In a recent case, the Delhi High Court quashed the reassessment order passed under Section 148 of the Income Tax Act, 1961, by assessing officers, highlighting a lack of independent application of mind.
The writ petition was filed by Sahu Exports, the petitioner, who submitted its Return of Income (ROI) for the aforementioned Assessment Year on 27.09.2011. Subsequently, the petitioner underwent a scrutiny assessment.
The Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act concerning the receipt of an unsecured loan amounting to Rs.2,00,00,000/- from an entity named Transnational Growth Fund Limited.
During the proceedings, Somil Agarwal, the counsel for the petitioner, argued that there was no clear connection between the evidence used to support the finding that income, which would have otherwise been subject to tax, had escaped assessment, and the information provided to the AO or the reasons presented in the case.
Since the AO hadn’t conducted an independent evaluation of the information provided, the petitioner contended that the AO had acted with borrowed satisfaction. Thus, the petitioner claimed to have fairly and truly disclosed material facts regarding the unsecured loan, and the assessment order under Section 143(3) of the Act was framed accordingly.
Prashant Meharchandani, Counsel for revenue, argued that the AO, in the original assessment order dated 26.02.2014, had only disallowed the interest on the unsecured loans and had not expressed an opinion on whether the amount received as a loan was, in effect, an accommodation entry.
The bench determined that reassessment proceedings were triggered without the AO applying his own mind and articulating reasons for believing that the available material indicated that the income chargeable to tax had escaped assessment.
After analyzing the facts and arguments, a division bench of Justice Satish Rajiv Shakdher and Justice Girish Kathpalia quashed the reassessment order, emphasizing the lack of independent application of mind by the assessing officers.
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