2017 (8) TMI 1325 - AT - Income Tax

Reopening of assessment - 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. - Decided against assessee. Addition u/s 68 - Held that - There is no dispute that in case of all the 7 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. Under these circumstances, we are of the view that the ld. CIT (Appeals) was justified in deleting the addition of ₹ 5,50,00,000./- made under section 68 of the Act on account of unexplained share capital and share premium. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of reopening of assessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Addition of ?5,50,00,000/- on account of unexplained share capital and share premium received by the appellant company.

Issue-wise Detailed Analysis:

1. Validity of initiation of reopening of assessment proceedings under Section 147/148 of the Income Tax Act, 1961:

The assessee challenged the validity of the reopening of assessment proceedings initiated under Section 147/148 of the Income Tax Act, 1961, upheld by the CIT (Appeals). The main contention was that the reopening was based on a report from the Investigation Wing of the Department, which was not confronted to the assessee, and there was no independent application of mind by the Assessing Officer to form reasons to believe that income had escaped assessment. The assessee argued that this violated the principles of natural justice, as the assessment was based on findings that were not disclosed to them, preventing them from examining the evidence or cross-examining the witnesses. The assessee cited several judicial decisions to support their argument that the reasons to believe must be based on tangible material and not mere suspicion.

The Department countered that the assessee was given an opportunity to raise objections against the reopening, which were duly disposed of by the Assessing Officer. The Tribunal found that the assessee was supplied with the reasons recorded and given an opportunity to object, which was availed by the assessee. The Tribunal held that the initiation of reopening proceedings was valid as it was based on a prima facie view that taxable income had escaped assessment, and the sufficiency of such belief could not be questioned before the court of law. Consequently, the Tribunal upheld the first appellate order and rejected the cross-objection.

2. Addition of ?5,50,00,000/- on account of unexplained share capital and share premium received by the appellant company:

The Revenue questioned the deletion of the addition of ?5,50,00,000/- made by the Assessing Officer on account of unexplained share capital and share premium. The Assessing Officer had doubted the creditworthiness of the investor companies and the genuineness of the transactions, as some investors showed nominal income, and some were not found at the given addresses or did not respond to notices. The CIT (Appeals) deleted the addition, finding that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the investors and the genuineness of the transactions.

The Tribunal noted that the assessee had filed confirmations, Income Tax return acknowledgements, and bank accounts of the investor companies, showing that the amounts were received through normal banking channels. The Tribunal referred to several judicial decisions, including those of the Delhi High Court and the Supreme Court, which held that once the assessee establishes the identity of the investors and the genuineness of the transactions, the burden shifts to the Revenue to prove that the documents filed by the assessee are false. The Tribunal found that the Assessing Officer had not made sufficient efforts to verify the documents filed by the assessee and had relied on suspicions and conjectures.

The Tribunal concluded that the assessee had discharged its primary onus to establish the identity and creditworthiness of the investor companies and the genuineness of the transactions. The Tribunal upheld the first appellate order, finding no reason to interfere with the deletion of the addition of ?5,50,00,000/- made under Section 68 of the Act. Consequently, the appeal filed by the Revenue was dismissed.

Conclusion:

The Tribunal upheld the validity of the initiation of reopening proceedings under Section 147/148 and the deletion of the addition of ?5,50,00,000/- on account of unexplained share capital and share premium. Both the cross-objection preferred by the assessee and the appeal filed by the Revenue were dismissed.