2025 (7) TMI 1238 - HC - Income Tax

Assessee fails to prove creditworthiness of interest-free loan provider under section 147 reopening assessment

Meenakshi Gupta Versus Income Tax Officer, Ward- 35 (6), New Delhi

The Delhi HC upheld the ITAT's decision dismissing the assessee's appeal regarding reopening of assessment under section 147. The case involved an ... Reopening of assessment u/s 147 - notice was premised on information received from Investigation Wing, which had reported that the Assessee was a beneficiary of receipt of an amount from an account of one company - HELD THAT:- There is merit in the contention that the record does not indicate that there was any search or any finding returned pursuant thereto that M/s Oxygen Projects Pvt. Ltd. was an accommodation entry provider. The record also does not indicate that the statement of the authorised person of Lender company/M/s Oxygen Projects Pvt. Ltd. was recorded in any proceedings. We do not consider it apposite to interfere with the order passed by the learned ITAT as the facts in the present case are undisputed. There is no explanation provided by the Assessee as to why the entity in question (Oxygen Projects Pvt. Ltd.) had furnished an interest free unsecured loan to the Assessee. There is also material on record to indicate that enquiries made by the department did not find the entity in question M/s Oxygen Projects Pvt. Ltd. operating from its office. Admittedly, the notices issued by the AO under Section 133(6) of the Act were returned unserved. The Assessee had not produced any authorised person to establish the real identity of persons controlling M/s Oxygen Projects Pvt. Ltd. The finding of the AO that the Assessee had failed to establish the creditworthiness of M/s Oxygen Projects Pvt. Ltd and the genuineness of the transaction, cannot be faulted. Appeal dismissed. ISSUES: Whether the reopening of the assessment under Section 148 of the Income Tax Act, 1961 was valid in the absence of approval by the specified authority and on the basis of reasons recorded.Whether the receipt of an interest-free unsecured loan from an entity with no business operations and questionable creditworthiness can be treated as unexplained income liable to be added to the assessee's income.Whether the assessee's failure to produce the principal officer or establish the genuineness and creditworthiness of the lender entity justifies the addition of the loan amount as unexplained credit.Whether the absence of any search action or recorded statement of the authorized person of the lender entity affects the validity of the addition made by the Assessing Officer and upheld by the Tribunal.Whether any substantial question of law arises from the facts and findings in the case for the High Court's consideration. RULINGS / HOLDINGS: The reopening under Section 148 was upheld as the reasons to believe that income had escaped assessment were based on credible material questioning the identity, genuineness, and creditworthiness of the lender entity, despite the assessee's challenge regarding approval and validity.The receipt of Rs. 25 lakhs as an interest-free unsecured loan from an entity which is 'merely a paper concern' with 'no business operations' and nil revenue was rightly treated as unexplained credit liable to be added to the assessee's income.The assessee's failure to produce the principal officer of the lender entity and to explain the source and genuineness of the loan justified the addition made under Sections 143(3) and 147 of the Act.The absence of any search or recorded statement of the authorized person of the lender entity did not vitiate the assessment order as the material on record independently supported the addition and the assessee's failure to establish the genuineness of the transaction was dispositive.The Court held that 'no substantial question of law arises for consideration' and declined to interfere with the Tribunal's order dismissing the appeal. RATIONALE: The Court applied the provisions of the Income Tax Act, 1961, particularly Sections 143(3), 147, 148, and 133(6), focusing on the Assessing Officer's reasons to believe and the material gathered from investigation and bank records.The legal framework recognizes reopening of assessments where income is believed to have escaped assessment, provided there is credible material, even if the assessee challenges procedural aspects like approval of reopening.The Court emphasized the principle that unexplained credits or loans from entities lacking business substance and creditworthiness can be added to income under the Act.The Court noted the absence of any procedural defect or miscarriage of justice in the assessment and appellate orders, and no new legal principle or doctrinal shift was introduced.No dissent or concurring opinion was recorded; the decision reflects a straightforward application of settled law on unexplained credits and reopening of assessments.