2017 (8) TMI 1303 - AT - Income Tax

Validity of Reopening of assessment - validity of reasons to believe - Held that - Assessee was supplied with the reasons recorded and opportunity to raise objections thereto was given to him. It was availed as the assessee raised the objections against the validity of initiation of reopening proceedings and the Assessing Officer duly disposed off the said objections. The reason to believe was based on search operation in Bhushan Steel Group and survey at the assessee. We thus do not find substance in the contention of the ld. AR that initiation of reopening proceedings against the assessee was not valid. It is well established position of law that for initiation of reopening proceedings formation of reasons to belief is required to be based upon a prima facie view that taxable income has escaped assessment. Sufficiency of such belief cannot be questioned before the court of law. We thus do not find reason to interfere with the first appellate order in this regard, as in our view, the ld. CIT (Appeals) under the facts and circumstances of the case as discussed above has rightly upheld the validity of initiation of reopening proceedings and the assessment framed in furtherance thereto. - Decided against assessee Addition on unexplained share capital including share premium - Held that - The sources of capital introduced in these companies were established during the respective assessment proceedings. It is also pertinent to mention over here that out of total 6 investor companies, notices could not be served in case of 2 companies as they were not available on the given addresses and in case of 1 company notice could not be served as the premises was found locked on various days. The remaining 4 companies had responded and had filed their submissions. However, there is no dispute that in case of all the 6 investor companies, the assessee had filed primary documents and had accordingly discharged its initial onus to establish identity and creditworthiness of the investor companies and genuineness of the transaction as there is no dispute that all the transactions have been done through banking channels i.e. through account payee cheques and demand drafts. We thus find that the Assessing Officer has failed to discharge its onus to prove that the documents filed by the assessee, as discussed above, were false or fabricated as the Assessing Officer has not made any efforts to verify those documents especially when there is no dispute that all the investor companies were filing their returns of income and were being assessed by the Department. The Assessing Officer on the contrary remained suspicious on the claimed receipt from the investor companies on some other factors like some of them were not found on their given addresses, some of them had furnished their submissions through posts and some of them were not having sufficient income etc. as discussed above. Under these circumstances, we are of the view that the ld. CIT (Appeals) was justified in deleting the addition of ₹ 5,15,00,000./- made under section 68 of the Act on account of unexplained share capital and share premium - Decided against revenue

Issues Involved:

1. Validity of reopening of assessment proceedings under sections 147/148.
2. Addition of unexplained share capital and share premium under section 68.

Issue 1: Validity of Reopening of Assessment Proceedings under Sections 147/148

The assessee challenged the validity of the reopening of assessment proceedings under sections 147/148, arguing that the initiation was based on a report by the Investigation Wing, which was not confronted to the assessee, and there was no independent application of mind by the Assessing Officer (AO). The assessee's main contention was that the principles of natural justice were violated since the AO did not provide the assessee an opportunity to examine the evidence or cross-examine the witnesses.

The Tribunal noted that the AO had supplied the reasons recorded for reopening the assessment and had given the assessee an opportunity to raise objections, which were duly disposed of by the AO. The Tribunal upheld the validity of the reopening proceedings, stating that the formation of reasons to believe was based on a prima facie view that taxable income had escaped assessment. The sufficiency of such belief cannot be questioned before the court of law. The Tribunal found no reason to interfere with the first appellate order, which upheld the validity of the initiation of reopening proceedings and the assessment framed in furtherance thereto.

Issue 2: Addition of Unexplained Share Capital and Share Premium under Section 68

The Revenue challenged the deletion of the addition of ?9,30,00,000/- made by the AO on account of unexplained share capital and share premium. The AO had made the addition on the grounds that the identity and creditworthiness of the investor companies were not established, as all the investors were showing nominal income, and the genuineness of the transactions was in doubt.

The Tribunal observed that the assessee had filed confirmations, Income Tax Return acknowledgements, and bank accounts of the investor companies, establishing their identity and creditworthiness, and the genuineness of the transactions. The entire amount had been received through normal banking channels by account payee cheques/demand drafts. The Tribunal noted that the primary onus lies upon the assessee to establish the identity and creditworthiness of the creditors/investors as well as the genuineness of the transaction. After discharging this onus, the burden shifts to the Revenue to prove the documents filed by the assessee as false to attract addition under section 68.

The Tribunal referred to several judicial precedents, including the decisions of the Hon'ble Delhi High Court and the Hon'ble Supreme Court, which held that if the assessee furnishes documents to evidence the genuineness of transactions and the identity and creditworthiness of parties, no addition can be made under section 68. The Tribunal found that the AO had failed to discharge the onus to prove that the documents filed by the assessee were false or fabricated. The AO's suspicion was based on factors such as some investor companies not being found at the given addresses and some having low income, which were not sufficient to justify the addition.

The Tribunal upheld the first appellate order, which deleted the addition of ?9,30,00,000/- made under section 68 on account of unexplained share capital and share premium, as it was based on the ratio laid down in the cited judicial decisions. The Tribunal dismissed the appeal filed by the Revenue.

Conclusion:

Both the cross objection by the assessee and the appeal filed by the Revenue were dismissed. The order was pronounced in the Open Court on 18th August 2017.

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