2025 (3) TMI 349 - AT - Income Tax

Reassessment under Section 147 quashed after assessee provided complete loan creditor details during original assessment proceedings

ITAT Pune quashed reassessment proceedings under section 147 where the assessee had provided complete loan creditor details during original assessment. ... Reopening of assessment u/s 147 - Addition u/s 68 - ‘reason to suspect’ or ‘reason to believe’ - HELD THAT:- Admittedly, during the course of original assessment proceedings the assessee had filed the relevant details substantiating the identity and creditworthiness of the loan creditor and genuineness of the transaction by filing the requisite details as called for by the AO from time to time. AO has also directly obtained information u/s 133 (6) of the Act from Cambridge Financial Services Pvt. Ltd. and even the information obtained from the Investigation Wing reveals that the DDIT (Inv) has suggested the AO to reopen the assessment and complete the assessment by obtaining information from the said loan creditor. In our considered opinion, once the AO had obtained the information u/s 133 (6) of the Act from the said loan creditor, it is not understood as to what purpose it would serve to again call for the same information from the said loan creditor and complete the assessment. In the instant case, as mentioned earlier, the assessee had filed all the requisite details as called for by the AO from time to time and the AO after considering the details filed by the assessee and after obtaining the information u/s 133 (6) of the Act from the loan creditor i.e. Cambridge Financial Services Pvt. Ltd. had completed the assessment u/s 143 (3) of the Act. Therefore, in our opinion, so far as the assessee is concerned, there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for completion of the assessment. A perusal of the earlier reasons recorded shows that the AO has simply reopened the assessment on the basis of the information obtained from the Investigation Wing and there is no application of mind. We find in the case of Punia Capital (P.) Ltd. [2023 (2) TMI 717 - BOMBAY HIGH COURT] has held that where the Assessing Officer sought to reopen assessment of assessee after period of four years on ground that assessee had transacted funds with certain company which had been conclusively proven to be a shell company, since Assessing Officer had reopened assessment solely on basis of ‘reason to believe’ and not on grounds of failure to disclose material facts duly and truly, and moreover, AO failed to highlight in reasons recorded as to what was that material fact, which was not disclosed by assessee in its return, impugned reopening notice and consequent order were to be quashed. We find in the instant case also the AO has reopened the assessment merely on the basis of information received by him from the DDIT (Inv) and has not applied his mind, therefore, on this score also, the re-assessment proceedings initiated by the AO are to be quashed. We set aside the order of the CIT(A) / NFAC and quash the re- assessment proceedings. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961, was valid.Whether the addition of Rs. 50 lacs under Section 68 of the Income Tax Act, 1961, was justified.Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.Whether the information received from the Investigation Wing constituted a valid reason to believe that income had escaped assessment.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reopening of Assessment:Relevant Legal Framework and Precedents:The reopening of assessment is governed by Section 147 of the Income Tax Act, which requires the Assessing Officer to have a 'reason to believe' that income has escaped assessment. The proviso to Section 147 stipulates that if four years have passed since the end of the relevant assessment year, the reopening can only occur if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.Court's Interpretation and Reasoning:The Tribunal found that the reopening of the assessment was based solely on the information received from the DDIT (Investigation), Kolkata, without any independent application of mind by the Assessing Officer. The Tribunal emphasized that mere information from the Investigation Wing cannot constitute a 'reason to believe' unless there is a direct link between the information and the belief that income has escaped assessment.Key Evidence and Findings:The Tribunal noted that during the original assessment proceedings, the assessee had provided all necessary details, including bank account details, income tax returns, and confirmations. The Assessing Officer had also obtained information directly from Cambridge Financial Services Pvt. Ltd. under Section 133(6) of the Act.Application of Law to Facts:The Tribunal held that the reopening of the assessment was not justified as there was no failure on the part of the assessee to disclose material facts. The information from the Investigation Wing was deemed insufficient to constitute a 'reason to believe' under Section 147.Treatment of Competing Arguments:The Tribunal considered the Department's argument that the reopening was valid due to the information from the Investigation Wing but found it unconvincing due to the lack of independent application of mind by the Assessing Officer.Conclusions:The Tribunal concluded that the reopening of the assessment was invalid due to the absence of a valid 'reason to believe' and the lack of failure on the part of the assessee to disclose material facts.2. Addition under Section 68:Relevant Legal Framework and Precedents:Section 68 of the Income Tax Act deals with unexplained cash credits. If an assessee cannot satisfactorily explain the nature and source of any sum credited in its books, the sum may be charged to income-tax as the income of the assessee.Court's Interpretation and Reasoning:The Tribunal noted that the assessee had provided evidence of the loan transaction, including bank statements and confirmations from Cambridge Financial Services Pvt. Ltd. The Assessing Officer had accepted a portion of the loan as genuine, which raised questions about the consistency of the addition.Key Evidence and Findings:The Tribunal found that the assessee had established the identity and creditworthiness of the loan creditor and the genuineness of the transaction. The lender had responded to notices and provided necessary documentation.Application of Law to Facts:The Tribunal held that the addition under Section 68 was not warranted as the assessee had satisfactorily explained the nature and source of the loan.Treatment of Competing Arguments:The Tribunal considered the Department's argument that the lender lacked financial credentials but found it insufficient to justify the addition, given the evidence provided by the assessee.Conclusions:The Tribunal concluded that the addition under Section 68 was not justified, given the evidence provided by the assessee.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'The reopening of the assessment was not justified as there was no failure on the part of the assessee to disclose material facts.''The information from the Investigation Wing was deemed insufficient to constitute a 'reason to believe' under Section 147.'Core Principles Established:Reopening of assessment requires a valid 'reason to believe' and cannot be based solely on information from the Investigation Wing without independent application of mind.Addition under Section 68 requires the assessee to fail in satisfactorily explaining the nature and source of cash credits, which was not the case here.Final Determinations on Each Issue:The reopening of the assessment was quashed due to lack of valid reasons and failure on the part of the assessee to disclose material facts.The addition of Rs. 50 lacs under Section 68 was deemed unjustified and was not upheld.