2020 (1) TMI 620 - AT - Income Tax

Invalid Reassessment under Income Tax Act; Procedure Error; Deletions for Lack of Evidence

Shri Adarsh Agrawal Versus The Income Tax Officer, Ward-61 (1), New Delhi

Shri Adarsh Agrawal Versus The Income Tax Officer, Ward-61 (1), New Delhi - TMI Issues Involved:1. Validity of Reopening of Assessment2. Addition of Rs. 1 Crore on Account of Cash Loan3. Addition of Rs. 6,96,774/- on Account of InterestIssue-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 Rs. 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 Rs. 1 Crore on Account of Cash Loan:The Assessing Officer (A.O.) made an addition of Rs. 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 Rs. 1 crore was unjustified and deleted the addition.3. Addition of Rs. 6,96,774/- on Account of Interest:In addition to the principal amount of Rs. 1 crore, the A.O. also made an addition of Rs. 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 Rs. 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 Rs. 1 crore on account of cash loan and Rs. 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.