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Judgment
Akil Kureshi, J.—Heard learned counsel appearing for the parties for final disposal of the petition.
Petitioner has challenged notice dt. 30th March, 2010 issued under s. 148 of the IT Act, 1961 seeking to reopen assessment proceedings for the asst. yr. 2004-05. The petitioner has also challenged an order dt. 20th Oct., 2010 by which the petitioner''s objections to such proposed reopening came to be rejected.
For the asst. yr. 2004-05, return filed by the petitioner-assessee and HUF involved principally in the business of moneylending, the AO took the assessment in scrutiny. After detailed exchange of queries, replies, discussions and deliberations, assessment order was framed originally on 28th Dec, 2006. Certain additions were made by the AO and certain claims were disallowed. The assessee to the extent he was aggrieved by such additions and disallowance preferred appeal before the CIT(A) who had dismissed the appeal on 27th Dec, 2007. The assessee then approached the Tribunal. Such appeal is, however, pending.
In the meantime, the AO, issued the impugned notice dt. 30th March, 2010, indicating that he has reason to believe that income chargeable to tax for the asst. yr. 2004-05 has escaped assessment within the meaning of s. 147 of the Act and therefore, he proposed to assess the income. He required the assessee to deliver within 15 days of the receipt of the notice a return in prescribed form.
At the request of the assessee, the AO supplied the reasons recorded for reopening the assessment. Mainly, the AO was of the opinion that the assessment was required to be reopened on following three grounds :
In this case, it is noticed that the assessee has taken unsecured loans from the following parties.
1.
Bharatkumar R.
Rs. 2,04,200
2.
Hemantbhai Arvindbhai
Rs. 1,10,980
3.
Rajendra R. Shah
Rs. 33,660
4.
Rajulalben Arvindbhai
Rs. 1,10,980
5.
Rasilaben R. Doshi
Rs. 66,120
Rs. 5,25,940
On verification of the case records, it is noticed that the assessee has not filed any confirmation letter to prove the source of income and genuineness of the deposit. In absence of any confirmation, the amount of Rs. 5,25,940 is required to be treated as unexplained cash credit under s. 68 of the Act.
On verification of the case records, it is noticed that the assessee had given loans to 21 parties by cash which were not shown in the balance sheet aggregating to Rs. 10,26,488. These unaccounted loans are required to be added to the total income of the assessee as income from undisclosed sources under s. 68 of the Act.
On verification of the balance sheet of the assessee as on 31st March, 2004, it is noticed that the assessee has given loan totalling to Rs. 61,43,410 out of which Rs. 22,43,419 was paid to Smt. Ashaben M. Shah and Rs. 38,99,991 was paid to Shri Manubhai C. Shah (Ind) on which no interest has been charged by the assessee. Since the assessee is engaged in the business of finance and receiving interest, the assessee should have charged interest at least at 12 per cent per month. Thus, the assessee has failed to show interest income to the tune of Rs. 7,37,197.
The petitioner objected to reopening notice vide communication dt. 20th July, 2010 and raised several contentions. It was contended that the proposed reassessment is founded on mere change of opinion. It was further contended that all the items referred to in the reasons recorded for reopening were subject-matter of the scrutiny assessment and after detailed discussion, the AO had framed the original assessment on 28th Dec, 2006. It was, therefore, contended that reopening is unwarranted and without jurisdiction.
The AO, however, rejected the objections by order dt. 20th Oct., 2010. The petitioner is therefore before us in the present petition challenging both the notice for reopening of the assessment as well as the order rejecting the objections against such reopening proposal.
At the outset, we may notice that the previous assessment was a scrutiny assessment under s. 143(3) of the Act and the present reopening is sought to be done beyond four years from the end of the relevant assessment year. Short question, therefore, is whether such reopening is permissible in view of the provisions contained in s. 147 of the Act.
It is by now well-settled that reopening beyond four years of end of the relevant assessment year would be permissible if the AO has reason to believe that income chargeable to tax has escaped assessment and further that such escapement was by reason of failure on the part of the assessee to make a return under s. 139 or in response to a notice under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for assessment. In the present case, since the assessee had filed the return which was also taken into scrutiny, it would be necessary to examine whether (i) there was any escapement of income from assessment to tax and (ii) whether the same was on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
We may notice that in the reasons recorded for reopening the assessment, the AO has not stated that he is of the opinion that income chargeable to tax had escaped assessment on account of failure on the part of the assessee to truly and fully disclose all material facts necessary for framing the assessment. Even if such requirement is not insisted upon rigidly and if we look at the reasons recorded by the AO, it would be necessary to ascertain whether any such case is established.
We take the three reasons separately one after another. With respect to first reason already recorded hereinabove, it may be seen that the allegation is that the assessee had not filed any confirmation letter with respect to five individuals from whom the assessee had taken unsecured loans to show the source of income and genuineness of the deposits.
With respect to this item, we find that in the assessment order, before framing assessment, the AO, had called upon the assessee to make detailed disclosures about various unsecured liabilities appearing on the credit side of the balance sheet. The assessee was called upon to furnish complete names and postal addresses of the depositors from the year in which the deposit was accepted till the current year. The assessee had also forwarded the certified true copy of the receipts obtained from the depositors. After discussing the response of the assessee and the evidence produced and other related materials, the AO held that an amount of Rs. 28,15,845 claimed to have been received by the assessee from different secured creditors did not satisfy the requirement of law and that therefore, this figure was added in the income of the assessee under s. 68 of the Act. It appears that this addition was questioned by the assessee before the CIT(A). When such appeal was dismissed, the assessee has also approached the'' Tribunal. Whatever may be the outcome of the appeal of the assessee, one thing can be seen clearly, namely, while framing original assessment, the AO was acutely conscious of various unsecured loans shown by the assessee in its accounts. With respect to those unsecured creditors, the AO had doubt, he had called for details from the assessee. The assessee to the extent such details were available had supplied the same. The AO was not satisfied with certain details and therefore made additions under s. 68 of the Act.
It could thus be seen that the entire issue was closely examined by the AO. It is not even stated that the assessee did not disclose the five above mentioned creditors and unsecured loans received from such creditors in the return filed. It, therefore, cannot be stated that the income of the assessee with respect to such items escaped assessment on account of any failure on part of the assessee to fully and truly disclose all material facts.
Counsel for the assessee submitted that three out of the five loans in question were given in the previous years and confirmation of the loanees were on record. He further submitted that with respect to remaining two loans, in response to the AO''s query, confirmation letters were also produced. Counsel for the Revenue, however, disputed this assertion contending that though asked for, such details were not supplied. We are, however, of the opinion that we need not go into this disputed aspect. Suffice to state, at any rate, there was no failure on part of the assessee to disclose necessary facts for assessment.
With respect to second reason, the same pertains to certain unaccounted loans granted to different parties amounting to Rs. 10,26,488 which as per the reasons for reopening, the AO was of the opinion that the same was required to be added to the total income of the assessee from undisclosed source under s. 68 of the Act.
With respect to such item, the assessee had at the time of original assessment supplied full details as called for by the AO. These details have been produced before us at p. 90 of the paper book. After verifying these details, the AO in the original assessment order did not make any additions. It is, of course, true that in the assessment order, there is no detailed discussion about not making such additions. However, when we find that there was specific query from the AO with respect to this item and the assessee filed detailed reply producing supporting evidence, by no stretch of imagination can it be stated that there was failure on the part of the assessee to fully and truly disclose all materials facts.
With respect to third reason, the same pertains to non-charging of interest to one Smt. Ashaben Shah. The AO was of the opinion that the assessee should have charged interest @ 12 per cent.
In this regard, the assessee pointed out that non-charging of interest in the year was on account of inadvertent, genuine and bona fide mistake on the part of his office. After closing the accounts, this mistake was noticed and this mistake was corrected on 1st April, 2004 by passing necessary entries in the books of the HUF. It was, therefore, contended that there was no loss to the Revenue.
With respect to this reason, we find that while framing the original assessment, the AO had called for various details from the assessee with respect to loans received during the year whether squared up or not, confirmation of different parties alongwith their names, addresses, etc. bank reconciliation statement of all the bank accounts of such parties and details of secured loans obtained during the year alongwith details of securities, assets, etc., if there were creditors or loans outstanding for more than three years details such as, names and addresses of the persons, nature of outstanding entry, total amount involved, etc. In response to such queries, the assessee had made detailed disclosures and given full particulars of details as required by the AO. It was, thereafter, the entire assessment was framed. Here also, we find that the AO had raised certain queries and called for details. Such details were provided. Under the circumstances, this reason also would not be available for reopening assessment beyond four years.
In the result, we are of the opinion that the reopening notice is without jurisdiction and the same is required to be quashed. Resultantly, order disposing of objections also cannot sustain. For the reasons recorded above, the impugned notice of reopening dt. 30th March, 2010 is quashed. The order dt. 20th Oct., 2010 rejecting the assessee''s objections to such reopening is also quashed. The petition is allowed accordingly.