pin-point a live link or a nexus of the petitioner with the transaction in question. Apparently, the reasons were suggesting that it was a case where the revenue merely entered into a roving and fishing inquiry without any material on record. It was merely based on suspicion, especially when the exercise has been undertaken in light of the scrutiny assessment so done. There was no tangible material so as to come to a conclusion or reason to believe that the income chargeable to tax has escaped assessment . The exercise undertaken by revenue and the reasons to reopen the assessment indicated that under the guise of reopening of the assessment, AO wanted to have a roving inquiry which is not permissible in exercise of powers under Sec.148 of the Income-Tax Act. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the quashing of a notice issued under Section 148 of the Income-Tax Act, 1961 for the Assessment Year 2012-13 based on the validity of reasons for reopening the assessment.

Details of the Judgment:

Issue 1: Validity of Reasons for Reopening
The petitioner, engaged in manufacturing, received unsecured loans during the relevant financial year. The assessment was initially framed without any addition regarding unsecured loans. The reasons for reopening, based on an investigation, alleged the petitioner received accommodation entries in the form of unsecured loans. The petitioner contended that the reasons lacked validity as there was no link established between the petitioner and the transactions mentioned. The petitioner argued that there was no failure to disclose income fully and truly, as details of unsecured loans were duly recorded and provided when requested. The court found that the reasons lacked a close nexus with the petitioner and were based on a change of opinion, leading to the quashing of the notice.

Issue 2: Burden of Proof on Revenue
The revenue sought to reopen the assessment beyond four years, necessitating a demonstration of non-disclosure of income by the assessee. The reasons for reopening detailed transactions with tainted concerns, alleging bogus unsecured loans. However, the court observed that the petitioner had already disclosed unsecured loans during scrutiny assessments, providing supporting material and responses as requested. The court found that the revenue's reasons lacked tangible material to establish a valid reason to believe that income had escaped assessment, leading to the quashing of the notice.

Separate Judgment by Justice Bhargav D. Karia:
There was no separate judgment delivered by Justice Bhargav D. Karia in this case.