J. B. Syntex Private Limited Vs ITO (Gujarat High Court)
Reassessment – Unsecured loans received in an earlier assessment year cannot form the basis for reopening a subsequent year when no fresh loans were received and only interest was credited.
Gujarat High Court quashed reassessment proceedings initiated against J. B. Syntex Private Limited for Assessment Year 2018-19, holding that unsecured loans received during Financial Year 2016-17, relevant to Assessment Year 2017-18, could not form the factual basis for reopening the subsequent assessment year on the grounds recorded by the Revenue. The dispute arose from information received through the Income Tax Department’s Insight Portal alleging that the assessee had obtained accommodation entries in the form of unsecured loans from three entities, namely Infocus Securities P. Ltd., Quetzal Exim P. Ltd. and Zenic Traders P. Ltd. Acting on this information, the Assessing Officer issued a show-cause notice dated 14 March 2022 under Section 148A(b) of the Income Tax Act, 1961, followed by an order dated 31 March 2022 under Section 148A(d) and a notice under Section 148.
Original Scrutiny Assessment and Disclosure of Unsecured Loans:
The assessee had filed its return of income for AY 2018-19 on 26 September 2018 declaring nil income. The return was selected for scrutiny and a notice under Section 143(2) was issued on 23 September 2019. During assessment proceedings, the assessee furnished details of unsecured loans, including party-wise particulars, through its letter dated 8 October 2019. After examining the material, the Assessing Officer completed the scrutiny assessment under Section 143(3), read with Sections 143(3A) and 143(3B), on 24 March 2021 without disturbing the returned income. Subsequently, the Department sought to reopen the assessment on the allegation that the loans represented accommodation entries.
Assessee’s Objections to Reopening: The assessee submitted that the Department had proceeded on an incorrect assessment-year premise. The unsecured loans had actually been received during FY 2016-17, corresponding to AY 2017-18, whereas the disputed reopening concerned AY 2018-19. No fresh loans had been received from the three entities during the year under consideration. The assessee explained that the ledger for AY 2018-19 reflected only the interest component and repayment entries relating to earlier borrowings. Accordingly, it argued that the alleged loan transactions could not establish escapement of income for the assessment year sought to be reopened.
Revenue’s Defence and Discrepancy in Figures: The Revenue contended that information concerning unsecured loans obtained from alleged dummy entities justified reopening and that the figures appearing in the show-cause notice could be compared with the interest amounts reflected in the assessee’s return and ledger. The High Court rejected this comparison after examining the records. It found that the interest expense reflected in the ledger was Rs. 2,25,534, whereas the unsecured loan amount referred to in the notice was Rs. 22,55,340. The figures were substantially different and did not tally. More importantly, the Department did not dispute that the unsecured loans had been received in the preceding financial year.
High Court’s Findings and Final Decision: The Gujarat High Court held that the reassessment proceedings for AY 2018-19 could not be sustained in the circumstances. The Court emphasised that the relevant loans belonged to AY 2017-18 and that only the interest component was credited during the year under consideration. The attempt to equate the amount of unsecured loans with the interest expense was factually untenable. Consequently, the writ petition was allowed and the order dated 31 March 2022 passed under Section 148A(d) was quashed and set aside. The decision highlights the importance of identifying the correct assessment year and verifying the underlying transactions before initiating reassessment proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1.The present writ petition has been filed by the petitioner questioning the reopening of the assessment for the Assessment Year 2018–19 (hereinafter referred to as “year under consideration”) pursuant to the notice dated 31.03.2022 issued under Section 148 of the Income Tax Act, 1961 (for short, “the Act”), as well as the order dated 31.03.2022 passed under Section 148A(d) of the Act.
2.It is the case of the petitioner that it had received unsecured loans from three parties during the Financial Year 2016–17, relevant to the Assessment Year 2017–18, namely:
(1) Infocus Securities P. Ltd.
(2) Quetzal Exim P. Ltd.
(3) Zenic Traders P. Ltd.
3. Accordingly, the petitioner filed its return of income for the year under consideration on 26.09.2018, declaring total income at Rs. Nil.
4. The case of the petitioner for the year under consideration was selected for scrutiny and a statutory notice dated 23.09.2019 came to be issued under Section 143(2) of the Act.
5. The petitioner, vide letter dated 08.10.2019, furnished various details, including a statement showing party-wise details of unsecured loans received during the Financial Year 2016-17 relevant to Assessment Year 2018-19. The then Assessing Officer, after threadbare examination of the details furnished by the petitioner from time to time, framed the assessment vide order dated 24.03.2021 passed under Section 143(3) read with Sections 143(3A) and 143(3B) of the Act, without disturbing the returned income.
6. Thereafter, the respondent issued a show-cause notice dated 14.03.2022 underSection 148A(d)of the Act, on the basis of information received through the Insight Portal, alleging that the petitioner had received unsecured loans from the aforesaid three entities and that the same amounted to accommodation entries.
7. The petitioner, accordingly, furnished a detailed reply on 23.03.2022. However, the explanation tendered by the petitioner did not find favour with the Assessing Officer, resulting in the passing of the impugned order dated 31.03.2022 under Section 148 A(d) of the Act.
8. At the outset, learned Senior Advocate Mr.Hemani has submitted that the reopening of the assessment is premised on an erroneous premise, since the petitioner had taken unsecured loans during the Assessment Year 2017–18 i.e. the immediately preceding year and only the interest component was credited and the repayment was debited during the year under consideration. It is submitted that no fresh loans were taken from the aforesaid parties during the year in question, i.e. Assessment Year 2018–19. Under such circumstances, and in view of the undisputed facts, the question of adding the loans taken in the immediately preceding year does not arise at all. Hence, it cannot be said that there was any escapement of income chargeable to tax for the year under consideration. Thus, it is urged that the impugned notice as well as the order be quashed and set aside.
9. Responding to the aforesaid submissions, learned Senior Standing Counsel Mr. Karan Sanghani, appearing for the Revenue, has submitted that, upon receipt of the information, it was observed that the petitioner had taken unsecured loans from dummy entities, which warranted reopening of the assessment for the year under consideration. While referring to the return of income, it is submitted that the amounts mentioned under the head of unsecured loans in the notice dated 14.03.2022 could be compared with the interest amounts reflected in the return and in the ledger of the petitioner. It is submitted that it could not be said that the reopening was impermissible for the year under consideration merely because the petitioner might have obtained the loans in the preceding year i.e. Financial Year 2016–17 relevant to Assessment Year 2017–18.
10. Upon threadbare examination of the documents on record and considering the pleadings and submissions of the learned advocates appearing for the respective parties, we are of the opinion that the impugned order is required to be quashed and set aside, since it is not in dispute that the petitioner had received unsecured loans from the aforesaid three entities during the immediately preceding year i.e. Financial Year 2016–17 relevant to Assessment Year 2017–18.
11. This aspect has not been disputed by the respondent. The impugned notice dated 31.03.2022 as well as the order dated 31.03.2022 seek to reopen the assessment for the Assessment Year 2018–19. It is also not in dispute that, in the ledger, the petitioner had disclosed the availment of unsecured loans from the aforesaid parties for the Assessment Year 2017– 18, and that only the interest component was credited during the year in question.
12. Before us, a vain attempt has been made to compare the figures mentioned in the notice issued under Section 148A(b) of the Act dated 14.03.2022, relating to the unsecured loans, with the amount of interest reflected in the ledger of the petitioner towards interest expenses.
13.We find that there is a substantial difference between the two amounts. The amount of interest expense reflected in the ledger account is Rs.2,25,534/-, whereas the amount of unsecured loan mentioned in the notice is Rs.22,55,340/-. Thus, the figures do not tally.
14. In view of the aforesaid facts and circumstances, we are of the opinion that the reopening of the assessment for the Assessment Year 2018–19 cannot be sustained. The writ petition, therefore, succeeds and is accordingly allowed.
The impugned order dated 31.03.2022 passed under Section 148A(d) of the Act is hereby quashed and set aside. Rule is made absolute.
