AO has framed the assessment under section 147 of the Act as he believed that the loan taken by the assessee has not been shown in balance sheet. From the record and documents submitted it is very much clear that the claim of the assessee that the loan has been repaid during the same financial year is correct. But a careful analysis shows that the loan was not repaid to the party directly but to the creditors of the party. However it does not make any difference in the accounting books and balance sheet. Any way if we see the provisions of the law to reopen the case under section 147 of the Act for the income escaping assessment, there has to be live link between income which escaped assessment and the reasons to believe that the income has really escaped assessment. Merely reopening the case under section 147 of the Act on surmise, premise does not hold good. For the better understanding the relevant extract of the section 147 is reproduced below :
“147, If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment fr any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
The expression reasons to believe refers to the belief which prompts the Assessing Officer to apply to Sec.147 to a particular case. It will depend on the facts of the each case. The belief must be of an honest and reasonable person based on reasonable grounds. The Assessing Officer is required to act, not on mere suspicion, but on direct or circumstantial evidence.
In this present case, we find no live link between the reason to believe and reopening of case u/s 147 of the Act. It was a loan entry in the books of the assessee and the same was also settled within the same year. Therefore, this amount will not be showed in the balance sheet of the assessee during the yearend. It is a well established practice that a case can be reopened u/s 147 of the Act only if there is real intention of the assessee to escape from tax liability. In this case the AO is to form a belief that there is a live link between the reason to belief and income escaped assessment. In the present case, AO collected information at the time of survey that loan it was given has not been shown in the book of accounts. Therefore, issued a notice u/s 148 of the Act and AO did not consider the fact that it is not the case, in case the loan has been repaid will not be shown in assessee’s book of accounts, where simply treating the loan entry as income which has escaped from assesment is not appropriate. We are also relying on the judgment mentioned above by Ld. AR of assessee in the case of Kelvinator of India Ltd. (2) Eicher Ltd. (supra). Therefore, we are inclined to quash the proceedings u/s 147 of the Act made by AO on the basis of gathering information at the time of search and those information were never duly verified by AO. Hence, this ground of assessee’s appeal is allowed. Since the matter got adjudicated on the ground of challenging the ground of reopening u/s. 147 of the Act, other remaining grounds in the appeal of assessee do not require further adjudication.