2018 (10) TMI 1633 - AT - Income Tax

Reopening of assessment - not to disclose the transaction of 1 crore receiving share application money Held that - From the reasons recorded which are reproduced in Para 2 of the assessment order. Nowhere clarifies that what was the failure of the assessee not to disclose this transaction of 1 crore receiving share application money from Alka Diamond Industries Ltd. It is a fact that the assessee has disclosed the transaction in the return of income accompanying audited accounts including balance sheet which depicts receipt of share application money of 1 crore from Alka Diamond Industries Ltd. Even otherwise the assessee before the AO during the reassessment proceedings in response to notice under section 133(6) of the Act Alka Industries Ltd. submitted details of Income Tax return copy of ledger account of the assessee in the books of Alka Industries Ltd. copy of bank statement showing relevant transaction source of investment and also explained the factual position vide letter dated 30.01.2015. The AO during the course of re-assessment proceedings made addition of share application money of 1 crore received from Alka Diamond Industries Ltd. simplicitor on the basis of mere statement of Shri Praveen Kumar Jain without confronting the assessee. Moreover no further enquiry was carried out by the AO whether the amount is explained or unexplained the fact that the assessee has submitted complete details before the AO. This issue is now settled in the case of CIT vs. Orchid Industries Pvt. Ltd. (2017 (7) TMI 613 - BOMBAY HIGH COURT) wherein held as referring to voluminous documentary evidence only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. - decided in favour of assessee. Addition of share application money - consequently addition of adhoc expenditure on account of commission paid to obtain these bogus capital at the rate of 5% - Held that - There cannot be any doubt about the identity of the company. The amounts have been received from investing company have Come through banking channel which are duly reflected in the Balance sheet of the assessee company. Therefore there cannot be any doubt about the genuineness of the transaction. So far as credit worthiness is concerned the investing company is regularly assessed to income tax and they are disclosing all - decided in favour of assessee.

Issues Involved:
1. Jurisdiction and validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Deletion of addition of ?1 crore as unexplained share application money.
3. Addition of ?1,62,50,000 as unexplained cash credit under section 68.
4. Addition of estimated unexplained expenditure under section 69C.

Detailed Analysis:

1. Jurisdiction and Validity of Reassessment Proceedings:
The Revenue challenged the CIT(A)'s decision to quash the reassessment proceedings initiated under section 147 read with section 143(3) of the Income Tax Act. The CIT(A) found that the reassessment was initiated after four years from the end of the relevant assessment year without demonstrating any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The CIT(A) noted that the original assessment was completed under section 143(3) and all required details were submitted by the assessee. The CIT(A) relied on several judicial precedents, including Sound Casting Pvt. Ltd. vs. DCIT and German Remedies Ltd. vs. DCIT, to conclude that the reassessment was not sustainable as there was no tangible material or reliable evidence to justify the reopening.

2. Deletion of Addition of ?1 Crore as Unexplained Share Application Money:
The CIT(A) also deleted the addition of ?1 crore made by the AO as unexplained share application money. The CIT(A) observed that the assessee had provided all necessary evidence, including income tax returns, ledger accounts, bank statements, and the source of investment. The AO did not bring any contrary evidence to refute these submissions. The CIT(A) emphasized that mere suspicion or presumption could not be the basis for making an addition, especially when the transactions were confirmed by the parties involved. The CIT(A) cited several ITAT decisions, including DCIT vs. Easy Mercantile Pvt. Ltd., to support the deletion of the addition.

3. Addition of ?1,62,50,000 as Unexplained Cash Credit under Section 68:
In the assessee's appeal, the CIT(A) had confirmed the addition of ?1,62,50,000 as unexplained cash credit under section 68. The assessee argued that it had discharged its onus by providing evidence of the identity, creditworthiness, and genuineness of the share applicants. The Tribunal noted that the assessee had submitted various documents, including income tax returns, audit reports, bank statements, and confirmations from the investing companies. The Tribunal found that the assessee had provided sufficient evidence to establish the genuineness of the transactions and the identity of the investing companies, which were still active and regularly filing balance sheets. The Tribunal, following its earlier decision in the case of Diwali Capital & Finance Pvt. Ltd., deleted the addition, holding that the evidence provided by the assessee was sufficient to substantiate the transactions.

4. Addition of Estimated Unexplained Expenditure under Section 69C:
The assessee also contested the addition of ?28,12,500 as estimated unexplained expenditure under section 69C, which was made at the rate of 5% of the alleged unexplained cash credit. The Tribunal, considering the facts and circumstances of the case and following its decision in the group case of Diwali Capital & Finance Pvt. Ltd., deleted this addition as well. The Tribunal held that the evidence provided by the assessee was sufficient to establish the genuineness of the transactions and that the addition was not justified.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order quashing the reassessment proceedings and deleting the addition of ?1 crore. The Tribunal allowed the assessee's appeal, deleting the addition of ?1,62,50,000 and the estimated unexplained expenditure of ?28,12,500. The Tribunal's decision was based on the sufficiency of the evidence provided by the assessee and the lack of contrary evidence from the AO. The order was pronounced in the open court on 10-01-2019.

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