2011 (10) TMI 594 - AT - Income Tax

Reopening of assessment - reasons to believe - addition made by the AO on account of share capital money received by the assessee - Held that - The reassessment proceedings initiated by the AO are without jurisdiction and invalid in the eyes of law inasmuch as the reasons recorded by the AO do not satisfy the requirement of section 147 of the Act. We therefore uphold the order of the learned CIT(A) in holding that the proceedings initiated by the AO under sec. 147 of the Act are without jurisdiction and invalid however for the reasons given by us. Thus the ground of the revenue regarding the validity of assessment proceedings initiated u/s 147 of the Act is rejected in both the Assessment Years under appeal. Appeals filed by the revenue are dismissed.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Legitimacy of additions made by the Assessing Officer (AO) on account of share capital money received by the assessee.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 of the Income-tax Act, 1961:
- Grounds for Appeal: The revenue challenged the CIT(A)'s decision which held that the reopening of assessment under Section 147 was not justified.
- Original Assessment: For AY 2002-03 and AY 2003-04, the assessee had filed returns and the AO had initially completed assessments under Section 143(3).
- Reassessment Proceedings: The AO issued notices under Section 148 based on information from the Investigation Wing alleging the assessee's involvement in accommodation entries, leading to reassessment and additions of Rs. 30,00,000 and Rs. 35,00,000 for AY 2002-03 and AY 2003-04 respectively.
- CIT(A)'s Decision: CIT(A) held the reopening invalid, stating no fresh or tangible material was available to the AO, and the action was merely a change of opinion.
- Tribunal's Findings:
- Legal Precedents: The Tribunal referred to several judgments, including *ITO vs. Lakhmani Mewal Das*, *Ganga Saran and Sons Pvt. Ltd. vs. ITO*, and *Raymond Woollen Mills vs. ITO*, which emphasize that the AO must have a "reason to believe" based on relevant and material reasons, not arbitrary or vague information.
- Reasons Recorded by AO: The AO's reasons were found to be vague, lacking specifics about the transactions, dates, amounts, and parties involved. The Tribunal noted that the reasons did not disclose the AO's mind clearly and were not sufficient to form a belief that income had escaped assessment.
- Conclusion: The Tribunal upheld CIT(A)'s decision, declaring the reassessment proceedings invalid due to the lack of a rational connection between the information received and the belief of income escapement.

2. Legitimacy of Additions Made by the AO on Account of Share Capital Money:
- CIT(A)'s Findings: The CIT(A) had also considered the merits of the additions and found that the assessee had satisfactorily explained the share application money with supporting documents.
- Tribunal's Decision: Since the reassessment proceedings were deemed invalid, the Tribunal did not proceed to decide on the merit of the additions, rendering this issue redundant.

Conclusion:
The Tribunal dismissed the revenue's appeals, affirming that the reassessment proceedings initiated under Section 147 were invalid due to insufficient and vague reasons recorded by the AO. Consequently, the question of the legitimacy of the additions made by the AO became redundant. This decision was pronounced in the open court on 12th October 2011.