2024 (7) TMI 582 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - unsecured loans taken by the assessee as bogus - reassessment merely based on the information received from investigation wing - HELD THAT - The powers of AO to reopen an assessment, though wide, are not plenary. The words of the statute are reason to believe and not reason to suspect . There can be no manner of doubt that the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. Such an action of the AO regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is open to challenge in a court of law. The entire law as to what would constitute reason to believe has been summed up in the case of Lakhmani Mewaldas 1976 (3) TMI 1 - SUPREME COURT . Also see Paramjit Kaur' 2007 (8) TMI 323 - PUNJAB AND HARYANA HIGH COURT wherein, making identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s 148 of the Act was not valid. Addition u/s 68 - The assessee had duly furnished the sufficient documents to prove the identity and creditworthiness of the creditors and genuineness of the transaction including the list of directors of the creditor, the loan confirmation from the creditor, the source of creditor, the bank statement of the creditor and even the said creditor had also replied to the notice issued u/s 133(6) of the Act issued by the Assessing Officer and duly confirmed the loan transaction. The most relevant document in this case is the assessment order of the creditor, M/s Annapurna Dealmark Pvt. Ltd. for assessment year 2012-13, which show that no addition has been made by the Assessing Officer in the case of said creditor on account of receipt of any unaccounted money, share subscription or otherwise, except some minor additions u/s 14A of the Act. Under the circumstances, the creditworthiness of the M/s Annapurna Dealmark Pvt. Ltd. has been accepted by the Assessing Officer for the relevant assessment year 2012-13. Therefore, the additions even on merits are not warranted in this case.

Summary

Issues:
1. Validity of the reopening of the assessment.
2. Merits of the additions made by the Assessing Officer.

Issue 1: Validity of the reopening of the assessment:
The appellant contested the validity of the reopening of the assessment for AY 2012-13, challenging the addition of Rs. 85,98,795 as unexplained income. The appellant argued that the reasons recorded by the Assessing Officer were vague and lacked specific details regarding the alleged accommodation entry received. The appellant contended that the reopening after four years without evidence of non-disclosure of material facts was unjustified. The appellant cited the Proviso to section 147, emphasizing the need for a valid reason to believe income escapement. The Tribunal agreed, stating that the reopening lacked proper verification and failed to establish non-disclosure by the appellant, thus violating the first Proviso to section 147.

Issue 2: Merits of the additions made by the Assessing Officer:
On the merits, the appellant presented various documents to prove the genuineness of the transaction, including ITR Acknowledgement, Audited accounts, loan confirmation, and bank statements. The appellant highlighted that the creditor's assessment order for AY 2012-13 did not show any unaccounted money receipt, supporting the creditworthiness of the creditor. The Tribunal concurred, noting that the Assessing Officer made additions solely based on information without considering the appellant's evidence. The Tribunal found the appellant's documents sufficient to establish the transaction's genuineness, leading to the quashing of the assessment.

In conclusion, the Tribunal allowed the appeal, holding the assessment as bad in law due to the unjustified reopening and lack of merit in the additions made by the Assessing Officer.