PRERNA AGENCY PVT LTD,KOLKATA vs. INCOME TAX OFFICER, WARD 2(1), PATNA

The ld. A.R challenges the very impugned order on legal ground i.e. validity of reopening and also on the merit of the case. The ld. Counsel submits that in the present case the assessee filed its return of income on 30.09.2023 which was assessed on 28.03.2016 and the case was reopened by issuing notice u/s 148 of the Act on 31.03.2021. The ld. Counsel further submits that the original return had already been assessed u/s 143(3) of the Act, reasons as supplied are vague and there is no connection or link between the reasons and escapement of income. His further submission is that there is no explanation as to how Tapan Ghoria or his associated entities are linked with Rashidhan Traders Pvt. Ltd., The Ld. Counsel further submits that there is no recording that what was the failure of the assessee when it is a fact that reopening was beyond four years and there is no reference to the specific materials in the reason recorded. It has further been submitted that amount mentioned in the reason recorded for reopening and assessment is also incorrect showing it is a case of non-application of mind by the AO. The Ld. Counsel further submits that the assessee has received a loan an amount of Rs. 60,00,000/- from Rashidhan Traders Pvt. Ltd. and Rs. 20,00,000/- from Riddhi Siddhi Commodities Pvt. Ltd. by account payee cheques and refunded the same. He has cited the following decisions: i) Sheo Nath Singh vs. AACIT (1971) 82 ITR 147 (SC) ii) ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) iii) New Delhi Television Ltd. vs. DCIT [2020] 424 ITR 607 (SC) iv) CIT vs. Kamdhenu Steels & Alloys Ltd. [2014]361 ITR 220(Delhi)

Contrary to that the Ld. D.R supports the impugned order.

Upon hearing the submission of the counsel of the respective parties, we have perused the facts of the case and order passed by the lower authorities. The first contention of the ld. Counsel of the assessee with regard to reopening of assessment. According to him, reasons as supplied are vague and there is no connection or link between the reasons or escapement of income. It is not in dispute that the reopening of assessment was based on the allegation that the assessee had received a loan of Rs. 90,00,000/-from Rashidhan traders Pvt. Ltd. The AO has suspected the loan transaction to be an accommodation entry. The reasons recorded has been supplied to the assessee and the assessee objected the same by filing petition, relevant portion as recorded in the reasons are as follows:

In the present case, reopening was initiated on 31.03.2021 for AY 2012-13 i.e beyond four years. The original return had already been assessed u/s 143(3) of the Act. It is pertinent to mention herein that reassessment proceedings u/s 147 can only be initiated if income chargeable to tax has escaped assessment due to the assessee’s failure to fully and truly disclose all the material facts necessary for the reassessment. As per the assessment order the AO issued notice u/s 142(1) of the Act seeking details of loan transaction and assessee submitted all the relevant documents to establish identity, creditworthiness and genuineness of the transaction. Compliance to the notice has been duly recorded by AO which is as here under-

With respect to point no. 4 and 5, we would humbly like to submit that the Directors of the said company were professionally acquainted and apart from the said loan taken, we had no other relationships with the said company.

Going over the above discussion, we find that reasons cited in notice are entirely unsubstantiated, the lacking any logical nexus or relevance to the facts of the case. There is no explanation as to how Tapan Ghorai or associated entities are linked to Rashidhan Traders Pvt. Ltd, like wise no rational has been provided to establish link between Agility Vincom Pvt. Ltd. and Rashidhan Trading pvt. Ltd. or to demonstrate any co- relation between these entities and the assessee. There is no evidence to establish any connection between these individuals and Rashidhan Traders pvt. Ltd. There was no recording of what was the failure of the assessee when it is a fact that in the present case reopening was beyond four years and the assessment was completed u/s 143(3) of the Act.

Now look at the cited judgment of the assessee and find that in a case of Sheo Nath Singh (supra), Supreme Court has held that:

The Apex Court in the case of Income Tax Officer, I Ward, Distt.Vl, Calcutta and Ors. v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) has held as follows: the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is not doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment..

It is a well-settled principle of law that when examining the recorded reasons for reopening an assessment, such reasons must be considered strictly as they stand, without any modifications, additions, or omissions. No inference can be drawn from facts or grounds that have not been explicitly recorded. The Assessing Officer (AO) is required to articulate his reasoning with clarity, ensuring that his conclusions are fully disclosed within the recorded reasons. He must express his findings explicitly ,without leaving room for speculation or assumption. It is the Assessing Officer's duty to establish, based on the recorded reasons alone, whether the assessee failed to fully and truly disclose all material facts necessary for the assessment of the relevant assessment year. year. Such reasons must be evident on the record in clear and unequivocal terms. They must be free from ambiguity and should not suffer from vagueness or generality. The recorded reasons are a direct reflection of theAssessing Officer's application of mind, and they must be self-explanatory, leaving no scope for conjecture or uncertainty on the part of the assessee. In this regard we rely on the decision of the Bombay High Court in HindustanLever v/s. R. B. Wadkar 268 ITR 332 wherein this Court has held as under:- The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assesssee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or declaration is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusions as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safe-guard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions advanced."

Similar view was held by the Hon'ble Supreme Court in the case of New Delhi Television Ltd. v. DCIT (2020) 424 ITR 607 (SC) wherein it was held as under: "43. If the revenue is to rely upon the second proviso and wanted to urge that the limitation of 16 years would apply, then in our opinion in the notice or at least in the reasons in support of the notice, the assessee should have been put to notice that the revenue relies upon the second proviso. The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the High Court that the notice is to be treated as a notice invoking provisions of the second proviso of section 147 of the Act. Accordingly, we answer the third question by holding that the notice issued to the assessee and the supporting reasons did not invoke provisions of the second proviso of section 147 of the Act and therefore at this stage the revenue cannot be permitted to take benefit of the second proviso."

Keeping in view the discussion made above and going over the facts of the case and there is no doubt that loan taken by the assessee through account payee cheque had already been repaid for the similar manner. The loan confirmation TDS certification, audited accounts of the creditors, IT return of the creditors, bank statement are all goes to support to the case of the assessee and all the above documents had already been produced by the assessee before the AO at the time of original assessment proceedings. So we are in this view that the assessee has fully established the identity, creditworthiness and genuineness of the transaction. Accordingly, we find merit in the case of assessee and the order passed by the both lower authorities are hereby set aside and the appeal of the assessee is allowed on legal ground as well as on merit also.