The Income Tax Appellate Tribunal, Mumbai, in the case of Team Global Logistics (P.) Ltd v. DCIT[i] analysed s. 147 of the Income-tax Act, 1961 (‘IT Act’) and highlighted the necessity for tangible evidence when reopening an assessment.
Facts
The assessee company filed its return of income for the assessment year 2012-2013, which was processed under s. 143(1) of the IT Act.
Subsequently, the Assessing Officer (‘AO’) received information that the assessee company had received Rs. 35,00,000/- from Tribhuvan Dealtrade Pvt. Ltd. (‘TDPL’), a company identified as a paper concern involved in providing accommodation entries. The AO concluded that the transaction lacked a business rationale and that the assessee company was a beneficiary of one of these entries. Based on this information, the assessment was reopened under s. 147 of the IT Act and notices under s. 143(2) were issued.
The assessee company furnished a loan balance confirmation and submitted that it had paid interest on the loan to TDPL, with TDS deducted at source. Despite this, the AO disallowed the loan receipts of Rs. 35,00,000/- and charged interest of Rs. 2,81,688/- as unexplained cash credit under s. 68 of the IT Act.
An appeal was filed against an order passed by the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC) (‘CIT’) on the grounds that the notice issued under s. 148 was bad in law.
Held
The appeal was allowed, and the reopening of the assessment was quashed. It was observed that the reason for reopening, as stated by the AO, was that the original return was not picked up for scrutiny. However, upon reviewing the records, it was found that the AO had already issued notices under s. 142(1) during the original assessment and had specifically examined the issue of the loan at that time. Therefore, the reopening of the assessment was based on a misunderstanding of the facts and was essentially a case of change of opinion, which is not a valid ground for reopening.
Reliance was placed on the decision of the Hon’ble Supreme Court in the case of Union of India & Ors. v. Rajeev Bansal[ii], which clarified the procedure for reopening assessments under s. 147. The Supreme Court held that the AO could reassess the income of an assessee only if he has cogent reasons to believe that income has escaped assessment. However, reopening based solely on a change of opinion without fresh tangible material is not permissible.
Our Analysis
In this decision, the ITAT Mumbai emphasised the requirement for cogent and tangible evidence to justify the reopening of an assessment as laid down in the case of Union of India v. Rajeev Bansal (supra). It reiterated that an assessment cannot be reopened merely on a change of opinion, as it is not a tool for the AO to reconsider a previously formed opinion. The AO is required to record clear reasons to believe that income has escaped assessment based on fresh, tangible material. Reopening an assessment without such material is impermissible.
End Notes
[i] [2024] 167 taxmann.com 749 (Mumbai - Trib.) dated 15.10.2024.
[ii] 2024 SCC OnLine SC 2693 dated 03.10.2024.
Authored by Rosy Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.