2019 (6) TMI 917 - AT - Income Tax

Reopening of assessment u/s 147 - notice issued without the approval of the designated authority Addition u/s 68 on account of share capital - Failure to prove the genuineness and creditworthiness of the shareholders who have invested in the Company - summons u/s 131 issued to Director of assessee company and also to the shareholder, remained uncomplied with - HELD THAT - The notice has been issued prior to the approval. Thus, reopening u/s 148 is without the approval of the designated authority and as such reassessment itself is bad and without any jurisdiction. The mandatory conditions of Section 148 has not at all followed by Revenue. Therefore, the re-opening itself is void ab initio and does not survive. - Decided in favour of assessee.

Summary

Issues:
1. Addition of share capital under section 68 of the Income Tax Act, 1961.
2. Reopening of the case under section 147/148 of the Income Tax Act, 1961.

Analysis:

Issue 1: Addition of Share Capital
The appeal involved the Revenue challenging the deletion of an addition of ?70,000,000 made under section 68 of the Income Tax Act, 1961 on account of share capital for Assessment Year 2007-08. The Revenue contended that the assessee failed to prove the genuineness and creditworthiness of the shareholders who invested in the company. Additionally, the Revenue argued that the summons issued to the director of the assessee company and the shareholder remained uncomplied with. The Revenue also highlighted specific information regarding a share subscriber, Venus Insec Pvt. Ltd., where the accounts were signed by an individual linked to providing accommodation entries. However, the CIT(A) had deleted the additions under section 68 without appreciating these facts.

Issue 2: Reopening of the Case
The Cross Objection challenged the reopening of the case under section 147/148 of the Income Tax Act, 1961. The assessee, a private limited company, was incorporated for brokerage activities but had not engaged in any such activities during the relevant year. The reassessment proceedings were initiated based on a search/survey operation conducted by the Investigation Wing, leading to the addition under section 68. The assessee contended that the reopening was invalid as the notice was issued prior to the approval of the designated authority, rendering the reassessment itself without jurisdiction. The AR argued that the initiation of reopening was flawed in law due to procedural irregularities. After considering both sides, the Tribunal found that the reopening under section 148 was without the necessary approval, making the reassessment void ab initio. Consequently, the Cross Objection filed by the assessee was allowed, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection, emphasizing the procedural irregularities in the reopening of the case. The judgment highlighted the importance of adhering to the statutory procedures and approvals required for initiating reassessment proceedings under the Income Tax Act, 1961.