AO erred in reopening assessment on a wrong finding of fact and conclusion thereof

AO was clearly arbitrary so as to reopen assessment against the assessee on a wrong finding of fact and conclusion thereof – ITAT

In a recent judgment ITAT Delhi has held that AO was clearly arbitrary so as to reopen assessment against the assessee on a wrong finding of fact and conclusion thereof by making addition under Section 69A of the Income Tax Act, 1961 (the Act).

ABCAUS Case Law Citation:
4816 (2025) (10) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC) in confirming addition under section 69 as unexplained income.

The Assessing Officer (AO) received information from Investigation Wing that a search and seizure conducted on a Group revealed that one company had made a transaction of Rs.1 crore with the assessee in the form of unsecured loans.

The AO was on the opinion that it was the fit for accommodation entry received by the assessee in the form of unsecured loans had escaped assessment and proposed to be brought to tax and thus, the case under Section 147 of the Act was reopened upon approval granted by the PCIT under Section 151 of the Act.

The assessee raised objection to this effect that the assessee never received Rs. 1 crore from the said company by way of unsecured loan.

However, the said amount was treated by AO as unexplained income under Section 69 of the Act and added in the hands of the assessee.

Before the Tribunal, the assessee contended that reason recorded by the AO was mainly of escaping assessment by the assessee to the tune of Rs. 1 crore which was alleged to have been received from one company in the form of unsecured loan in the year under consideration which was absolutely an incorrect finding of fact as there was no transaction entered with the said company by the assessee to the tune of Rs.1 crore.

It was submitted that at no point of time during the relevant Financial Year the amount of Rs. 1 crore was credited in the bank account of the appellant assessee. In fact, the assessee paid more than Rs. 1.10 crores to the said company through RTGS. As the assessee had not received the said amount of Rs. 1 crore, the question of recording of ownership of the said money by the assessee was absolutely incorrect finding of fact recorded by the AO.

The Tribunal observed that the reasons recorded apparently were based on incorrect finding of fact rather blindly based on the information received from the Investigation Wing. Before recording reason, there was neither any iota of evidence that the AO had made any investigation whether actually there was an escapement of assessment of Rs. 1 crore by the assessee on the alleged amount received from the alleged party in the form of unsecured loan.

The Tribunal held that in the absence of any document in the hands of the revenue, the finding of fact was palpably bad that too initiation of reopening of assessment under Section 147 of the Act without making any inquiry by the AO cannot be said to be justified.

The Tribunal also opined that the PCIT had also erred in confirming the recording of reasons and addition on escaping assessment by the AO without verifying the said fact recorded by the AO, therefore for this reason the approval was also a product of non application of mind.

The Tribunal held that once the basis of the reopening of assessment being the reason recorded by the AO was not the actual fact and as the AO erred in law and on facts while reopening the assessment, the entire proceeding was vitiated.

As a result, Tribunal quashed the reassessment proceedings. 

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