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Facts
The assessee's original return for AY 2014-15 was processed u/s 143(1) and later selected for scrutiny under u/s 143(3), assessing total income. The AO later issued a notice u/s 148 to reopen the assessment, alleging that proportionate interest on interest-free loans advanced by the assessee had escaped assessment.
Held
The Tribunal held that the reopening of assessment under Section 147 was bad in law. The reasons provided for reopening were factually incorrect, and there was no tangible material to suggest escapement of income. The notice under Section 148 was therefore quashed.
Key Issues
Whether the reopening of assessment under Section 147 of the Income Tax Act is justified based on the material available with the Assessing Officer.
Sections Cited
147, 148, 143(3), 143(1), 2(40), 151
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Income Tax Appellate Tribunal, “K(SMC
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SUNIL KUMAR SINGH, HON’BLE
| आयकरअपीऱीयअधिकरणन्यायपीठ,म ुंबई| IN THE INCOME TAX APPELLATE TRIBUNAL “K(SMC)” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI SUNIL KUMAR SINGH, HON’BLE JUDICIAL MEMBER I.T.A. No.3089/Mum/2024 (Assessment Year:2014-15) Shilpa Manish Shah, Income Tax Officer, 501, Building No. 315, Om Gayatri Vs Ward-27(3)(3), Mumbai CHS, Ram Narayan Narkar Marg, Ghatkopar (E), Mumbai, Maharashtra [PAN: AGLPS9476M] अपीऱार्थी/ (Appellant) प्रत्य्र्र्थी/ (Respondent) Assessee by : Ms. Neha Paranjpe Revenue by : Shri P. Sudhakar Naik, Sr. DR सुनवाई की तारीख/Date of Hearing :05.09.2024 घोषणा की तारीख /Date of Pronouncement:09.09.2024 आदेश/O R D E R PERNARENDRA KUMAR BILLAIYA, AM This appeal by the assessee is preferred against the order of ld. CIT(A), Thiruvanantpuramdated 24.04.2024 pertaining to Assessment Year 2014-15. 2. The grievance of the assessee reads as under:- 1. Legal: Reopening of the Assessment under section 147 of the Act is bad in law 1. The notice dated 30.03.2019 issued under section 148 of the Act is without jurisdiction and bad in law in absence of any tangible material to show that any income chargeable to tax has escaped assessment. Thus, the basic conditions to invoke the provisions of section 147 of the Act are not satisfied in the present case. Thus, the notice under section 148 of the Act and subsequent assessment order passed under section 143(3) r.w.s 147 of the Act are bad in law and the same may be quashed and set aside.
I.T.A. No. 3089/Mum/2024 Shilpa Manish Shah 2 2. The notice dated 30.03.2019 has been issued under section 148 of the Act merely on verification of the assessment record and therefore, there is no new information in the possession of the Ld.A.O. after completion of the assessment under section 143(3) of the Act. Hence, the notice under section 148 of the Act and subsequent assessment order passed under section 143(3) r.w.s 147 of the Act are bad in law and the same may be quashed and set aside. Merit: The addition of Rs.9,72,378/- on account of proportionate interest is unjustified. 3. The Ld.CIT(A) erred in confirming the addition of Rs.9,72,378/- on account of proportionate interest on interest free loans without appreciating the facts and circumstances of the case. Thus, the addition of Rs.9,72,378/- is unjustified and the same may be deleted. 4. The Ld.CIT(A) failed to appreciate that the Appellant has not received any interest as alleged by the Ld.A.O. Thus, the addition of Rs 9,72,378/- made by the Ld.A.O. and confirmed by the Ld.CIT(A) is not at all justified and the same may be deleted. 5. The Appellant seeks leave to add, alter and amend the above grounds whenever required.”
Representatives of both the sides were heard at length, case records carefully perused and the relevant documentary evidences brought on record were duly considered in the light of Rule 18(6) of the ITAT Rules.
Briefly stated the facts of the case are that the original return of income was filed on 30.11.2014 declaring total income of Rs. 7,91,080/-. Subsequently, the return was selected for scrutiny assessment and order u/s 143(3) of the Act has been passed on 17.11.2016 assessing the total income at Rs. 8,32,550/-. On verification of the records the AO found
I.T.A. No. 3089/Mum/2024 Shilpa Manish Shah 3 that income to the extent of Rs. 5,86,617/- chargeable to tax had escaped assessment. Notice u/s 148 was issued on 30.03.2019. Reasons recorded for reopening of the assessment reads as under:-
“GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE INCOME TAX OFFICER WARD 27(3)(3), MUMBAI To, SHILPA MANISH SHAH 501, Bldg. No. 315, Om Gayatri Co op. Hsg. Soc... Ram Narayan Narkar Marg, Ghatkopar (E) Mumbai 400075, Maharashtra India PAN AGLPS9476MAssessment Year: 2014-15Dafed: 19/10/2019 Letter No:ITBA/AST/F/17/2019-20/1019124074(1)
Sir/Madam/M/s, Subject: Forwarding of "Reasons of reopening" for A.Y. 2014-15
On verification of the record it is seen that during the year unsecured loan of Rs. 1,86,72,135/- and secured loan assessee has taken of Rs. 46,08,908/- totaling Rs. 2,32,81,043/- and total interest Rs. 188,63,533/-is debited in the P&L A/c and the assessee has advanced interest free loan to the extent of Rs. 73,28,580/- and no interest earned against the same. Therefore the proportionate interest Rs. 5,86,617/- is wrongly allowed as expenses. Total interest paid Rs. 18.63,533 X 73,28,560 = 5,86,617 Total Loan Rs. 2,32,81,043 2 In view of the above I have reason to believe that the income to the extent of Rs. 5,86,617/- chargeable to tax has escaped assessment within the meaning
I.T.A. No. 3089/Mum/2024 Shilpa Manish Shah 4 of section 147 of the IT Act. I therefore propose to assess the income of the assessee for Α.Υ.2014-15. 3. Accordingly, it is proposed for approval for reopening the assessment u/s 147 of the 1 T Act, 1961 by issuing notice u/s 148 of the IT Act, 1961. 4 It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be acase where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence necessary sanction to issue the notice u/s.148 has been obtained separately from Principal Commissioner of Income Tax-27as per the provisions of section 151 of the Income Tax Act, 1961. JAGANNATH PANDA WARD 27(3)(3), MUMBAI” 4. We have carefully perused the aforementioned reasons recorded for reopening the assessment. At para 4 we find that the AO has mentioned that the original return of income was only processed u/s 143(1) of the Act and therefore, provisions of Section 147(2)(b) are applicable to the facts of this case.
On perusal of the paper book, we find that the observations of the AO are factually incorrect as in this case the original return was selected for scrutiny assessment as per notice dated 28.08.2015 at page 8 of the paper book. A questionnaire was issued on 05.05.2016 as per pages 09 and 10 of the paper book. Again, a questionnaire was issued on 09.09.2016 as per the page 12 of the paper book. Page 13 is the reply and I.T.A. No. 3089/Mum/2024 Shilpa Manish Shah 5 pages 14 to 58 are the documentary evidences filed during the course of assessment proceedings. Vide order dated 17.11.2016 assessment was framed u/s 143(3) of the Act and the order is placed at pages 60 and 61 of the paper book. These facts demonstrates that the reasons recorded for reopening of the assessment are not only factually incorrect but also the approval given by the Ld. PCIT is devoid of any application of mind.
Moreover, the reasons recorded for reopening the assessment starts with “on verification of the records” shows that there is no new tangible material available with the AO and his reopening is based on the facts on record. Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd 320 ITR 561 had the occasion to consider a similar issue and held that the AO has power to reopen provided there is tangible material to come to conclusion that there is escapement of income from assessment reasons must have a live link with formation of belief.
The Hon’ble Bombay High Court in the case of India Finance and Construction Company Pvt. Ltd 200 ITR 710 on similar set up facts held as under:- “7. The second transaction on the basis of which notice under section 148 is issued relates to a transaction entered into in May 1982 under which the assessee-company advanced to C.R. Developers (P.) Ltd. a sum of Rs 15 lakhs purporting to be an advance for the purpose of construction of a hotel.
I.T.A. No. 3089/Mum/2024 Shilpa Manish Shah 6
The advance is in the nature of a loan and no interest is being charged on this account. The respondents contend that the assessee-company should have received an interest income worth approximately Rs. 3 lakhs if interest had been charged on this advance. Hence, this interest income of approximately Rs. 3 lakhs has escaped assessment. Once again the reason which is recorded is beyond the scope of section 147. It is an accepted position that the assessee- company has in fact not received any interest in respect of this advance from C.R. Developers (P) Ltd. in the assessmentyear 1988-89. When no income Income is received there is no question of paying any tax on income which the respondents think, should have been received but was in fact not received. In the case of CIT v. A Roman & Co. [1968] 67 ITR 11, the Supreme Court said that the law does not oblige a traderto make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands. Income which he could have but has not earned is not made taxable as income accrued to him. The Court also said that the High Court exercising Jurisdiction under article 226 of the Constitution has power to set aside a notice under section 147(b) if the condition precedent for the exercise of jurisdiction does not exist. It is open to the Court to ascertain whether the ITO had in his possession any information and whether from the information the ITO have reason to believe that the income chargeable to tax has escaped assessment. In the present case the reasons which are recorded clearly show that there is no material at all on the basis of which the Assessing Officer could have reason to believe that any interest income had escaped assessment. No such income had accrued during the assessment year in question. In the premises, in our view, the notice issued under section 148 is without jurisdiction and hence the same is set aside. Rule is made absolute accordingly, with no order as to costs.”
I.T.A. No. 3089/Mum/2024 Shilpa Manish Shah 7
Considering the facts in totality in the light of the aforementioned judicial decisions, we have no hesitation in setting aside the notice u/s 148 of the Act thereby quashing the resultant reassessment order. Since, we have quashed the reassessment we do not find it necessary in going into the merits of the case.
Appeal of the assessee is allowed. Order pronounced in the Court on 9th September, 2024 at Mumbai. (SUNIL KUMAR SINGH) ACCOUNTANT MEMBER Mumbai, Dated:09/09/2024 *AK KEOT, Sr. PS
आदेश की प्रततलऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीऱाथी / The Appellant 1. प्रत्यथी / The Respondent 2. संफंधधत आयकर आयुक्त / Concerned Pr. CIT 3. आयकर आयुक्त ) अऩीऱ ( 4. / The CIT(A)- पवबागीयप्रतततनधध ,आयकरअपीलीयअधिकरण,म ुंबई/DR,ITAT, Mumbai, 5. गार्ड पाई/Guard file. 6. आदेशानुसार/ BY ORDER,