ITAT Quashes Reassessment Order:
M/s. Top Class Capital Markets Private Limited vs. Revenue [ITA No. 974 of 2024]
Background of the Case
The Appellant, M/s. Top Class Capital Markets Private Limited, is engaged in trading shares and securities. The appellant filed its return for AY 2013-14 declaring a loss of Rs. 3,64,08,424/-. The case was selected for scrutiny, and the Assessing Officer passed an assessment order under Section 143(3) of the Income Tax Act, 1961, determining the loss at Rs. 2,37,66,572/- and making an addition of Rs. 1,26,41,851/- on account of disallowed losses from trading in securities.
Subsequently, a survey under Section 133A was conducted leading to the reopening of the assessment under Section 147. The AO alleged that the company had received bogus unsecured loans of Rs. 12,59,00,000/- from various entities, which were treated as unexplained cash credits under Section 68 of the Act. The AO also disallowed the interest paid on these loans, amounting to Rs. 46,90,849/-.
The CIT(A) partially allowed the appellant’s appeal, deleting the addition of Rs. 9,85,00,000/- related to seven parties but upheld the addition of Rs. 2,74,00,000/- for five other parties. Both the appellant and the Revenue filed appeals before the ITAT.
Arguments by the Appellant
The appellant argued that the AO erred in reopening the assessment under Section 147/148 without providing complete reasons for reopening, making the reassessment order void ab initio. The appellant had discharged its onus under Section 68 by providing confirmations, ITRs, bank statements, and other documents to prove the identity, creditworthiness, and genuineness of the transactions. The AO’s reliance on the investigation wing’s report was flawed, as the lenders were traceable and had sufficient assets to advance loans.
The CIT(A) correctly deleted the addition of Rs. 9,85,00,000/- for seven parties but erred in upholding the addition of Rs. 2,74,00,000/- for the remaining five parties.
Respondent’s Response
The respondent stated that the CIT(A) erred in deleting the addition of Rs. 9,85,00,000/- under Section 68, as the appellant failed to establish the identity, creditworthiness, and genuineness of the lenders. The investigation wing’s inquiry conclusively proved that the lenders were not operating from the addresses provided in their ITRs and were not engaged in genuine business activities. The CIT(A) relied on PAN, ITR, and confirmations, which are often prepared in bogus transactions, and physical verification is necessary to establish genuineness.
The disallowance of interest paid on unsecured loans of Rs. 37,03,671/- should be upheld as the appellant failed to prove the lenders’ creditworthiness.
Court Findings and Decision
The ITAT bench of Mumbai observed that the AO failed to provide complete reasons for reopening the assessment to the appellant, which is a mandatory requirement. Partial furnishing of reasons renders the reassessment order invalid. The reasons communicated to the appellant did not include crucial details, such as the AO’s belief that income had escaped assessment and the failure of the appellant to disclose material facts. This non-compliance with procedural requirements made the reassessment order bad in law.
Since the assessment order was quashed on legal grounds, the ITAT did not delve into the merits of the case. Consequently, the Revenue’s appeal was dismissed as infructuous.
ITAT Quashes Reassessment Order
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