Re-Opening of the Assessment on the Mere Belief that Income Could Have been Earned via Interest on Loans is Not Justified: Bombay HC

Issue  

Petition filed to challenge the impugned notice dated 30th March, 2021 issued under Section 148 of the Income Tax Act, 1961 seeking to re-open the assessment for A.Y. 2017-18 and the order dated 22nd June, 2021 rejecting petitioner’s objections. 

Facts  

• The assessment order under Section 143(3) of the Act was passed on 21st December, 2019 determining total income of Rs.1,20,89,790/-.  
• The assessee has taken interest bearing loan from various institutions in market and advanced part of loan so taken to group companies either at low interest rate or at NIL interest rate.” 
• In the assessment order dated 21st December, 2019 five notices were issued by the Assessing Officer under Section 142(1) of the Act. In the notice dated 1st October, 2019 a specific query has been raised by which petitioner was called upon to provide party wise details along with address of the parties to whom loan and advances were given and details of interest received on such loans and also furnish the nature of the loans/advances. 
• Petitioner has provided party wise details along with address of the parties to whom loans and advances were given, interest received on such loans and the nature of the loans/advances vide letter 14th November, 2019. 

Findings  

According to Jurisdictional Assessing Officer (JAO) survey report submitted by DDIT investigation indicate that interest should be charged at 12% per annum on loan given to sister concern totaling to Rs.4,17,04,380/- and therefore income chargeable to tax has been under assessed by the said amount. According to the JAO this interest income of Rs.4,17,04,380/- has escaped assessment. 

Rather Court is of the opinion that petitioner has in fact not received any interest in respect of the loans/advances given to seven of its group companies in the assessment order 2017-18. When no income is received there is no question of paying any tax on income which respondent think should have been received but was in fact not received. 

Judgement  

The Bombay HC quashed and set aside the impugned notice dated 30th March, 2021 issued under Section 148 of the Act and the order dated 22nd June, 2021 rejecting petitioner’s objections. 

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