2019 (3) TMI 1560 - HC - Income Tax

Reopening of assessment - Addition u/s 68 - genuineness of the transaction or credit and the credit worthiness of the individual providing the money not established - HELD THAT - Revenue gets hold of information or material which tends to or has the potential of undermining its findings (previously made in the assessment proceedings) and have an important bearing, invocation of the power to reassessment is warranted. Now in the present case, the Revenue presses several such circumstances one, that the SEBI application was made in 2014 after a questionnaire was issued by the AO; two there was nothing to justify the premium of 457 per cent over the face value of the shares even the market value of the share according to the Revenue on the date of issue of the shares was only ₹ 318/- per share. Three, the SEBI approval was given much later; four, when the authorized capital of company was ₹ 20 lakhs (mostly paid) the necessity for issuing shares worth ₹ 87 crores remained unanswered. The reassessment notice in this case was clearly warranted. Though the assessee had sought to explain that the share application amounts were received and later the shareholding rights were transferred by Mr. Analjit Singh to his family trust. The identity of Shri Analjit Singh was known; however, looking at the transaction (i.e. allotment of shares vastly in excess of the authorized capital, in the absence of any SEBI approval and retention of that money by the assessee which did not show any reason for issuing the shares) the other ingredients of Section 68 (i.e. genuineness of the transaction or credit and the credit worthiness of the individual providing the money) were apparently not established. - Decided in favour of revenue

Issues Involved:
1. Validity of reassessment notice under Sections 147/148 of the Income Tax Act, 1961.
2. Justification for addition of share application money as unexplained income under Section 68 of the Act.
3. Adequacy of reasons to believe for reopening assessment.

Detailed Analysis:

1. Validity of reassessment notice under Sections 147/148 of the Income Tax Act, 1961:
The petitioner challenged the reassessment notice issued under Sections 147/148 of the Income Tax Act, 1961. The petitioner argued that the scrutiny assessment for AY 2011-12 had already examined the matter, and the addition made on the same ground was deleted on appeal. The revenue could not resuscitate the same issue without any new material. The petitioner contended that the reassessment proceedings were initiated based on erroneous and factually incorrect reasons, aiming to reopen a concluded assessment impermissibly. The court, however, noted that the reassessment notice was valid as the revenue had tangible material to conclude prima facie that there had been escapement of income. The court found that the reasons to believe were based on material that had the potential of undermining previous findings, justifying the reassessment notice.

2. Justification for addition of share application money as unexplained income under Section 68 of the Act:
The petitioner argued that the share application money of ?87 crores received from its founder and promoter, whose identity and creditworthiness were not in doubt, should not be treated as unexplained income under Section 68. The petitioner stated that the transfer of the right to be allotted shares against the share application money to Neeman Family Foundation was subject to SEBI's permission. The entire investment of ?87 crores was disclosed to SEBI, and the SEBI approval was obtained later. The court observed that the transaction involved allotment of shares vastly in excess of the authorized capital, without SEBI approval, and retention of the money by the assessee without issuing the shares. These circumstances raised doubts about the genuineness of the transaction and the creditworthiness of the individual providing the money. Therefore, the addition of the share application money as unexplained income under Section 68 was justified.

3. Adequacy of reasons to believe for reopening assessment:
The petitioner contended that the reasons to believe for reopening the assessment lacked due application of mind and were based on erroneous grounds. The petitioner relied on various judgments, including Sheo Nath Singh vs. ACIT and Income Tax Officer vs. Lakhmani Mewal Das, to argue that valid reasons to believe were a sine qua non for assuming jurisdiction under Section 147. The court, however, found that the reasons to believe had a rational connection with the formation of the belief that income had escaped assessment. The court noted that the reasons included the timing of the SEBI application, the unjustified premium on the shares, the delayed SEBI approval, and the discrepancy between the authorized capital and the share application money. These factors provided a reasonable basis for the belief that income had escaped assessment, justifying the reopening of the assessment.

Conclusion:
The court concluded that the reassessment notice was warranted, and the addition of the share application money as unexplained income under Section 68 was justified. The writ petition was dismissed, and the revenue was allowed to issue the final reassessment order within two weeks.

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