2018 (2) TMI 1850 - HC - Income Tax

Reopening of assessment - information received, pursuant to search conducted in the premises of third party - addition u/s 68 - CIT(A) said that AO did not conduct any sufficient enquiry and given the material that had been placed on record by assessee, the genuineness of the creditors as well as the transactions had been prima facie disclosed which amounted to discharge of onus upon it - ITAT rejected the revenue s objections - HELD THAT - The business premises of the appellant actually belonged to M/s Bhushan Steel Ltd. and several other companies were having their registered offices in the same premises. This led to the suspicion that these companies were paper companies. There is no law that more than one company cannot have its registered of me at one address. There is no law that companies cannot change their registered office. Several companies can have the same registered office. Businesses raise capital and such capital is rotated in economy for increasing is the normal formation of capital in any open economy and the process of capital formation cannot be taken to be representing only unaccounted finds or impeded. All the companies having registered office at that premises undisputedly belonged to Bhushan Group. The sources of capital introduced in these - companies were established during the respective assessment proceedings, including in the case of this appellant company. No evidence was found during the search to indicate introduction of unaccounted cash / finds in the form of share capital in these companies. Therefore, the conclusion based on the facts relied upon by the revenue that the share capital introduced in the companies belonging to Bhushan Group, including the appellant company, are unexplained, is at best premature. - Decided in favour of assessee.

Summary

Issues:
- Appeal against the order of Income Tax Appellate Tribunal (ITAT) upholding the CIT(A)'s direction to delete the amounts brought to tax by the Assessing Officer (AO) for AY 2008-09.
- Reopening of assessment under Section 147 based on information received post search conducted in the premises of a third party.
- CIT(A)'s decision that a sum of ?17.6 crores brought to tax under Section 68 was not justified.
- AO's reliance on reports from companies in Mumbai, Kolkata, and Guwahati for making additions.
- CIT(A)'s observation that the AO did not conduct sufficient inquiry and the genuineness of creditors and transactions was prima facie disclosed by the assessee.
- ITAT's rejection of the revenue's objections.

Analysis:
The High Court heard an appeal against the ITAT's decision affirming the CIT(A)'s direction to delete the amounts brought to tax by the AO for the assessment year 2008-09. The AO reopened the assessment under Section 147 based on information received post a search at a third party's premises, relying on reports from companies in Mumbai, Kolkata, and Guwahati. The CIT(A) found the ?17.6 crores brought to tax under Section 68 unjustified, noting that the AO failed to conduct sufficient inquiry. The CIT(A) held that the genuineness of creditors and transactions was prima facie established by the assessee, shifting the onus. The ITAT upheld this decision, rejecting the revenue's objections.

The Court acknowledged the CIT(A)'s thorough examination of the facts, emphasizing that the appellant had submitted requisite documents to establish the identity of shareholders and the source of money. The Court noted that the AO's suspicion arose from reports indicating multiple companies sharing the same premises, but clarified that several companies can have the same registered office, and changing registered offices is permissible. The Court highlighted that the sources of capital in question were established during assessment proceedings, and no evidence of unaccounted funds was found. Therefore, the conclusion that the share capital introduced in companies belonging to the Bhushan Group was unexplained was deemed premature.

Concluding that the issues raised were factual and that lower authorities had adequately considered relevant circumstances, including details of amounts received from each creditor, the Court found no substantial question of law. Consequently, the appeal was dismissed.