Re-assessment initiated to treat unpaid loan as notional income under section 56 quashed by Delhi HC

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145
NOTIONAL INCOME
Re-assessment initiated to treat unpaid loan as notional income under section 56 quashed by Delhi HC
Vanita Sanjeev Anand v. ITO – [2020] 116 taxmann.com 39 (Delhi)
Assessing Officer (AO) issued notice under section 148. In response to such notice assessee filed a return of income and requested for supply of reasons to believe. The AO furnished the same.
Assessee contended that the AO had proceeded on a wrong premise by treating the genuine loan transaction as income of the assessee under section 56. The AO ignored the creditor’s confirmation. The Creditor had confirmed to the investigation wing that the loan was interest bearing and substantial amount was returned in the next year.
 The said amount was shown as outstanding in his record and couldn’t be assumed to be the escaped income of the assessee.
On writ, the Delhi HC held that the nature of transactions depend on the intention of the parties. Both the parties had admitted that the loan was an interest bearing loan.
The reasons were completely silent as to how the provisions of section 56 were attracted in respect of outstanding loan.
The approach of the AO assuming the outstanding loan as income of the assessee was fundamentally flawed. The reasoning didn’t indicate the basis for coming to conclusion that assessee’s income had escaped assessment. No material or basis was found to justify the reopening of assessment.
Thus, the notice of reopening of assessment was quashed.
Its a welcome judgment as many reassessment are carried out without following due procedure of logic.
Even sometimes the reassessment is done on the issue which was well explained during the course of original assessment.
It has been held by judiciary that reassessment for change of opinion is also not a valid assessment under section 148.
Taxpayers may also recall that in the last month , even improper service of Notice fir reassessment was also quashed by the judiciary.
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