INCOME TAX ACT, 1961

Section 148

Reassessment - Notice under section 148 - Reasons to believe formulated by the AO based on a fundamentally flawed approach -

AO issued notice under section 148 on the ground that outsatanding loan liability had to be considered to be without consideration and, therefore, taxable under section 56.Held: It was clearly discernable that AO had accepted genuineness of loan transaction. Lender as well as assessee/borrower have duly admitted that part of loan and interest were outstanding. Reasons recorded for reopening were completely silent as to how provisions of section 56 not attracted in respect of outstanding liability of loan. Moreover, reasons also did not spell out as to how there had been escapement of income by the assessee. The approach of AO was fundamentally flawed, as he had assumed that just because certain loan amount was outstanding, the same was liable to be added to income of assessee. Thus, applying the test of prima facie evaluation of reasons for determining whether commencement of reassessment proceedings was valid or not, there was nothing on record to justify reopening. Therefore, notice under section 148 proceedings emanating therefrom was quashed.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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