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Facts
The assessee filed an appeal against an order of the National Faceless Appeal Centre (NFAC) related to assessment year 2012-13. The original assessment involved re-opening of the case under section 147/148 of the Income Tax Act, and an addition of Rs.37,18,314/- under section 69C for interest on an alleged cash loan. The appeal was filed with a delay of 437 days, which was attributed to the COVID-19 pandemic and procedural confusion.
Held
The Tribunal condoned the delay of 437 days, citing the Hon'ble Supreme Court's extension of limitation due to the pandemic and the assessee's lack of familiarity with new procedures. Upon perusing the reasons recorded by the AO for reopening the case, the Tribunal found that the basis for reopening was an alleged cash loan of Rs.2,45,00,000/-. However, the AO did not make any addition on account of the cash loan itself, but only added interest on it. The Tribunal relied on the Bombay High Court's decision in CIT vs. Jet Airways and Sanjeev Amritlal Chhedda, which held that if a loan is not treated as income, there cannot be escapement of income for the loan amount, and if the basis for reopening is not valid, the entire reopening is vitiated.
Key Issues
1. Whether the reassessment proceedings initiated under section 147/148 of the Income Tax Act were valid, given that the Assessing Officer did not make any addition on account of the alleged cash loan itself. 2. Whether interest on an alleged cash loan can be added as income when the principal loan amount was not added as income.
Sections Cited
143(3), 147, 148, 69C, 143(1), 151, 149(1)(b), 269SS, 271, 271E, 271D, 68
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Income Tax Appellate Tribunal, ‘C ‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
The aforesaid appeal has been filed by assessee against order dated 28.7.2021, passed by the National Faceless Appeal Centre (NFAC), Delhi for the quantum of assessment passed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (‘the Act’) for Assessment Year (AY) 2012-13. In various grounds of appeal the assessee has challenged the validity of re-opening u/s. 147/148; and addition of Rs.37,18,314/- u/s. 69C on account of interest on alleged cash loan of Rs.2,45,00,000/- even when no addition on account of cash loan has been made. At the outset, appeal of the assessee is delayed by 437 days. In the petition for condonation of delay, the assessee has stated as under:
“Sub: Request for Condonation of Ι.Τ.Α NO. 3081/MUM/2022 Respected Sir, It has been brought to my notice that the appeal filed by me is delayed by 437 days. In this connection I would like to state as under for favor of your kind consideration and necessary action
1) That the order of CIT(A) was communicated to me on 28/07/2021 and the appeal before your honors should have been filed within 60 days of receipt of the order of CXIT(A) but the same could not be done.
2) That the main reason for delay was COVID 19 pandemic which prevented me in filing the appeal. In this connection I am enclosing herewith a copy of the order of Apex Court dated 10th January, 2022 and as per the said order the Para III and Para IV has extended the limitation.
3) I filed the appeal online on 6th May, 2022 but could not file the same physically to the Income Tax Appellate Tribunal as I was under the believe that once I have filed the same online it is presumed by me that I have fulfilled the requirement but later on when I appointed new CA and I came to know that I should have also filed the physical copies of all the documents and accordingly the same were filed on 6.12.2022 which resulted in delay of 437 days out of which the delay as stated in Para 2 above is to be excluded.
Since I was totally ignorant on the procedure as newly introduced, I feel that I have committed the mistake and accordingly I request your honors to kindly condone the delay as pointed out by your honors and oblige.”
Premji Bhuralal Gala 2. After considering the aforesaid reasons as stated by the assessee, we find that till 28.2.2022 Hon’ble Supreme Court vide order dated 10.1.2022 had extended the limitation for filing of appeals. Thereafter, assessee had filed the appeal online on 6.5.2022, but physical copy was not filed. Thus there are no latches or default on part of the assessee in filing the appeal and accordingly, the delay of 437 days is condoned.
The brief facts qua the issues raised are that the assessee is an individual who has filed his return of income for AY 2012-13 on 28.9.2012 and declared total income of Rs.14,60,787/-. The said return of income was accepted u/s. 143(1).
4. Thereafter, on the basis of certain information received from the DDIT(Investigation), Unit-5(4), Mumbai on 26.3.2019, that assessee has borrowed cash loan through Shri Nilesh Bharani / M/s. Evergreen enterprises for sum of Rs.2,45,00,000/-. Based on this information, the learned Assessing Officer (the ld. AO) has recorded the reasons in the following manner:
"1. Brief details of assessee- For the year under consideration assessee has filed return of income on 28.09.2012 declaring total income at Rs. 14,60,787/-. During the year under, assessee has shown salary income under the head Income from Business and Other Sources.
2. Brief details of information received by the AO-Information in the case of the assessee was received from 0/0 DDIT (Investigation), Unit-5(4), Mumbai on 26.03.2019 that during F.Y. 2011-12, assessee has borrowed cash loan from / through Nilesh Bharani / Evergreen Enterprises is mentioned below:
Sr. Code Name Coded Actual amount Contact Contact F.Y. No amount as (in Rs.) Person Number per ledger (in '000) 1 Anupam ST Anupam ST 24,500 2,45,00,000 Premnibhai 9821657722 2011- 12 PAW PAW In this case information was received from Dy. Director of Income-tax (Investigation), Unit- 5(4) Mumbai, stating that a Search & Survey action u / s * 0.132 was carried out in the case of M / s Evergreen Enterprises. Mr. Nilesh Bharani is one of the partners in M/s. Evergreen Enterprises. The documentary evidences found in the search as well as statement on oath of Mr. Nilesh Bharani recorded u / s 132(4) of the IT Act, 1961 unearth an undisclosed activity of money lending and borrowing in unaccounted cash being operated at the premises of M/s Evergreen Enterprises by Mr. Nilesh Bharani.
On the basis of documents found and seized at the premise M/s. Evergreen Enterprises during the course of search u/s. 132 of the Income Tax Act, 1961 and statements recorded on oath u/s. 132(4) of the Income Tax Act, 1961 of Mr. Nilesh Bharani, one of the partner of M/s Evergreen Enterprises and Mr. Jagdish T Ramani, Ashwin Enterprises), several individuals and business concerns, who have borrowed cash loans from / through M/s. Evergreen Enterprises are identified by the DDIT (Inv). Further, it was observed that the borrowers ledger / documents seized and statement recorded during the course of search action on Evergreen Enterprises contains details like name, mobile number and in some cases incomplete residential or business addresses.
3. Analysis of Information received- The return was downloaded and other information available in the ITBA/ITD system also perused. The enclosures sent in were also perused. The return of income for A.Y 2012-13 has been perused and it is observed that assessee has disclosed only Rs. 82,80,877/- against unsecured loans in his balance sheet for the relevant financial year.
Basis of forming reason to believe-Based on the above facts. I have reasons to believe that the income to the extent of Rs. 2,45,00,000/-, chargeable to tax in the hands of the assessee has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 A notice u/s 148 r.w.s 147 of the Act, is being proposed to be issued to assess such income and also any other income chargeable to tax which has escaped assessment, which comes to my notice subsequently in the course of assessment proceedings for A.Y. 2012-2013.
5. Applicability of the provisions of section 147/151 to the fact of the case. In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made, accordingly, no assessment was made and the only requirement to initiate proceedings u/s 147 is to reason to believe which has been recorded in Para 5 above.
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 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 a case where income chargeable to tax has escaped assessment. 7. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence the approval of the Ld. Pr. Commissioner of Income tax -24, Mumbai is hereby sought for re-opening the case of the assessee for A .Y 2012-2013 as per provisions of section 151(1) r.w.s.149(1)(b) of the Income Tax Act 1961."
Accordingly notice u/s. 148 was issued through digital mode on 31.3.2019. In response assessee filed the return of income of Rs.14,60,790/-. The ld. AO taking note of statement of Shri Nilesh Bharani recorded during search and survey in his group, that he used to charge commission at the rate of 0.6% per annum and interest was charged at the rate of 1% and also based on the impounded material gathered from Shri Nilesh Bharani, he inferred that assessee has received cash loan during the year and has even repaid the cash loan. Accordingly, he observed that the Competent Authority will levy penalty u/s. 271) and 271E in violation of provisions on Section 269SS and 269T. From the seized documents, he found that the assessee has paid interest amount and brokerage/commission on these loans. Based on these impounded
Premji Bhuralal Gala documents he has noted the details of cash loan received, cash loan repaid, date of loan and repayments, days for calculation of interest and interest and commission amount on the loan. These details have been noted at page 4 and 5 of the assessment order which is based on scanned copies of Annexure-A (20 pages) which was information received from Investigation Wing. Accordingly, he calculated interest payment including commission at the rate of 20% of interest amounting to Rs.37,00,314/- which has been added u/s. 69C.
6. The ld. CIT(A) has confirmed the said order of the AO.
Before us the learned Counsel for the assessee submitted that here in this case no addition have been made on account of alleged cash loan taken from Shri Nilesh Bharani / M/s. Evergreen Enterprises and even the scanned copies of the documents annexed with the assessment order nowhere refers to the name of the assessee. Once addition has not been made on the basis of the reasons recorded, then no other addition can be made in view of the judgment of Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (331 ITR 236) and the other decisions of Hon’ble Bombay High Court following same judgment, which have been filed separately before us. Apart from that, he submitted that receiving of a loan cannot be added as an income and therefore there could not be any reason to believe that income chargeable to tax has escaped assessment. In support he relied on a judgment of Hon’ble Bombay High Court in the case of Sanjeev Amritlal Chhedda in 6
Premji Bhuralal Gala Writ Petition No. 3620 of 2019, dated 5.1.2022. Thus the entire reasons recorded by the ld. AO does not give jurisdiction to make the impugned addition of Rs.37,18,314/-.
On other hand the learned Departmental Representative submitted that even though addition has not been made on account of cash loan of Rs.2,45,00,000/-, however, the working of the interest is based on the information received about the actual cash loan taken by the assessee and therefore the addition of Rs.37,00,314/- is directly flowing from the cash loans for which reasons were recorded.
We have heard the rival submissions and also perused the relevant findings given in the impugned orders in so far as validity of re-opening u/s. 147 is concerned. On the perusal of the ‘reasons’ (supra), it is seen that the same is based on the information that assessee has borrowed cash loan from / through Shri Nilesh Bharani / M/s. Evergreen Enterprises for sums aggregating to Rs.2,45,00,000/-. Accordingly, the basis of such information the reason to believe has been entertained by the AO that the income to the extent of Rs.2,45,00,000/- is chargeable to tax in the hands of assessee has escaped assessment within the meaning of section 147. First of all, it is not a case of deemed income taxable u/s. 68 that it has some kind of unexplained loan credit in the books of the assessee. The information is based on the fact that the assessee has received cash loans which in turn is based on certain documents seized in search and survey action u/s. 132 carried out at M/s. 7
Premji Bhuralal Gala Evergreen Enterprises. If it is a cash loan, ostensibly it cannot be treated as income of the assessee unless conditions specified in Section 68 are satisfied. Also it is not the case of ld. AO that cash loans are added u/s. 68 and that is for the reason that he has not made any addition on amount of cash loan. Once the very basis on which reasons have been recorded, i.e., cash loan of Rs.2,45,00,000/- which has been stated to be chargeable to tax in the hands of assessee is not found to be taxable by the ld. AO, then the entire basis of re-opening gets vitiated. Exactly on similar preposition, Hon’ble Bombay High Court in the case of Sanjeev Amritlal Chedda (supra), had quashed the reasons based on borrowed cash loan. The relevant observations and the order of the Hon’ble Bombay High Court: “1. Petitioner was served with a notice dated 28th March, 2019 under Section 148 of the Income Tax Act, 1961 (the Act) for the Assessment Year 2012-13 in which the Jurisdictional Assessing Officer (JAO) has stated "Whereas I have reasons to believe that your income chargeable to tax for the Assessment Year 2012-13 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961………This notice is being issued after obtaining the necessary satisfaction of the Pr. CIT 30, Mumbai."
We have seen the reasons for re-opening under Section 147 of the Act made available to petitioner which is dated 25th March, 2019. The reasons does not even indicate initially that income chargeable to tax has escaped assessment. The entire basis of the notice is that respondent had information that petitioner had borrowed cash loan of Rs. 16,30,000/- in A.Y. 2012-13 from one Mahavir Engineer and therefore petitioner has violated provisions of Section 269SS of the Act. There is not even a whisper as to what was the amount of income of petitioner that has escaped assessment. Though in the reasons the JAO states that he has reasons to believe that petitioner has borrowed cash loan of Rs. 16,30,000/- and has violated the provisions of Section 269SS of the Act, in the proforma for 8 recording reasons for initiating proceedings under Section 148 of the Act and for obtaining the approval of the Commissioner of Income Tax/Pr. Commissioner of Income Tax, the JAO has incorrectly stated that the quantum of income which has escaped assessment is Rs. 16,30,000/- and not borrowing or cash loan taken. Taking admittedly a loan cannot be any reason to be even considered as income. What we find is that the Joint Commissioner has expressed that from the reasons recorded it is a fit case for issuance of notice under Section 140 of the Act and the Principal Commissioner has also expressed he is satisfied about issuance of notice under Section 148 of the Act. If these two gentlemen had only read the reasons as recorded for re-opening, certainly they would have realised that there is no income which has escaped assessment because the problem according to the JAO was that petitioner has borrowed cash loan of Rs. 16,30,000/-. In fact in paragraph no. 9 of the reasons recorded it reads as under:
9. In the light of the above discussion and in consequence of information in the possession of the undersigned, I have reason to believe that by accepting cash loan of Rs. 16,30,000/., the assessee has violated the provision of section 269SS of I.T. Act, 1961 in the Assessment Year 2012 - 13 Hence, there is escapement of assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary within the meaning of section 147 of Income Tax Act, 1961.
He says 'there is escapement of assessment' by reason of the failure on the part of the assessee to disclose fully and truly all material facts but does not say that 'there is escapement of income chargeable to tax that has escaped assessment'.
3. Moreover, even in the Assessment Order dated 4th December, 2019 respondents accept the total income as per the return of income declared by petitioner of Rs.7,87,370/- and the whole basis in the assessment order is only to justify respondents' allegations that petitioner had contravened the provisions of Section 259SS of the Act. Since the notice under section 148 of the Act is issued only where there is income that has escaped assessment, notice as impugned in the petition could not have been issued. If respondents felt that they have information that petitioner had taken cash loan of Rs.16,30,000/- and there has been contravention of the provisions under Section 269SS of the Act and petitioner was liable to penalty under Section 271D of the Act for failure to comply, then respondents could have commenced action or proceedings towards imposition of penalty under Section 271D of the Act. Once respondent proceeds on the basis that petitioner had accepted cash loan of Rs. 16,30,000/- that loan could never be considered as income and therefore there cannot be any escapement of income of the loan amount of Rs. 16,30,000/-.
4. In the circumstances, without making any observations as to whether respondents could take any action under Section 271D of the Act or whether respondents are right in the allegations against petitioner of borrowing cash loan in the sum of Rs. 16,30,000/-, only on the jurisdictional issue under Section 148 of the Act, we are allowing the petition in terms of prayer clause - (a) which read as under:
(a) That this Hon'ble Court may be pleased to issue under Article 226 of the Constitution of India an appropriate direction, order or a writ, including a writ in the nature of 'Certiorari', calling for the records of the case and, after satisfying itself as to the legality thereof, quash and set aside the Notice u/s 148 dated 28.03.2019, Ex. "B" herein, the order disposing objections dated 05.11.2019, Ex. "H" herein and the ex-parte assessment order dated 04.12.2019 Ex. "J" herein passed by the Respondent;
5. Mr. Walve states that respondent should be permitted to take action under Section 271D of the Act. It is open to respondent to take such action as adviced in accordance with law. We are not making any observations on the merits of the case.”
Thus, respectfully following the judgment of the Hon’ble Bombay High Court, we hold that once the ld. AO has accepted cash loans, which is not been considered as income, there can be escapement of income. Accordingly, the reasons recorded by the ld. AO are quashed. Consequently, the entire addition made by the ld. AO is also quashed. In so far as observations made by the Hon’ble High Court in para 4 & 5, the same has not been contended before us and accordingly, the same is left open.
In the result, appeal of the assessee is allowed on the validity of the re-opening u/s. 147/148.
Order pronounced on 28th February, 2024