2017 (10) TMI 525 - AT - Income Tax

Reopening of assessment u/s 148 - receipt of share application money and addition u/s 68 - Held that - Instead of referring in the reasons recorded to the specific facts of assessee s case for justifying the assumption of jurisdiction, the AO addresses the legal position on what would constitute information. Even on merits, it is seen that the AO has proceeded selectively. No justification has been given why share application on a premium is considered not questionable for two concerns when the facts and circumstances of assessee s case remained identical i.e. if the assessee company was worth investing into on a premium in a specific year by two other concerns why only for M/s Genesis Fashions Pvt. Ltd., the share application money on a premium is questioned. The existence of M/s Genesis Fashions Pvt.Ltd. at the very same address by itself, we hold, does not give cause to any infirmity. On the contrary, the existence in-fact stands proved. The documents in support of the transactions, we note, have not been rebutted. Considering the law as it stands and the provisions of the Act, neither assumption of jurisdiction can be upheld nor the addition made on the basis of suspicions, surmises and conjectures. The statement of the Director by itself recorded u/s 133A having no evidentiary value in the face of the documentary evidence on record in the peculiar facts of the present case cannot be brushed aside by the tax authorities on the basis of suspicions and surmises. Accordingly, we allow relief to the assessee both on the jurisdictional issue addressed in Ground No. 1 and 2 and on merits addressed in Ground Nos. 3 to 5 - Decided in favour of assessee.

Issues Involved:
1. Reopening of the case under Section 148.
2. Validity of the reasons to believe and tangible material for reopening.
3. Addition of ?50 lakhs on account of share capital/share premium contribution.
4. Proof of identity, capacity, and genuineness of the transfer of ?50 lakhs.
5. Consideration of the statement recorded during the survey in light of the Supreme Court judgment in Khader Khan Sons.

Issue-wise Detailed Analysis:

1. Reopening of the case under Section 148:
The assessee challenged the correctness of the reopening of the case under Section 148 by the Assessing Officer (AO). The AO issued a notice under Section 148 on 31.03.2014, citing reasons that were included in the assessment order. The assessee argued that there was no reason to believe that income had escaped assessment and that the AO blindly accepted routine information without independent analysis.

2. Validity of the reasons to believe and tangible material for reopening:
The assessee contended that the AO had no tangible material to justify the reopening of the case. The AO relied on routine information from the Directorate of Income Tax, which indicated that share applications had been received on a premium. The assessee argued that the AO did not independently verify the information and acted on pure suspicions. The AO's notice mentioned a share application amount of ?1.50 Crores, while the actual amount was ?1.49 Crores. The assessee also argued that the AO selectively questioned the share application money from M/s Genesis Fashions P. Ltd. while accepting similar transactions from other parties.

3. Addition of ?50 lakhs on account of share capital/share premium contribution:
The AO added ?50 lakhs received from M/s Genesis Fashions P. Ltd. to the assessee's income, questioning the identity, genuineness, and creditworthiness of the transaction. The AO noted that M/s Genesis Fashions P. Ltd. had filed a return of almost NIL income, and the money was credited and debited in round figures, indicating mere movement of funds. The AO also highlighted that the address of M/s Genesis Fashions P. Ltd. was the same as that of the assessee.

4. Proof of identity, capacity, and genuineness of the transfer of ?50 lakhs:
The assessee provided confirmations, bank statements, and other documents to prove the identity, capacity, and genuineness of the transaction. The AO, however, did not accept these explanations, citing the lack of physical existence of M/s Genesis Fashions P. Ltd. and the statement of the Director during the survey, which indicated that it was a paper company. The CIT(A) upheld the AO's addition, stating that the assessee failed to discharge its onus of proving the genuineness and creditworthiness of the transaction.

5. Consideration of the statement recorded during the survey in light of the Supreme Court judgment in Khader Khan Sons:
The assessee argued that the statement recorded during the survey had no evidentiary value, as per the Supreme Court judgment in Khader Khan Sons. The AO relied on the Director's statement that M/s Genesis Fashions P. Ltd. was a paper company. The assessee contended that this statement should not be considered as valid evidence.

Comprehensive Analysis:

Reopening of the case under Section 148:
The Tribunal found that the AO did not independently verify the information received from the Directorate of Income Tax and acted on pure suspicions. The AO's failure to accurately mention the share application amount (?1.50 Crores instead of ?1.49 Crores) indicated a lack of due diligence. The Tribunal held that the AO's action of reopening the case was not justified, as there was no tangible material to support the belief that income had escaped assessment.

Validity of the reasons to believe and tangible material for reopening:
The Tribunal noted that the AO relied on routine information without independently forming a belief that income had escaped assessment. The AO's selective questioning of the share application money from M/s Genesis Fashions P. Ltd. while accepting similar transactions from other parties was arbitrary and whimsical. The Tribunal held that the AO's reasons for reopening the case were not valid and the assessment deserved to be quashed.

Addition of ?50 lakhs on account of share capital/share premium contribution:
The Tribunal found that the AO's addition of ?50 lakhs was based on suspicions and conjectures. The AO did not provide any concrete evidence to prove that the transaction was not genuine. The Tribunal held that the addition was not maintainable, as the assessee had provided sufficient evidence to prove the identity, capacity, and genuineness of the transaction.

Proof of identity, capacity, and genuineness of the transfer of ?50 lakhs:
The Tribunal noted that the assessee had provided confirmations, bank statements, and other documents to support the transaction. The AO's reliance on the Director's statement during the survey was not sufficient to disprove the genuineness of the transaction. The Tribunal held that the assessee had successfully discharged its onus of proving the identity, capacity, and genuineness of the transaction.

Consideration of the statement recorded during the survey in light of the Supreme Court judgment in Khader Khan Sons:
The Tribunal held that the statement recorded during the survey had no evidentiary value, as per the Supreme Court judgment in Khader Khan Sons. The AO's reliance on this statement was not justified, and the addition based on this statement was not maintainable.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the reopening of the case under Section 148 and deleting the addition of ?50 lakhs. The Tribunal held that the AO's action was based on suspicions and conjectures without any tangible material or independent verification. The assessee successfully proved the identity, capacity, and genuineness of the transaction, and the statement recorded during the survey had no evidentiary value. The appeal was allowed in favor of the assessee.

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