2019 (3) TMI 327 - AT - Income Tax

Reopening of assessment u/s 147 - reasons recorded were due to issue of shares at a very high share premium of ₹ 90/- per share raised by a private company - eligibility of reason to believe - reopening within four years from the end of the assessment year - meagre income earned by the assessee - identity and creditworthiness of the subscribers and genuineness of the transaction - HELD THAT - In the instant case, CCIT based on intelligence inputs from DGIT(Intelligence and Criminal Investigation) has informed the AO that the assessee has issued equity shares at a high premium. The return of income was originally processed u/s 143(1) and no scrutiny assessment was framed u/s 143(3). The reopening u/s 147 was sought to be done within four years from the end of the assessment year and amended provisions of Section 147 shall be applicable. The processing of return of income u/s 143(1) cannot be called as an assessment as was held in the case of Rajesh Jhaveri Stock Brokers Private Limited 2007 (5) TMI 197 - SUPREME COURT - AO must have tangible material to come to formation of a belief that income has escaped assessment. The assessee was incorporated only on 14.01.2009 and this is the first year of its operation. There is a meagre income earned by the assessee for the year ended 31.03.2009. There are no assets base nor any business of the assessee as is discernible from the financial statements filed before us. The assessee being a newly incorporated company has issued equity shares of ₹ 10 each at a premium of ₹ 90 per share. The outsiders having no connection with Promoters/Directors of the assessee company had subscribed 90.12% of the total fund infusion in the assessee company while the promoters/directors have infused 9.88% of the total fund infused in the assessee company. The AO acted on the information as to very high rate of share premium charged by the assessee company considering the same to be tangible incriminating material forming a belief that income has escaped assessment. Each case is to be decided on its own factual matrix and present case before us is a fit case for invocation of reopening of assessment u/s 147 of the 1961 Act. We have no hesitation in upholding invocation of provisions of Section 147 of the 1961 Act for reopening of the concluded assessment based on factual matrix of the case. CIT(A) passed a very cryptic order which in our opinion is not sustainable in the eyes of law as the learned CIT(A) whose powers are co-terminus with the powers of the AO is required to adjudicate on the factual matrix of the case keeping in view provisions of Section 68 to see whether evidence on record satisfy the ingredients of provisions of Section 68 as to identity and creditworthiness of the subscribers and genuineness of the transaction of raising of share capital and share premium. Thus, on merits also the appellate order passed by learned CIT(A) is not sustainable in the eyes of law and we set aside the same on merits too. Setting aside the issues in this appeal on merits to the file of learned CIT(A) for denovo adjudication of the issue of raising share capital and share premium to be adjudicated keeping in view provisions of Section 68 and all other relevant provisions of the 1961 Act. - Decided in favour of revenue for statistical purposes.

Issues Involved:
1. Validity of Re-assessment under Section 147.
2. Validity of Notice under Section 148.
3. Examination of Share Premium and Share Capital.
4. Admissibility of Additional Evidence.
5. Grounds of Appeal and Merits of the Case.

Detailed Analysis:

1. Validity of Re-assessment under Section 147:
The Revenue challenged the appellate order quashing the re-assessment under Section 147. The Tribunal observed that the assessee, a newly incorporated company, issued shares at a high premium which was not initially scrutinized. The re-assessment was initiated based on information from the Chief Commissioner of Income Tax (CCIT) regarding the high share premium. The Tribunal held that the re-assessment was valid as it was initiated within four years from the end of the assessment year and the first proviso to Section 147 was not applicable. The Tribunal cited various judgments, including the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers Private Ltd., emphasizing that the AO must have a prima facie belief that income has escaped assessment, which was satisfied in this case.

2. Validity of Notice under Section 148:
The Tribunal noted that the notice under Section 148 was issued based on credible information regarding the high share premium charged by the assessee. The reasons for re-opening were found to be valid as they were based on tangible material indicating possible income escapement. The Tribunal referred to the case of Rajmandir Estates Private Limited v. Pr. CIT and Pr. CIT v. NDR Promoters Private Limited, highlighting that the AO had a bona fide reason to believe that income had escaped assessment.

3. Examination of Share Premium and Share Capital:
The AO observed that the assessee issued shares at a premium of ?90 per share as against the face value of ?10, raising a total of ?1,93,93,000/-. The AO questioned the genuineness of the transactions and the creditworthiness of the investors, noting that the assessee had no substantial business operations. The Tribunal upheld the AO's findings, emphasizing that the onus was on the assessee to prove the genuineness of the share premium and the identity and creditworthiness of the investors. The Tribunal referred to the case of Pratik Syntex Private Limited v. ITO, where similar additions were upheld due to the failure to prove the genuineness of the transactions.

4. Admissibility of Additional Evidence:
The Tribunal noted that the CIT(A) accepted additional evidence submitted by the assessee during the appellate proceedings. However, the Tribunal found that the CIT(A) did not adjudicate the merits of the case and relied on the decision of the Bombay High Court in CIT v. Gagandeep Infrastructure P. Ltd. The Tribunal emphasized that the CIT(A) should have thoroughly examined the additional evidence and the merits of the case, providing a detailed analysis of whether the assessee met the requirements of Section 68 regarding the identity, creditworthiness, and genuineness of the transactions.

5. Grounds of Appeal and Merits of the Case:
The Tribunal set aside the order of the CIT(A) on both legal grounds and merits, directing a denovo adjudication of the issue of raising share capital and share premium. The Tribunal instructed the CIT(A) to provide the assessee with an opportunity to present necessary evidence and explanations. The Tribunal emphasized the need for a detailed examination of whether the transactions met the criteria under Section 68, considering the identity, creditworthiness of the subscribers, and the genuineness of the transactions.

Conclusion:
The Tribunal allowed the Revenue's appeal, upholding the validity of the re-assessment under Section 147 and the notice under Section 148. The Tribunal directed a denovo adjudication on the merits of the case, emphasizing the need for a thorough examination of the share premium and share capital transactions under Section 68.

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