2016 (2) TMI 224 - AT - Income Tax

Reopening of assessment - information conveyed by DIT - undisclosed share capital received - Held that - As there is no rebuttal from the side of Revenue of the assessee s contention that the share capital received by the assessee company of ₹ 48,00,000/- received from the shareholders was duly disclosed in the return of income and books of account which were duly examined by the AO at the time of original assessment proceedings. The balance sheet of assessee placed before us at page 6 of the paper book clearly shows the receipt of ₹ 48,00,000/- as share capital money for 960 Equity Shares of ₹ 1000/- each ₹ 500/- per share called and paid up. The assessee had shown total receipts in its hands at ₹ 51.30 lacs which consists of ₹ 48 lacs as share capital, ₹ 1.5 lacs as Rent, ₹ 91,608 as interest and ₹ 86,215 as sale of agricultural produce, which all stood accepted by the AO u/s. 143(3) of the Act. The ld. DR failed to adduce any tangible material to show that a sum of ₹ 62 lacs represented unaccounted money rotated through Shri Surender Kumar Jain group of cases. Therefore, mere information conveyed by DIT does not constitute to be a tangible material to re-assess the assessee company without any independent enquiry or application of mind. In presence of all these facts, we are of the considered opinion that the action initiated against the assessee u/s. 147 is not legally valid and is liable to be quashed - Decided in favour of assessee

Summary

Issues:
Challenging re-assessment proceedings under section 147 of the IT Act and consequential addition under section 68.

Analysis:
1. The re-assessment proceedings were initiated against the assessee based on information received from DIT(Inv.)-II, New Delhi, regarding a transaction with an alleged accommodation entry operator. The AO believed that unaccounted money of Rs. 62 lakhs had escaped assessment in the hands of the assessee, leading to the addition under section 68 of the Act.

2. The assessee admitted to receiving and accounting for Rs. 48,00,000 as share capital, but disputed the remaining amount of Rs. 14,00,000. The AO, not satisfied with the explanations provided, made an addition of Rs. 62 lakhs under section 68 of the Act.

3. The assessee contended that the re-assessment proceedings were void ab initio as the notice was issued beyond the four-year limitation period. It was argued that all material facts were disclosed during the original assessment, and there was no allegation of failure to disclose necessary information. Citing relevant case laws, the assessee sought to quash the re-assessment.

4. The Tribunal found merit in the assessee's argument, emphasizing that the AO failed to establish that income escaped assessment due to the assessee's failure to disclose material facts. The reasons recorded did not support the reopening of assessment beyond the four-year limit. The Tribunal noted that the share capital received was duly disclosed in the return of income and books of account, which were previously accepted by the AO.

5. The Tribunal concluded that the re-assessment proceedings were not legally valid and ordered the appeal in favor of the assessee. The action initiated under section 147 was deemed void, rendering the addition under section 68 irrelevant. The appeal was allowed, and the decision was pronounced in open court on 10.12.2015.