2019 (7) TMI 868 - AT - Income Tax

Reopening of assessment u/s 147 - addition towards share capital and share premium raised during the year u/s 68 - investing company is a registered NBFC - in case of investing company AO taken reassessment proceedings on the ground that company had received share premium of ₹ 30.94 crores source of which was not proved but after verification the AO has accepted the returned income without any addition - HELD THAT - As in CIT vs. Gagandeep Infrastructure Pvt. Ltd. 2017 (3) TMI 1263 - BOMBAY HIGH COURT wherein the Hon ble Courts have held that once the steps have been taken by the Revenue against the shareholder no action lies against the company on the ground that income has escaped assessment by the reason of investments/subscription in the share of the assessee company by the investors whose cases have been taken up by the Revenue in order to verify the transactions. We find merit in the arguments of the Ld. A.R. that there has to be live link between the material coming to the possession of the AO and formation of belief regarding escapement of income and is squarely covered by the ratio laid down by the jurisdictional High Court in the case of Pr. CIT vs. Shodiman Investment Pvt. Ltd. 2018 (4) TMI 1287 - BOMBAY HIGH COURT . As perused the decision relied upon by the Revenue and found that they have been rendered on the different facts and are not applicable to the present case. We, therefore, in view of the aforesaid facts and ratio laid down by the various judicial forums hold that reopening as made by the AO is not proper and without valid jurisdiction and accordingly we set aside the order of Ld. CIT(A) on this issue. Accordingly we hold that the re-assessment proceedings u/s 147 are without any valid jurisdiction invalid and is quashed. Ground No.1 is allowed. Addition u/s 68 - proviso to section 68 as amended by Faiance Act 2012 w.e.f. 1.4.2013 is effective from assessment year 2013-14 - HELD THAT - The assessee has proved the source of investments by the investors to be out of share capital and reserves and source of source is not to be proved. As in Aditya Birla Telephone Ltd. 2019 (4) TMI 63 - BOMBAY HIGH COURT held source of source is not required to be proved. In the present case, the AO has not conducted any enquiries with respect to identities and creditworthiness of the investors and genuineness of the transactions despite the fact that assessee has filed all the evidences with the AO. The facts of the assessee s case are clearly distinguishable from the facts in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. 2019 (3) TMI 323 - SUPREME COURT and therefore the ratio laid down by the Hon ble Supreme Court is not applicable as the AO has not investigated the matter despite assessee having filed all the evidences. In view of the aforesaid facts and circumstances and the ratio laid down by the various decisions we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. Accordingly, we hold that the addition as confirmed by the Ld. CIT(A) under section 68 is wrong and consequently can not be sustained. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 read with section 148 of the Income Tax Act.
2. Addition of ?18,00,00,000 as unexplained cash credit under section 68 of the Income Tax Act.
3. Addition of ?18,00,000 under section 69C of the Income Tax Act.
4. Charging of interest under section 234B of the Income Tax Act.
5. Dismissal of penalty initiated under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee challenged the reopening of the assessment on the grounds that the conditions required under section 147 read with section 148 were not fulfilled. The AO reopened the assessment based on information from the Investigation Wing regarding high-value transactions by M/s. Lifetime Financial Services Ltd., which was suspected to be a paper company. The AO believed that the transactions resulted in escapement of income. However, the assessee contended that M/s. Lifetime Financial Services Ltd. is a registered NBFC with sufficient capital and reserves, and the AO's belief was based on unverified information. The Tribunal found that the AO did not provide the information received from the Investigation Wing to the assessee, violating natural justice. Furthermore, the Tribunal noted that the AO of M/s. Lifetime Financial Services Ltd. accepted its returned income without any additions, indicating it was not a paper company. The Tribunal concluded that the reopening of the assessment was invalid and quashed the reassessment proceedings.

2. Addition of ?18,00,00,000 as Unexplained Cash Credit:
The AO added ?18,00,00,000 to the assessee's income as unexplained cash credit under section 68, alleging that the assessee failed to prove the identity, creditworthiness of the investors, and genuineness of the transactions. The assessee provided various documents, including share application forms, bank statements, PAN cards, ITRs, and audited financial statements, to substantiate the transactions. The Tribunal observed that the AO relied on statements from alleged entry providers without providing copies to the assessee or allowing cross-examination. The Tribunal held that the assessee discharged its onus by providing sufficient evidence and that the AO did not conduct adequate investigations. The Tribunal cited decisions of the Hon’ble Bombay High Court and the Supreme Court, emphasizing that the source of the source need not be proved. Consequently, the Tribunal directed the AO to delete the addition.

3. Addition of ?18,00,000 under Section 69C:
The AO made an addition of ?18,00,000, estimating unaccounted payments for availing accommodation entries. The Tribunal found that since the primary addition under section 68 was deleted, this consequential addition under section 69C became infructuous and required no adjudication.

4. Charging of Interest under Section 234B:
The issue of charging interest under section 234B was considered consequential to the primary issues. Given the Tribunal's findings on the primary issues, this matter required no separate adjudication.

5. Dismissal of Penalty under Section 271(1)(c):
The issue of penalty under section 271(1)(c) was also considered consequential. Since the primary additions were deleted, the penalty issue required no separate adjudication.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings and directing the deletion of the additions made by the AO. The consequential issues were deemed infructuous and required no further adjudication.