2018 (5) TMI 2103 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - assessee has not satisfactorily explained the identity and creditworthiness of the shareholder and the genuineness of the transactions - HELD THAT - As the original assessment in the instant case was completed u/s 143(3) on 02.04.2009 and the Assessing Officer had accepted the raising of share capital on the basis of various details furnished by the assessee and since the notice has been issued after a period of four years from the end of the relevant assessment year and in the said notice there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment therefore we do not find any infirmity in the order of the ld. CIT(A) in holding that the reopening of the completed assessment u/s 148 and re-assessment u/s 147/143(3) is not as per law and are void ab-initio. The various decisions relied on by ld. DR are distinguishable and not applicable to the facts of the present case. The grounds raised by the Revenue are therefore dismissed.

Summary

Issues Involved:
1. Validity of Reassessment Proceedings under Section 147/148 of the Income Tax Act.
2. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.
3. Addition of share application money and share premium under Section 68 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148 of the Income Tax Act:
The primary issue in the appeal was the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147/148 of the Income Tax Act. The original assessment was completed under Section 143(3) on 02.04.2009, where the AO had accepted the share capital raised by the assessee. The AO issued a notice under Section 148 on 20.03.2014, beyond the four-year period from the end of the relevant assessment year, without alleging any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The CIT(A) held that the reopening of the completed assessment under Section 148 and reassessment under Section 147 were not as per law and were void ab-initio. The CIT(A) emphasized that the AO had not provided any cogent and definite material to form a reason to believe for reopening the assessment. The decision was supported by various judicial precedents, including the Hon’ble Delhi High Court's rulings in Haryana Acrylic Manufacturing Co. vs. CIT and Wel Intertrade P. Ltd. vs. ITO, which clarified that for reopening an assessment after four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The AO's notice under Section 148 did not contain any allegation that the assessee had failed to disclose fully and truly all material facts necessary for assessment. The CIT(A) noted that during the original assessment, the AO had verified the details of the share capital and share premium by issuing notices under Section 133(6) to the share applicants and receiving confirmations. Therefore, the reassessment proceedings were based on a change of opinion rather than any new tangible material.

The CIT(A) concluded that the reassessment proceedings initiated after the expiry of four years from the end of the relevant assessment year were invalid, as there was no failure on the part of the assessee to disclose material facts. This conclusion was in line with the proviso to Section 147 and supported by judicial precedents, including the Supreme Court's decision in M/s Kelvinator of India.

3. Addition of Share Application Money and Share Premium under Section 68 of the Income Tax Act:
The AO had made an addition of Rs. 23,41,70,000/- to the total income of the assessee, being the share application money and share premium received during the year, under Section 68 of the Income Tax Act. The AO's addition was based on statements recorded during the search and survey operations, which indicated that the share capital and share premium were introduced in the books through bogus entries from paper companies.

The CIT(A) found that the AO had already verified the share capital and share premium during the original assessment proceedings and had accepted them as genuine. The reassessment proceedings were initiated based on statements and affidavits obtained during the search and survey operations, which were not sufficient to justify the reopening of the assessment. The CIT(A) held that the AO's action was based on suspicion rather than a reason to believe, and therefore, the addition made under Section 68 was not sustainable.

Conclusion:
The ITAT upheld the CIT(A)'s order, dismissing the Revenue's appeal and the assessee's cross-objection. The ITAT agreed that the reassessment proceedings were void ab-initio, as they were initiated beyond the four-year period without any failure on the part of the assessee to disclose fully and truly all material facts. The addition made under Section 68 was also found to be unjustified, as the AO had already verified the share capital and share premium during the original assessment. The ITAT's decision was pronounced on 24th May 2018.