2018 (3) TMI 1607 - AT - Income Tax

Reopening of assessment - addition u/s 68 - Held that - AO has wrongly assumed the jurisdiction u/s 147 of the I.T. Act. The reason for reopening was not properly recorded. The AO has not applied his mind, approval for issue of notice u/s. 148 is not in accordance with law. In view of above, assessment order passed u/s. 147 of the Act r.w. section 143(3) of the Act was rightly treated ab initio void by the Ld. CIT(A), which does not need any interference on my part, uphold this action of Ld. CIT(A) and reject the ground no. 1 raised by the Revenue. Addition u/s 68 - Hon ble Supreme Court of India observed in the case of CIT vs. Stellar Investment Ltd. 2000 (7) TMI 76 - SUPREME COURT by upholding the view taken by the Hon ble Delhi High Court 1991 (4) TMI 100 - DELHI HIGH COURT that in case of a company, even if the subscriber to the share capital are not genuine then too, it would not be regarded as undisclosed income for the assessee company. Keeping in view of the facts and circumstances of the case as explained above and respectfully following the aforesaid precedents, the action of the Ld. CIT(A) of deletion of addition of ₹ 40 lacs is upheld and accordingly, the ground 2 & 3 raised by the Revenue are also rejected.

Issues Involved:
1. Validity of the assumption of jurisdiction under Section 147 of the Income Tax Act, 1961.
2. Deletion of the addition of ?40 lakhs made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, regarding unexplained cash credits.

Issue-wise Detailed Analysis:

1. Validity of the Assumption of Jurisdiction Under Section 147:

The Revenue contended that the Ld. CIT(A) erred in holding that the assumption of jurisdiction under Section 147 was improper because the reasons for reopening were not properly recorded. The Revenue argued that the reasons were recorded in order and duly approved by the competent authority.

The Tribunal examined the reasons recorded by the AO for reopening the assessment. It was noted that the reasons were based on vague, general, and non-specific observations without any objective, tangible, or relevant material. The AO's reasons did not highlight any specific evidence to conclude that the companies were bogus or non-existent, or that the money received represented unaccounted income. The Tribunal emphasized that mere information from the Investigation Wing does not constitute tangible material to reassess the assessee without any independent enquiry or application of mind.

The Tribunal referred to several judicial precedents, including the Hon'ble Delhi High Court's decision in Pr. CIT Vs. G&G Pharma India Ltd., which held that the AO must apply his mind to the materials to have reasons to believe that income had escaped assessment. The Tribunal found that the AO did not independently apply his mind to the information received and mechanically accepted the Investigation Wing's report. Furthermore, the approval obtained under Section 151 was deemed ritualistic and formal rather than meaningful.

The Tribunal concluded that the AO wrongly assumed jurisdiction under Section 147 as the reasons for reopening were not properly recorded, and the AO did not apply his mind. Therefore, the assessment order passed under Section 147 read with Section 143(3) was rightly treated as void by the Ld. CIT(A).

2. Deletion of the Addition of ?40 Lakhs Under Section 68:

The Revenue challenged the Ld. CIT(A)'s decision to delete the addition of ?40 lakhs made by the AO under Section 68, arguing that the assessee failed to prove the creditworthiness and genuineness of the parties.

The Tribunal noted that the assessee had received share capital and share premium from two shareholders, who were corporate entities duly assessed to tax. The assessee provided several documentary evidences, including the names, addresses, PANs, bank statements, and confirmations from the shareholders. The AO did not doubt the genuineness of these documents and did not conduct any inquiries with the respective authorities.

The Tribunal emphasized that the AO relied on statements from the Investigation Wing and a third party without confronting the assessee with these statements or allowing cross-examination. The Tribunal referred to the Hon'ble Supreme Court's decision in Andaman Timber Industries v. CCE, which held that not allowing cross-examination violated principles of natural justice.

The Tribunal concluded that the assessee had provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the shareholders. The AO did not produce any material to rebut this evidence. The Tribunal also referred to the Hon'ble Supreme Court's decision in CIT v. Lovely Exports (P) Ltd., which held that even if share capital money is received from alleged bogus shareholders, it cannot be regarded as undisclosed income of the assessee company.

Therefore, the Tribunal upheld the Ld. CIT(A)'s decision to delete the addition of ?40 lakhs under Section 68 and dismissed the Revenue's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision that the assumption of jurisdiction under Section 147 was invalid and the addition of ?40 lakhs under Section 68 was rightly deleted. The Tribunal emphasized the need for proper recording of reasons for reopening assessments and the importance of allowing cross-examination to uphold principles of natural justice.

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