Facts of the Case

The petitioner, Alankar Promoters LLP (earlier Alankar Promoters Pvt. Ltd.), challenged a notice dated 31.03.2019 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2012-13.

The original assessee company was incorporated on 07.09.2011 and had filed its return declaring Nil income, which was processed under Section 143(1). The balance sheet disclosed an interest-free unsecured loan of ₹5,00,000 received from a director, which was repaid in the subsequent year through banking channels.

In January 2019, the company was reconstituted as an LLP. The reassessment was initiated solely on the basis that the assessee had shown an unsecured loan despite not carrying out business activity during the year. The petitioner challenged both the reopening notice and the reassessment order passed thereafter.

 

Issues Involved

Whether the Assessing Officer had valid “reason to believe” that income had escaped assessment under Section 147.

Whether mere reflection of an unsecured loan in the balance sheet constitutes tangible material for reopening assessment.

Whether reassessment proceedings initiated beyond four years satisfy statutory jurisdictional requirements.

 

Petitioner’s Arguments

The petitioner contended that:

The reassessment was initiated without any tangible material indicating escapement of income.

The unsecured loan of ₹5,00,000 was fully disclosed in the balance sheet and notes to accounts and was received from a director through proper banking channels.

There was no allegation or material suggesting that the loan represented undisclosed or taxable income.

The notice was based on mere suspicion, not “reason to believe,” and therefore lacked jurisdiction.

 

Respondent’s Arguments

The Revenue argued that:

The assessee had not carried out any business activity during the year, yet had shown an unsecured loan.

This fact, according to the Assessing Officer, gave rise to a belief that income chargeable to tax had escaped assessment.

Since no assessment under Section 143(3) had been completed earlier, the reopening was permissible under law.

 

Court Order / Findings

The Delhi High Court held that:

“Reason to believe” must be founded on tangible material having a live link with the formation of belief that income has escaped assessment.

Mere existence of an unsecured loan in the balance sheet cannot, by itself, justify reopening of assessment.

There was no material whatsoever to indicate that the loan was unexplained, non-genuine, or taxable under the Act.

The Assessing Officer acted on assumptions and conjectures, amounting at best to “reason to suspect,” which is impermissible in law.

The Court relied upon and reiterated settled principles laid down in:

Chhugamal Rajpal v. S.P. Chaliha

ITO v. Lakhmani Mewal Das

CIT v. Kelvinator of India Ltd.

and held that the jurisdictional conditions under Sections 147/148 were not satisfied.

 

Important Clarification

The Court clarified that:

Reassessment powers, though wide, are not plenary.

Full and true disclosure in the balance sheet negates any inference of escapement in the absence of contrary material.

Reopening of assessment cannot be based on vague, remote, or far-fetched reasoning.

The statutory requirement is “reason to believe,” not “reason to suspect.”

 

Final Outcome

Writ Petition Allowed
 Notice issued under Section 148 set aside
 Reassessment order passed under Sections 143(3)/147 quashed

The Court held that the reassessment proceedings were without jurisdiction and unsustainable in law.

link to download the order -  https://www.mytaxexpert.co.in/uploads/1770191486_ALANKARPROMOTERSLLPEARLIERALANKARPROMOTERSPVT.LTD.VsINCOMETAXOFFICERORS..pdf  

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