AMIT G. VANANI,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(4), MUMBAI

The Commissioner (Appeals) failed to appreciate that the assessment of the assessee for A.Y. 2007-08 was reopened on the ground that the assessee had taken a loan of Rs.1,74,75,000/- which in fact was taken by the assessee front MIs. Nice Diamonds in A.Y. 2005-06 which was outstanding, due and payable in A.Y. 2007-08 and therefore, the addition on the ground of unexplained loan cannot be made in A.Y. 2007-08 and hence, the reopening of the assessment is bad in law.

Briefly stated facts are that for the relevant AY 2007-08, the assessee filed its return of income on 18.03.2008. Subsequently, the assessee’s return was picked up for scrutiny assessment and accordingly the assessment was framed under section 143(3) of the Act vide order dated 29.03.2008. Subsequently, the AO issued notice under section 148 of the Act dated 21.03.2014. In response to notice under section 148 of the Act, the assessee filed letter dated 02.04.2014 requesting for supply of reasons recorded. Subsequently, the assessee filed return of income in response to notice under section 148 of the Act for the AY 2007-08 on 16.05.2014. The AO supplied the reasons recorded and the relevant reasons (enclose in assessee’s paper book at page 13) read as under: - “Reasons for the belief that income has escaped assessment in the case of Shri. Amit C Vanani (PAN: AAIPV6300L) for A. Y. 2007-08 within the meaning of section 147 of the I T Act, 1961.

The reasons recorded were objected to by the assessee vide letter dated 24.05.2014, which was filed with the Department on 02.07.2014. But the AO rejected the objections of the assessee vide letter dated 15.01.2015 No. DCIT/CC 4(4)/C.R.-4/U/s.147/2014-15. Accordingly, the AO proceeded to frame the assessment. Accordingly, the AO framed the assessment under section 143(3) of the Act Read with section 147 of the Act vide order dated 06.04.2015 thereby made addition of ₹ 90 lacs being non-genuine loan from M/s Mayank Impex by observing as under: - “9. The so called loan of ₹ 90 lacs received from M/s Mayank lmpex is therefore treated as non- genuine and added to the total income of the assessee as unexplained credits. Penalty proceedings u/c 271(1)(c) initiated for furnishing of inaccurate particulars and concealment of income."

The CIT(A) affirmed the action of the AO in disposal of the objections for reopening of assessment and also upheld the action of the AO in reopening the assessment and framing the re-assessment by observing in Para 6 to 9 as under: - “6. I have carefully considered the facts of the case, submissions and contentions of the assessee as well as order of the Assessing Officer. As mentioned above, the original assessment in this case was completed on 20.09.2008, assessing income at Rs 3,510/-, which is the same as returned income. However, later, the AO received information from DOLT (Inv), Mumbai, that assessee had taken entry of bogus loans from companies of Shri Shanwarilal Jain and S K Choudhary group who were engaged in providing such accommodation entries to several persons and the assessee being one of such beneficiary. It is gathered that prior to that the search & seizure action u/s 132(1) of the Act had been carried out on Bhanwarilal Jain Group as also Shri S K Choudhary Group. During the course of search, Shri Bhanwarilal Jain as also on Shri S K Choudhary had very clearly and categorically stated that they were engaged only in providing bogus accommodation entries in nature of bogus unsecured Loans, bogus capital gains, bogus share profit, etc. Infact Shri S K Choudhary had explained the modus operandi in detail and stated that he used to receive cash from the prospevtive parties and thereafter he used to issue cheques in nature of loan etc. to such beneficiaries. As per the details received from the DOLT (Inv), Mumbai, Shri Amit C Vanani is one such the beneficiaries and had received accommodation entries of Rs 90 lakhs from M/s Mayank Impex, proprietary concern of Shri S K Choudhary. Apart from this, the AO had also received information to the effect that assessee had received bogus loans of Rs 1,74,75,000/- from companies / concerns of Shri Bhanwarial Jain group. In view of this specific information, the AO reopened the assessment u/s 147 of the Act vide issue of notice u/s 145 dated 21.03.2014, after recording his reasons. In response to the said notice, the assessee flied his return of income on 16.05.2014 declaring the same income of Rs 3,510/- , as filed originally and requested for reasons for issue of notice u/s 148. A copy of the reasons were provided to the assessee on 19.06.20 14 and thereafter vide letter dated 24.06.20 14 the assessee filed his objections for issue of notice u/s. 148 before the AO. The AO disposed off these objections vide a speaking order dated 15.01.2015, the contents of are reproduced as under:

In view of these facts, reopening of assessment u/s 147 of the Act is held to be valid and consequently the notice issued u/s 148 of the Act dated 21.03.2014 is also held to be valid. Therefore, the assessment made by the AO under section 147 of the Act dated 06.04.2015 is also held to be valid and various grounds taken by the assessee in this ground are rejected."

We have heard rival contentions and gone through the facts and circumstances of the case. We have noted that the relevant assessment year is AY 2007-08 and original assessment was completed by the AO under section 143(3) of the Act vide order dated 29.09.2008. Subsequently, the notice under section 148 of the Act was issued dated 21.03.2014 and assessment was reopened for the relevant AY 2007-08. Admittedly, the notice under section 148 of the Act issued on 21.03.2014 is beyond four years from the end of the relevant AY 2007-08. From the above reasons recorded, it is noted that the AO has nowhere mentioned in the reasons that there is any failure on the part of the assessee to disclose full and true disclosure of all material facts in respect of loan taken from M/s Nice Diamond amounting to ₹ 1,74,75,000/-. The assessee before us explained from the evidences that this information was very much available before the AO during the original assessment proceedings that the loan of ₹ 1,74,75,000/- was taken from M/s Nice Diamonds in the previous year ending 31.03.2005 relevant to AY 2005-06 and this was in not the information relating to AY 2007-08 i.e. the year under consideration. The assessee before us during the original assessment proceedings filed this loan confirmation of M/s Niece Diamonds that the same pertains to earlier years because as on 01.04.2006 there is opening balance of ₹ 1,74,75,000/- in the leger accounts of Niece Diamonds in the books of the assessee, which is reflecting the clear picture. Even this fact was narrated before the AO while objecting to the reasons recorded vide letter dated 24.06.2014 that the AO while passing the assessment order under section 143(3) of the Act dated 29.09.2008, had made enquiries about unsecured loan and the assessee had furnished confirmations from the parties giving the details of unsecured loans and also the copies of bank statements and other relevant details. According to assessee, thus, due inquiry was made regarding loan taken by the assessee for the year ending 31.03.2007 and assessee had made full and true disclosure of all material facts required for completing this assessment for AY 2007-08. Even otherwise, this loan of M/s Niece Diamond amounting to ₹ 1,74,75,000/- pertains to AY 2005- 06 and not to AY 2007-08. In view of the above, we noted that the very part of initiation of reassessment proceedings for reasons to believe recorded did not subsists, therefore no such addition in respect thereof was made by the AO while framing the reassessment under section 147 read with section 143(3) of the Act. The above stated facts are clearly before the AO during the course of original proceedings and in the present reasons recorded for reopening of assessment for issuance of notice under section 148 of the Act. In our view, there is no failure on the part of the assessee to make the full and true disclosure of all material facts in respect to loan taken from M/s Niece Diamonds in the original assessment proceedings. Even this loan does not pertain to AY 2007-08 rather it pertains to AY 2005-06, which was also clarified during the course of original assessment proceedings under section 143(3) of the Act as well as objecting to the reasons recorded under section 148 of the Act. Hence, in our view the reassessment framed by the AO and confirmed by CIT(A) is without any basis and even the disposal of objections for recoding the reasons is not based on the facts and legal position. Hence, we quash the re-assessment and allow this issue of assessee’s appeal.

Coming to second proposition that no addition on the reasons recorded for taking accommodation entries amounting to ₹ 1,74,75,000/0 in the name of M/s Niece Diamonds was made by the AO rather the addition was made on altogether on different loan of ₹ 90 lacs received from the M/s Mayank Impex, which was never the reason for reopening of the assessment. On this proposition also, we find that this issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.), wherein it is held that section 147 of the Act has this effect that the AO has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of assessment proceedings. However, if after issuing a notice under section 148 of the Act, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 of the Act would be necessary, the legality of which would be tested in the event of a challenge by the assessee. The effect of section 147 of the Act, as it now stands after the amendment of 2009, can, therefore, be summarized as follows : (i) the AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or re-computation, the AO has to serve a notice on the assessee under sub-section (1) of section 148 of the Act; (iii) the AO may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) though the notice under section 148(2) of the Act does not include a particular issue with respect to which income has escaped assessment, yet he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings.

In view of the above, we are of the view that the reopening on both grounds will not stand and hence, the appeal of the assessee is allowed by quashing the reassessment proceedings. 9. Since, we have quashed the reassessment proceedings, we need not adjudicate the issues on merits. 10. In the result, the appeal of assessee is allowed.