2025 (2) TMI 84 - AT - Income Tax

Assessment reopening quashed for alleged Rs.11.05 crore unaccounted cash loan lacking evidence of income escapement

ITAT Kolkata quashed the reopening of assessment concerning alleged unaccounted cash loan of Rs.11.05 crore received through a broker. The tribunal held ... Reopening of assessment - Unaccounted cash loan received - as argued broker who facilitated 'Rukka' transaction had himself confessed under oath the genuineness of transaction and 'Rukka' being unaccounted cash transaction document cannot be expected to bear name, signature of parties - HELD THAT:- A perusal of the reasons recorded would show that the Assessing Officer had received information that the assessee had received cash loan to the tune of Rs.11.05 crore through broker namely, Shri Jai Bhagwan Agarwal. This information in itself is not sufficient to form the belief by the AO regarding escapement of income of the assessee. AO has only the information that the assessee had received loan and the amount received as loan in no circumstances can be said to be the income of the recipient. If the allegation is to be treated as that the said loan was a sham transaction and that the same was the own income of the assessee routed through the said broker Shri Jai Bhagwan Agrawal (though there is no such averment made in the reasons recorded, even then, such an information may be treated a trigger point for making further investigations but that information alone cannot be said to be sufficient information for reopening of the assessment. AO in this case, blindly acted on the information received from Investigation Wing and reopened the assessment, even though in the said information it has been mentioned that the assessee had received loan and there is no allegation that the said loan was a sham transaction to route the undisclosed income of the assessee. Assessee having denied of receipt of any cash loan as alleged by the Assessing Officer, the burden shifted on the Assessing Officer to confront the assessee with any such evidence showing that the assessee had entered into any such transaction. Admittedly, in this case, no such cash was found from the possession of the assessee. There is no name mentioned by the Assessing Officer of any lender, who allegedly gave loan to the assessee, only the name of the broker has been mentioned, that in itself is totally a vague allegation without any corroborating evidence. Neither the assessee has been found to be owner of any money, bullion, jewellery or valuable article nor any such money, bullion, jewellery or valuable article has been found in possession of the assessee nor there is any such allegation even in the reasons recorded for reopening of the assessment. Therefore, the impugned assessment is liable to be quashed on this score also - Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:Whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961 was valid.Whether the addition of Rs. 11.05 crore as unaccounted cash loan under Section 69A of the Income Tax Act was justified.Whether the procedural requirements for issuing notice under Section 148 were adhered to.Whether the evidence provided was sufficient to substantiate the claims made by the Assessing Officer.Whether the deletion of the addition by the CIT(A) was appropriate.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reopening of Assessment under Section 147Legal Framework and Precedents: Section 147 of the Income Tax Act allows for the reopening of an assessment if the Assessing Officer has reason to believe that income has escaped assessment. The procedure involves issuing a notice under Section 148.Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based solely on information from the Investigation Wing without independent verification by the Assessing Officer. This reliance on 'borrowed satisfaction' was deemed insufficient for forming a belief of income escapement.Key Evidence and Findings: The Tribunal highlighted that the Assessing Officer did not correlate or verify the information with the assessee's accounts and failed to conduct preliminary inquiries.Application of Law to Facts: The Tribunal found that the reopening was based on unverified information, which did not satisfy the legal requirements for reopening an assessment.Treatment of Competing Arguments: The assessee argued that the reopening was invalid due to lack of independent verification, which the Tribunal found persuasive.Conclusions: The Tribunal concluded that the reopening of the assessment was invalid.2. Addition of Rs. 11.05 Crore under Section 69ALegal Framework and Precedents: Section 69A pertains to unexplained money, bullion, jewelry, or other valuable articles found in the possession of the assessee.Court's Interpretation and Reasoning: The Tribunal observed that the mere receipt of a loan does not constitute income. Furthermore, no evidence was presented to show that the assessee was in possession of unexplained money or valuables.Key Evidence and Findings: The Tribunal noted the absence of corroborative evidence linking the assessee to the alleged cash loan.Application of Law to Facts: The Tribunal applied Section 69A's requirements, emphasizing that no money or valuables were found in the assessee's possession.Treatment of Competing Arguments: The assessee denied knowledge of the broker and receipt of the loan, shifting the burden of proof to the Assessing Officer, who failed to provide supporting evidence.Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition, finding it unjustified under Section 69A.3. Procedural Compliance under Section 148Legal Framework and Precedents: Section 148 outlines the procedure for issuing a notice for reassessment.Court's Interpretation and Reasoning: The Tribunal identified procedural lapses, including the issuance of notice by an unauthorized officer and failure to conduct independent inquiries.Key Evidence and Findings: The Tribunal found that the notice was issued based on inadequate grounds, without adherence to procedural requirements.Application of Law to Facts: The Tribunal emphasized the importance of procedural compliance, which was lacking in this case.Treatment of Competing Arguments: The assessee challenged the procedural validity, which the Tribunal found compelling.Conclusions: The Tribunal held that the procedural lapses rendered the notice invalid.SIGNIFICANT HOLDINGSCore Principles Established:The reopening of an assessment must be based on independent verification and cannot rely solely on borrowed satisfaction from external sources.The addition of income under Section 69A requires concrete evidence of possession of unexplained money or valuables.Procedural compliance is crucial in the issuance of notices under Section 148.Final Determinations on Each Issue:The reopening of the assessment under Section 147 was invalid due to lack of independent verification and procedural lapses.The addition of Rs. 11.05 crore under Section 69A was unjustified and rightly deleted by the CIT(A).The procedural requirements for issuing notice under Section 148 were not met, rendering the notice invalid.The appeal by the revenue was dismissed, and the cross-objection by the assessee was allowed.