2025 (5) TMI 743 - AT - Income Tax

Validity of reopening u/s.147 - addition added u/s.68 - HELD THAT -Once the registration was for Assignment of Agreement of the loan from SYCOM Ltd. to Radhe Riya Financial Advisors Pvt. Ltd. then we fail to understand how as per the information ld. AO can assume that this information pertain to sale of immovable property. This shows completely lack of mind on the information. Apart from that this information was also furnished before the ld. AO which was uploaded on the Income Tax portal on 25/03/2022 wherein assessee had submitted the letter as well as the assignment agreement. Assessee has also filed physical letter on 25/08/2016 before the AO which is duly stamped and acknowledged by the office of ACIT and Office of the Income Tax Officer 12(3)(4). Thus this information was there before the AO. Once it is clear that agreement was for assignment of loan then the same cannot be held to be sale of any old property which can be added u/s.68 accordingly the addition made by the ld. AO is deleted. We are compel to express our dismay at the injudicious manner in which the impugned addition has been foisted upon the assessee by the AO. Had the AO demonstrated the requisite circumspection and exercised his quasi-judicial authority with discernment it demands it would have been palpable that neither the initiation of reassessment proceedings nor the consequent addition was warranted. Such sagacity would have obviated the needless vexation of assessee in incurring the litigation cost and time and resources and undue toll thrust upon the assessee. Such kind of mindless assessment betrays the dereliction of duty and cast a shadow on the credibility and fairness of the tax administration in the eyes of citizenry. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in filing the appeal by the assessee can be condoned despite being barred by 192 days?

- Whether the reopening of assessment under section 147 read with section 144 is valid?

- Whether the addition of Rs. 2,60,00,000/- made under section 68 on the ground of unexplained cash credit, allegedly arising from sale of immovable property, is justified?

- Whether the information relied upon by the Assessing Officer (AO) to initiate reassessment proceedings and make the addition was correctly interpreted and applied?

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal and Condonation of Delay

The assessee's appeal was time barred by 192 days. The assessee contended that the company was in liquidation since 1988, had ceased business operations, and had no employees. The tax-related matters were handled by a tax practitioner who failed to inform the assessee about the ex parte order passed by the first appellate authority. The assessee only became aware of the order upon receipt of a show-cause notice for demand. An affidavit was filed supporting these facts.

The Tribunal considered the lack of business activity, absence of employees, and failure of the tax practitioner to communicate the order as sufficient cause for delay. The Tribunal exercised its discretion to condone the delay, recognizing that the assessee was deprived of knowledge of the order through no fault of its own.

Validity of Reopening under Section 147 r.w.s. 144

The reopening was triggered based on information from AIR and TDS statements indicating a sale of immovable property for Rs. 2,60,00,000/-. The AO issued notice under section 148. The assessee did not file a return in response, and notices were allegedly ignored. The AO treated the amount as income from other sources and made an addition under section 68, presuming unexplained cash credit from sale proceeds.

The Tribunal examined the material placed before the AO, including the Assignment Deed dated 02/09/2013, whereby SICOM Ltd., a government undertaking and secured creditor, assigned the loan of Rs. 2,60,00,000/- to Radhe Rhea Financial Advisors Ltd. This assignment was duly registered and stamp duty paid. The assessee had furnished this information to the AO both physically and through the Income Tax Department's portal well before the reassessment proceedings.

The Tribunal noted that the AO's assumption that the transaction pertained to sale of immovable property was a misinterpretation of the facts. The assignment of a financial asset (loan) cannot be equated to a sale of property. The reassessment was therefore based on incorrect information and flawed reasoning.

Addition under Section 68

Section 68 deals with unexplained cash credits. The AO treated the Rs. 2,60,00,000/- as unexplained income on the premise that it represented sale proceeds of immovable property not disclosed in the return. However, the Tribunal found that the amount represented a loan assignment, a financial transaction, not income from sale of property.

The Tribunal relied on the documentary evidence-Assignment Deed, correspondence, and acknowledgments-to conclude that the addition under section 68 was unwarranted. The assessee had adequately explained the source and nature of the amount.

Application of Law to Facts and Treatment of Competing Arguments

The AO's initiation of reassessment and addition was premised on AIR and TDS data indicating a sale transaction. The assessee's explanation and evidence demonstrated that the transaction was a loan assignment, not a sale. The Tribunal emphasized that the AO failed to exercise due diligence and discernment before initiating reassessment and making the addition.

The Tribunal criticized the AO's approach as "injudicious" and "mindless," highlighting that such conduct undermines the credibility and fairness of tax administration. The Tribunal underscored the importance of circumspection and quasi-judicial prudence in tax proceedings to avoid unnecessary litigation and harassment of taxpayers.

3. SIGNIFICANT HOLDINGS

- "Had the AO demonstrated the requisite circumspection and exercised his quasi-judicial authority with discernment it demands, it would have been palpable that neither the initiation of reassessment proceedings nor the consequent addition was warranted."

- The Tribunal held that the reassessment proceedings initiated under section 147 read with section 144 were not justified as the information on which they were based was misconstrued.

- The addition of Rs. 2,60,00,000/- under section 68 on the basis that it was unexplained income from sale of immovable property was deleted, as the amount was a secured loan assigned to another financial entity and fully explained by the assessee.

- Delay in filing the appeal was condoned on grounds of bona fide ignorance caused by cessation of business and failure of the tax practitioner to communicate the appellate order.

- The principles established emphasize the requirement of proper understanding of facts and cautious exercise of power by tax authorities to maintain fairness and credibility in tax administration.

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