Addition u/s 68 can not be made applicable where there is no fresh receipt of unsecured loans at all during the year – ITAT
In a recent judgment, Agra ITAT has held that addition u/s 68 of the Act could be made applicable where there is no fresh receipt of unsecured loans at all during the year and the unsecured loan was received in earlier year and the same was being carried forward to the current year.
ABCAUS Case Law Citation:
4934 (2025) (12) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition u/s 68 of the Income Tax Act, 1961 (the Act) on account of unsecured loan appearing in election affidavit.
The assessment of the appellant assessee was originally completed u/s 143(3) of the Act. The case of the assessee was sought to be reopened by the AO based on the information declared by the assessee in his election affidavit filed before the Election Commission of India.
In this case, the election affidavit filed by the appellant assessee with ECI was verified as per provisions of SOP issued by CBDT on 20/03/2019. During verification, it was found that for the relevant assessment year, assessee had a liability in form of Unsecured Loans.
The AO gone through the above information believed that the said unsecured loan had escaped from taxation. Therefore, the AO recorded reasons of his belief that the income chargeable to tax had escaped assessment within the meaning of section 147 of the Act.
As a result, the reassessment was completed u/s 147 r.w.s. 144 r.w.s. 144B of the Act making an addition being the amount of unsecured loan added u/s 68 of the Act.
The Tribunal observed that reasons recorded by AO for reopening the assessment were very very vague and did not contain any factual information thereon. The reasons did not even state whether the unsecured loans were received by the assessee during the year under consideration. The reasons did not state from whom the said unsecured loans were received by the assessee.
The Tribunal noted that there was absolutely no tangible material available with the AO suggesting some escapement of income so as to enable him to form a belief that income of the assessee had escaped assessment warranting reopening within the meaning of Section 147 of the Act. On these vague reasons being recorded, the Addl. CIT had accorded approval u/s 151 of the Act in a mechanical manner. This was a classic case of reopening of assessment being made for making fishing and roving enquiries which is impermissible in the eyes of law, said the ITAT.
The Tribunal noted that factually the assessee submitted that all the unsecured loans were not even received during the year by the assessee. The impugned addition represented unsecured loan received in earlier year and the same was being carried forward to the current year and no addition could be made validly by invoking the provision of Section 68 of the Act.
Further, the Tribunal found that in the proforma for seeking approval u/s 151 of the Act, in response to a Question the AO had mentioned that the provision of Explanation 2(b) of Section 147 of the Act would be applicable. However, the same would be applicable only if no assessment had been made earlier for the year which is sought to be reopened. Even this statutory provision had not been looked into by the Addl. CIT while granting approval for reopening the assessment thereby making his approval mechanical in nature which becomes fatal to the very assumption of jurisdiction for the AO u/s 147 of the Act.
Further, the Tribunal noted that in the original scrutiny assessment proceedings, the AO vide notice u/s 142(1) had raised a query regarding unsecured loans by asking for the name and address of the lenders together with the confirmation, bank account, their creditworthiness etc. The assessee had filed the complete details. The AO on being convinced with the same had chosen not to make any addition in the scrutiny assessment on account of unsecured loans even though various additions were indeed made in the said scrutiny assessment. Hence, the AO had indeed formed an opinion above veracity of the unsecured loans received by the assessee. Now the AO in the reassessment proceedings was only trying to change the opinion already taken by his predecessor on the issue of unsecured loans.
The Tribunal stated that the law is very well settled that reopening of assessment cannot be made for change of opinion of the AO. Further, the law is also very well settled that an assessment cannot be made for making fishing and roving enquiries.
The Tribunal noted that the information submitted by the assessee in the election affidavit was only stating the fact of unsecured loan already availed by him. That did not suggest anything adverse to the assessee much less to the AO to have live link for formation of belief that income of assessee had escaped assessment.
The Tribunal opined that in any event, no addition u/s 68 of the Act could be made in the facts and circumstances of the instant case as there was no fresh receipt of unsecured loans at all during the year. Hence, the assumption of jurisdiction was totally flawed for more than one reason.
Accordingly, the Tribunal quashed the reassessment proceedings.
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