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2019 (8) TMI 555 - AT - Income TaxReopening of assessment u/s 147 - addition u/s 68 - independent application of mind by AO - CIT(A) has held that the AO has wrongly assumed the jurisdiction over the assessee u/s. 148 HELD THAT - The content of the letter clearly indicates that Investigation Wing was having some suspicion and doubt and it was forwarded to the AO. Without making any enquiries, AO recorded the reason on the basis of only suspicion and doubt. Even AO has not formed his own opinion based on any information gathered or based on any information after perusal of the return filed by the appellant. From the return of income filed by the appellant, it is clearly mentioned that the share capital amount alongwith premium was only ₹ 4.60 crores, however, in the reasons recorded AO has mentioned the share capital amount as ₹ 4,65,98,000/-. AO has copied this figure from the letter of the Investigation Wing. This clearly indicates that AO has not formed its own reason of belief and he has only believed the content of the letter of the Investigation Wing. This content also clearly indicates that while granting the satisfaction by the Addl. CIT, he has not gone through the records and not verified the facts sent by the Investigation Wing. The main observation of the Investigation Wing is that assessee company has charged share premium @₹ 240/- per share which is very high but how this charging of heavy share premiums indicate the escapement of income is not narrated in the letter. AO has also not applied his mind to find out how there is an escapement of income in the form of share capital and share premium. After considering these facts, we find that AO has wrongly assumed the jurisdiction u/s 147 - AO has not given proper opportunity to the assessee to file the objection against the issue of notice u/s 148. The objections disposed off by the AO are also not a speaking one - the grounds raised against the assumption of jurisdiction u/s 147 were rightly allowed by the CIT(A), which does not need any interference on our part, hence, we uphold the action of the CIT(A) on the legal issue and reject the ground no. 1 raised by the Revenue before us. Addition u/s 68 - remarks of the AO clearly indicate that assessee has filed all the necessary documents before the Investigation Wing to prove the identity of the companies, their creditworthiness and genuineness of the transaction. AO has rejected these documents on the ground that these are routine documents. Regarding the charging of premium @₹ 240/- per share, AO commented that this explanation was filed before the Investigation Wing, since reassessment proceeding is different from the proceedings of the Investigation Wing, appellant has not discharged its onus. From the comments mentioned in Para 8 reproduced above clearly indicates that assessee has given explanation for charging the high rate of premium. Without considering those facts and explanation, he has just set aside the explanation on the ground that these explanations were filed before the Investigation Wing. However, the AO was supposed to give reasons for not accepting those explanations. AO has proceeded entirely on the findings of the Investigation Wing and no investigation was made by him. He has not made any enquiry during the re-assessment proceedings. He has even not disclosed the facts on which he has treated that amount of ₹ 4.60 crores as a deemed income of the assessee. Charging of high rate of premium, even if assessee has not started its business has no bearing on the acceptance of the share application money and share premium. Only the companies which have applied for the shares and paid the premium can explain the reasons for paying so much high premium. AO has not made any enquiries from those companies. The enquiries conducted by the Investigation Wing also do not indicate any adverse findings against the assessee. After considering the whole issue, the assessee has established all the ingredients required u/s 68 - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 148 of the Income Tax Act. 2. Deletion of addition under Section 68 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 148 of the Income Tax Act: The Revenue contended that the CIT(A) erred in holding that the AO wrongly assumed jurisdiction over the assessee under Section 148 of the Income Tax Act. The assessee's return was initially processed under Section 143(1) on 27.2.2009. The AO reopened the case based on information from the Directorate of Income Tax (Investigation) regarding suspicious transactions involving share capital from various companies. The AO issued a notice under Section 148 on 25.3.2014 after obtaining approval from the Competent Authority. The assessee objected to the reopening, arguing that the AO did not independently apply his mind and merely acted on the Investigation Wing's report. The CIT(A) agreed with the assessee, noting that the AO did not make any independent inquiries and relied solely on the Investigation Wing's report. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO must form his own belief based on tangible material, which was not done in this case. The Tribunal referenced the Delhi High Court's decision in Pr. CIT v. Meenakshi Overseas (P) Ltd., which held that mere reproduction of the Investigation Wing's report without independent application of mind is insufficient for reopening assessments. 2. Deletion of Addition under Section 68 of the Income Tax Act: The AO made an addition of ?4,60,00,000 under Section 68, citing doubts about the identity, genuineness, and creditworthiness of the investors. The assessee provided various documents, including confirmations, bank statements, ITR acknowledgements, and balance sheets of the investors. The AO rejected these documents, labeling them as routine and insufficient to discharge the assessee's onus under Section 68. The CIT(A) deleted the addition, finding that the AO did not conduct any independent inquiries and merely dismissed the assessee's evidence without proper examination. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to investigate the investors' creditworthiness and the genuineness of the transactions. The Tribunal referenced the Delhi High Court's decision in CIT v. Gangeshwari Metal (P) Ltd., which distinguished between cases where the AO conducts proper inquiries and those where the AO merely rejects the assessee's evidence without investigation. The Tribunal concluded that the AO's approach in this case fell into the latter category, warranting the deletion of the addition. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The AO's failure to independently verify the information and the improper rejection of the assessee's evidence were key factors in the Tribunal's judgment. The Tribunal emphasized the necessity of independent application of mind by the AO in reopening assessments and the requirement for proper inquiries to substantiate additions under Section 68.
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