Reassessment cannot be reopened over unsecured loans received in the preceding assessment year.

The petitioner had received unsecured loans from three entities during FY 2016–17, relevant to AY 2017–18.

For AY 2018–19, it filed a nil-return and its assessment was completed under Section 143(3) after scrutiny and examination of its records.

In 2022, the Assessing Officer issued a notice under Section 148A(b), alleging that the loans were accommodation entries, and passed an order under Section 148A(d), followed by a notice under Section 148.

The petitioner challenged the reopening, contending that no fresh loans had been taken in AY 2018–19; only interest was recorded and repayment debited during that year.

Whether reopening the assessment for AY 2018–19 was sustainable when the unsecured loans identified in the reopening notice had been received in the preceding assessment year.

Whether the amounts cited as unsecured loans in the notice could be matched to the interest expense recorded in the petitioner’s ledger for AY 2018–19.

The Court considered Sections 148 and 148A of the Income Tax Act, 1961, under which reassessment proceedings may be initiated where information suggests that income chargeable to tax has escaped assessment, subject to the procedure under Section 148A.

The Court applied the principle that reopening for a particular assessment year cannot be sustained on the stated basis where the alleged loan receipts pertain to a different assessment year and the amounts relied on do not correspond to the relevant year’s recorded interest expense.

The Court found it undisputed that the petitioner had received the loans in FY 2016–17, relevant to AY 2017–18, and had disclosed them in its ledger for that year; only the interest component was recorded in the year under consideration.

The Revenue’s attempt to connect the loan figures in the Section 148A(b) notice with the interest expense in the ledger failed: the figures were Rs. 22,55,340 and Rs. 2,25,534 respectively.

Given that mismatch and the absence of loan receipts in AY 2018–19, the Court held that reopening for that year could not be sustained.

The Court allowed the petition and quashed and set aside the order dated 31 March 2022 passed under Section 148A(d); the Rule was made absolute.