2021 (11) TMI 308 - AT - Income Tax

Tribunal Invalidates Reopening of Assessment due to Lack of Nexus to Income

Shri Prakash Chand Kothari Versus DCIT, Central Circle-02, Jaipur And (Vice-Versa)

Shri Prakash Chand Kothari Versus DCIT, Central Circle-02, Jaipur And (Vice-Versa) - [2022] 94 ITR (Trib) 49 (ITAT [Jai]) Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.2. Legality of the notice issued under Section 148 without proper sanction under Section 151.3. Appropriateness of reopening the assessment under Section 147 instead of Section 153C.4. Addition of Rs. 25,00,00,000 on account of alleged cash loans.5. Addition of Rs. 90,58,625 on account of interest on alleged cash loans.6. Addition of Rs. 50,05,578 on account of Long Term Capital Gains.Detailed Analysis:1. Validity of Reopening the Assessment under Section 147:The assessee argued that the reopening of the assessment was based on borrowed satisfaction and solely on the information received from the DCIT, Central Circle-03, Jaipur, without any independent application of mind by the Assessing Officer. The Tribunal found that the reasons recorded by the Assessing Officer were not based on tangible material and lacked a direct nexus or live link between the material and the formation of belief that income had escaped assessment. The Tribunal held that the reopening of assessment did not satisfy the requirements of law and set aside the assumption of jurisdiction under Section 147.2. Legality of Notice Issued under Section 148 without Proper Sanction under Section 151:The assessee contended that the notice under Section 148 was issued without obtaining proper sanction under Section 151. The Tribunal noted that the Assessing Officer had recorded reasons and obtained requisite approval before issuing the notice. However, since the reopening itself was found to be invalid, this issue became redundant.3. Appropriateness of Reopening the Assessment under Section 147 instead of Section 153C:The Tribunal observed that the information used for reopening the assessment was collected during a search under Section 132 in the case of Ramesh Manihar Group. The Tribunal held that the Assessing Officer should have taken recourse to Section 153C instead of Section 147, as the conditions for invoking Section 153C were not fulfilled. The Tribunal found that the Assessing Officer had not recorded any satisfaction that the seized documents pertained to the assessee, and hence, the invocation of Section 147 was inappropriate.4. Addition of Rs. 25,00,00,000 on Account of Alleged Cash Loans:The Revenue argued that the addition was based on seized documents and statements recorded during the search, which indicated that the assessee had advanced cash loans through Ramesh Manihar Group. The Tribunal found that the evidence relied upon by the Assessing Officer, such as extracts from excel sheets and statements, were not corroborated by independent evidence. The Tribunal noted discrepancies in the statements and the lack of opportunity for cross-examination. The Tribunal held that the addition of Rs. 25,00,00,000 was not justified and upheld the CIT(A)'s decision to delete the addition.5. Addition of Rs. 90,58,625 on Account of Interest on Alleged Cash Loans:The Tribunal found that the interest addition was consequential to the main addition of Rs. 25,00,00,000. Since the main addition was deleted, the interest addition also did not survive. The Tribunal upheld the CIT(A)'s decision to delete the interest addition.6. Addition of Rs. 50,05,578 on Account of Long Term Capital Gains:The assessee contended that the addition of Rs. 50,05,578 was inadvertently included in the income computation form attached to the assessment order and was not part of the reassessment proceedings. The Tribunal found that the Assessing Officer had not given any finding regarding the capital gains in the reassessment order. The Tribunal held that the addition was a clear mistake and directed the Assessing Officer to delete the amount of Rs. 50,05,578.Conclusion:The Tribunal allowed the assessee's appeal on the issues of reopening the assessment, the addition of Rs. 25,00,00,000 on account of cash loans, and the addition of Rs. 90,58,625 on account of interest. The Tribunal also directed the deletion of the addition of Rs. 50,05,578 on account of Long Term Capital Gains. The Revenue's appeal was dismissed.