2018 (12) TMI 747 - AT - Income Tax

Reopening of assessment - failure to obtain the approval of the appropriate authority as envisaged under Sec.151(1) - Held that - A.O while issuing the notice under Sec. 148 had failed to obtain the approval of the appropriate authority as envisaged under Sec.151(1) of the Act, and had issued the notice under Sec. 148 after obtaining the approval of the Addl. CIT, Range-2(1), Mumbai. We are of the considered view that in the backdrop of the aforesaid facts read with the settled position of law the notice issued by the A.O under Sec. 148 in the absence of approval of the appropriate authority contemplated under Sec. 151(1) cannot be sustained. In terms of our aforesaid observations the notice issued by the A.O under Sec.148 cannot be upheld and is quashed. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition on account of bogus share capital.
2. Non-response of shareholders to summons and acceptance of accommodation entries.
3. Validity of confirmations by current shareholders for previous assessment year.
4. Alleged colorable device for introducing unaccounted money.
5. Validity of reopening of assessment under Sec. 148 without appropriate approval.

Detailed Analysis:

1. Deletion of Addition on Account of Bogus Share Capital:
The CIT(A) deleted the addition made by the Assessing Officer (A.O) on account of bogus share capital. The A.O had treated the share capital introduced by the assessee as unexplained cash credit under Sec. 68 of the Income Tax Act, 1961, based on the belief that the share capital was introduced through accommodation entries provided by entities controlled by Shri Pravin Kumar Jain Group. The CIT(A) observed that the A.O had doubted the genuineness of the share capital subscriptions without placing any cogent evidence on record. The CIT(A) noted that the A.O admitted that notices issued under Sec. 133(6) were duly served on 11 parties, and the summons issued to three major shareholders were also served, who confirmed their investments. The CIT(A) concluded that the assessee had proved the genuineness of the transactions, identity of the investors, and their creditworthiness, and thus no addition could be made under Sec. 68.

2. Non-response of Shareholders to Summons and Acceptance of Accommodation Entries:
The A.O issued notices under Sec. 133(6) to 16 share allottee parties, but five notices were returned unclaimed, and the remaining parties did not comply. The A.O concluded that the whole exercise of issuing fresh share capital and its subsequent buyback at a miniscule price was a colorable device to introduce unaccounted money. The CIT(A) observed that the A.O failed to demonstrate and place on record any evidence proving that the assessee obtained accommodation entries from Shri Pravin Kumar Jain group entities.

3. Validity of Confirmations by Current Shareholders for Previous Assessment Year:
The A.O argued that confirmations given by three current shareholders in AY 2012-13 did not substantiate the genuineness of the investors in AY 2007-08. However, the CIT(A) found that the information regarding the purchase of shares by the three major shareholders from some of the 16 parties was submitted during the assessment proceedings. The CIT(A) held that the genuineness of the transactions, identity of the investors, and their creditworthiness were established, and thus no addition could be made under Sec. 68.

4. Alleged Colorable Device for Introducing Unaccounted Money:
The A.O observed that the shares initially issued at ?100 per share were bought back by three shareholders at a price as low as ?9 per share. The A.O concluded that this repurchase was a means to regain control over the assessee company and introduce unaccounted money. The CIT(A) did not find any cogent evidence to support this claim and noted that the transactions were routed through banking channels, and the investor companies were regularly filing their returns of income.

5. Validity of Reopening of Assessment under Sec. 148 without Appropriate Approval:
The assessee raised a preliminary objection under Rule 27 of the Appellate Tribunal Rules, 1963, claiming that the A.O reopened the case without obtaining the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as required under Sec. 151(1) of the Act. The Tribunal found substantial force in the objection and noted that the original assessment was framed under Sec. 143(3), and the A.O had issued the notice under Sec. 148 without obtaining the approval of the appropriate authority. The Tribunal held that the notice issued under Sec. 148 was invalid and quashed it, relying on the judgment of the Hon'ble High Court of Bombay in the case of Shri Ghanshyam K. Khabrani Vs. ACIT.

Conclusion:
The appeal of the revenue was dismissed, and the notice issued by the A.O under Sec. 148 was quashed due to the lack of appropriate approval. The Tribunal refrained from adjudicating the merits of the case since the notice itself was invalid.

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