2019 (10) TMI 905 - AT - Income Tax

Tribunal invalidates reassessment under Income-tax Act, emphasizes need for valid reasons

The Tribunal invalidated the initiation of reassessment proceedings by the Assessing Officer under section 148 of the Income-tax Act. It found ... Validity of reopening of assessment u/s 147 - source of loan given by the assessee - HELD THAT:- Once the assessee paid ₹ 2.00 lakh to another person out of her regular books of account, there cannot be any question of the assessee not substantiating the source of loan, which is overtly from the regular books of account maintained by her. This sort of enquiry, if warranted, ought to have been conducted in the hands of the recipient to justify the source of the loans received and not the payer of the loan, who has given loan out of her regular books of account. In view of the foregoing discussion, it is clear that the reasons recorded by the AO for initiating re-assessment proceedings are invalid and do not justify initiation of re-assessment. Even though the original summary assessment was made u/s 143(1) of the Act and the period of four years from the end of the assessment year had not expired before issuing notice u/s 148 of the Act, still, the AO, having missed the opportunity of making assessment u/s 143(3) after issuing notice u/s 143(2) of the Act within the stipulated period, could have made assessment or reassessment u/s 147 only on the basis of the some reasons to believe about the escapement of income. Existence of reasons for escapement of income are sine qua non to embark upon the assessment or reassessment u/s 147. Change or no change of opinion, as argued by the ld. DR, are the factors to be considered after fulfilling the jurisdictional condition of there being an escapement of income, in the absence of which no assessment or reassessment can be made u/s 147. As it is apparent from the above discussion that no valid reasons exist about the escapement of the assessee’s income, we hold that the AO was not justified in taking recourse to the provisions of section 147 of the Act. We, therefore, strike down the initiation of assessment proceedings and the consequential assessment order passed u/s 147 of the Act and also the impugned order. - Decided in favour of assessee. Issues:1. Validity of initiation of reassessment.Detailed Analysis:The appeal addressed the validity of the initiation of reassessment by the Assessing Officer (AO) based on a notice issued under section 148 of the Income-tax Act, 1961. The AO alleged that the source of a loan given by the assessee to another individual was not substantiated. The assessee challenged this initiation before the Commissioner of Income-tax (Appeals) and subsequently before the Tribunal. The reasons for the reassessment included information about the recipient owning multiple flats and taking interest-free loans from the assessee. However, the Tribunal found discrepancies in the AO's reasoning and the actual transactions.The Tribunal scrutinized the reasons provided by the AO for initiating the reassessment proceedings. It was observed that the AO's assertion of the assessee advancing a loan of a specific amount was incorrect. In reality, it was a repayment of a loan, which was duly recorded in the assessee's books of account. The Tribunal emphasized that the source of the loan was substantiated through regular accounting practices, and the onus of verifying the source should have been on the recipient, not the payer. The Tribunal concluded that the reasons cited for initiating reassessment were invalid and did not justify the reassessment proceedings.Moreover, the Tribunal highlighted the legal requirements for initiating reassessment under section 147 of the Act. It emphasized that the existence of valid reasons indicating income escapement is essential for commencing reassessment proceedings. In this case, since no valid reasons were found to support income escapement by the assessee, the Tribunal deemed the AO's actions unjustified. Consequently, the Tribunal invalidated the initiation of the assessment proceedings, the consequential assessment order, and the impugned order, ultimately allowing the appeal in favor of the assessee.In conclusion, the Tribunal's detailed analysis focused on the discrepancies in the AO's reasoning, the proper substantiation of loan sources by the assessee, and the legal prerequisites for initiating reassessment under the Income-tax Act. The judgment underscored the importance of valid reasons for income escapement and upheld the appeal by striking down the reassessment proceedings initiated by the AO.