2011 (10) TMI 667 - AT - Income Tax

Reopening of assessment - addition on account of share application money for allotment of shares u/s 68 - Held that - If the Assessing Officer for whatever reasons has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. It cannot be even the case of the assessee that its case is covered by the proviso u/s 147 as for application of proviso it is a condition precedent that assessment earlier should have been framed under Section 143 (3). Therefore, we find no force in the contention of the assessee that assessment should be quashed simply for the reason that initiation of re-assessment proceedings was invalid. We reject such ground of the assessee In the present case, the assessee filed copies of PAN, acknowledgement of filing income-tax returns of the companies, their bank account, statements for the relevant period i.e., for the period when the cheques were cleared and the parties were not produced in spite of specific directions of the Assessing Officer instead of taking opportunities in this behalf. Keeping in view the fact for non-production of these parties coupled with the outcome of inquiry made by the Investigation Wing, the Assessing Officer has made the addition. The amount paid to the assessee by the share applicants has been shown to be debited in the respective bank accounts of the share applicants and if all these facts are seen, then, it will be a case where addition upheld by the CIT (A) cannot be held to be justified. Therefore, keeping in view the evidence placed on record by the assessee, we are of the opinion that the addition upheld by CIT (A) was not justified and the same requires deletion Assessee has charged high premium on the shares for which no justification has been rendered - Held that - During the year under consideration, the assessee has issued 2,50,000 shares of face value of ₹ 10 at a premium of ₹ 90 by way of private placement. The list of these parties is furnished at pages 249 and 250. To be precise, shares have been issued to 19 parties. The Assessing Officer has doubted the genuineness of share application money with respect to aforementioned 7 parties i.e., in respect of 34,500 shares allotted to those parties and, thus, in respect of balance 12 parties, share applicants of 2,15,500 shares, the Assessing Officer has accepted the genuineness of the share application. Therefore, it is not even the case of the Assessing Officer that the share application money rendered by the aforementioned seven parties was not genuine on the ground that it consisted of huge premium of ₹ 90 on the face value of ₹ 10/-. Thus, there is no force in the contention of the learned DR that on account of charging of heavy premium the share application should be considered non-genuine.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Justification for the addition of Rs. 34,50,000 on account of share application money under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The first issue concerns the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147/148 of the Income Tax Act, 1961. The Assessee contested that the initiation of reassessment proceedings was unjust, illegal, and arbitrary. The AO had received specific information from the Directorate of Income Tax (Investigation) indicating that the Assessee was a beneficiary of accommodation entries provided by certain entry operators, amounting to Rs. 34,50,000 during the financial year 2002-03, relevant to assessment year 2003-04. The AO recorded reasons for reopening the assessment based on this information and obtained the necessary approval under Section 151 of the Act.

The Assessee argued that the AO did not independently apply his mind and merely acted on the information provided by the Investigation Wing, citing the judgment in Sarthak Securities Co. P. Ltd. vs. ITO. The Assessee also referred to various judicial pronouncements emphasizing that the reasons recorded by the AO must be based on evidence and not supplemented by affidavits or oral submissions.

The Tribunal, however, found that the AO had indeed applied his mind independently. The reasons recorded by the AO indicated that he had specific information about the Assessee's bogus transactions and had reasons to believe that income had escaped assessment. This was further supported by the decision in AGR Investment Ltd. vs. Addl. CIT, where the Delhi High Court upheld the initiation of reassessment proceedings based on specific information from the Investigation Wing. The Tribunal concluded that the reassessment proceedings were validly initiated, and the Assessee's contention was dismissed.

2. Addition of Rs. 34,50,000 on Account of Share Application Money:
The second issue pertains to the addition of Rs. 34,50,000 made by the AO under Section 68 of the Income Tax Act, 1961, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessee argued that the addition was unjust, illegal, and arbitrary. The Assessee provided various documents to support the genuineness of the share application money, including copies of share application forms, board resolutions, income tax returns, balance sheets, bank statements, certificates of incorporation, and other relevant documents.

The AO issued summons to the parties involved, but the summons were either returned undelivered or there was no compliance from the parties. The AO concluded that the parties were non-existent and made the addition to the Assessee's income. The CIT(A) upheld this addition, noting that the Assessee failed to produce the principal officers of the investing companies and that there was no evidence of any dividend or interest received from these companies.

The Tribunal, however, found that the Assessee had discharged its initial burden by providing sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal referred to several judicial decisions, including CIT vs. Oasis Hospitalities Pvt. Ltd. and CIT vs. Creative World Telefilms Ltd., which held that the onus shifts to the AO once the Assessee provides the necessary details. The Tribunal observed that the AO did not make further inquiries or confront the Assessee with any adverse findings. The Tribunal concluded that the addition of Rs. 34,50,000 was not justified and deleted the addition.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the validity of the reassessment proceedings but deleted the addition of Rs. 34,50,000 made under Section 68 of the Income Tax Act, 1961. The Tribunal emphasized the need for the AO to conduct a thorough inquiry and not merely rely on the non-compliance of summons to make additions.