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2019 (8) TMI 558 - AT - Income TaxValidity of reopening of assessment u/s 147 - addition u/s 68 - information received from the CBI - addition relating to Share application money/ share capital and share premium receipts - HELD THAT - The information received from the CBI only alleges that there was quid-pro-quo in receiving share capital. There should not be any doubt that it was only allegation at that point of time. Whether the said allegation could be the basis for forming belief that there was escapement of income is the moot question. In our view, the said allegation could trigger the investigation, but it alone cannot be the basis for arriving at the belief that there was escapement of income. AO should bring some other material to show that the apparent was not real or it does not satisfy the conditions of sec. 68. Nothing of that sort was brought on record by the AO while recording the reasons for reopening. Hence, we are of the view that the assessing officer was not right in law in reopening the assessment, as he could not have entertained the belief about escapement of income on the basis of reasons recorded by him. Information received from the CBI, as spelt out by the AO in the reasons recorded and in the remand report, would show that the CBI has alleged that the investments have been made by the applicants as quid pro quo to the benefits received by them. This information cannot be the basis for reopening of assessment, since it is the assessing officer who has to apply his mind on the issue and take an independent view. It is not visible from the reasons recorded by the AO that he has taken any independent view on the matter. The question that would arise is Whether this information alone is sufficient to form the belief that there was escapement of income?. In our view, it will not lead to the belief that the income of the assessee has escaped the assessment. Addition u/s 68 - no fault in details submitted by assessee - HELD THAT - From the assessment order as well as from the paper book furnished by the assessee, it can be noticed that the assessee has furnished all the details that were called for by the AO. AO has treated the share premium has unexplained cash credit only for the reason that the same was commensurate with the size of the income and financial strength of the assessee. We have noticed that the AO has reached to this conclusion without carrying out any further investigation and without bringing any material on record. The AO has not shown that the Share premium so collected by the assessee represents assessee s own money warranting an addition u/s 68. However, the fact remains that the share premium has been collected as per the understanding reached between both the parties. AO has not mentioned in the assessment order that the assessee has failed to satisfy the three main ingredients in the context of sec. 68. His only case was that the assessee did not substantiate the quantum of share premium collected. We have noticed that the assessee has furnished a valuation report in order to justify the share premium, even though the same has been rejected by the AO. However, the important point is that the doubt of the AO on the quantum of share premium cannot be a ground for making addition u/s 68. This view is supported by the decision rendered by Hon ble Bombay High Court in the case of CIT vs. Green Infra Ltd 2017 (4) TMI 185 - BOMBAY HIGH COURT It is not the case of the AO that the assessee did not furnish any of the details called for by him. Further, the AO did not find any fault with the documents furnished by the assessee except some deficiencies in the application forms filed by the assessee, which are procedural mistakes. The AO also did not make any independent enquiry with the share applicants in order to find out the veracity of the submissions made by the assessee. Under these set of facts, it has to be presumed that the AO was satisfied with the details furnished by the assessee. Hence, we are of the view that the decision rendered by Hon ble Supreme Court in the case of NRA Iron and Steel P Ltd 2019 (3) TMI 323 - SUPREME COURT shall not apply to the facts of the present case. - Decided in favour of assessee.
Issues Involved:
1. Validity of reopening of assessment. 2. Merits of addition relating to Share application money/share capital and share premium receipts. Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment: The assessees challenged the reopening of assessments, asserting that the observations made by the Assessing Officer (AO) regarding flaws in the allotment of shares were "imaginary and divorced from facts." They argued that the AO's observations on the collection of share capital and share premium were based on "suspicions, surmises, and conjectures." The AO reopened the assessments based on information from the Central Bureau of Investigation (CBI) about alleged quid pro quo transactions involving share premiums. The AO believed that the share premiums were not justified by the companies' financial strength and activities. The Tribunal noted that the AO must have "reason to believe" that income has escaped assessment, and this belief must be based on tangible material. The AO's reasons for reopening were dissected, revealing that the AO relied heavily on information from the CBI without forming an independent belief. The Tribunal found that the AO's reasons did not establish a direct nexus or live link between the material and the belief of income escapement. The Tribunal concluded that the reopening of assessments was based on borrowed information from the CBI, which was not sufficient to form a belief of income escapement. Consequently, the Tribunal held that the reopening of assessments was invalid and quashed the orders. 2. Merits of Addition Relating to Share Application Money/Share Capital and Share Premium Receipts: The AO assessed the share application money and share premium as income under Section 68 of the Income Tax Act, citing that the share premiums were not commensurate with the companies' financial strength. The assessees argued that they had provided all necessary details and documents to substantiate the share premiums, including a valuation report from a firm of Chartered Accountants. They contended that the share premiums were capital receipts and could not be taxed as income. The Tribunal observed that the AO had accepted the genuineness of the share capital to the extent of its par value, indicating satisfaction with the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the AO's primary contention was the high share premium, but this alone could not justify an addition under Section 68. The Tribunal referred to various judicial precedents, including the decision of the Hon'ble Supreme Court in the case of NRA Iron & Steel P Ltd, which emphasized the need for cogent evidence to substantiate the genuineness of share premiums. The Tribunal found that the AO had not conducted any independent inquiries or brought any material on record to disprove the assessees' claims. The procedural lapses pointed out by the AO were deemed insufficient to question the genuineness of the share transactions. The Tribunal concluded that the additions made by the AO under Section 68 were not justified and deleted the additions. Conclusion: The Tribunal quashed the reopening of assessments due to the lack of independent belief by the AO and the reliance on borrowed information from the CBI. On merits, the Tribunal found that the assessees had provided sufficient evidence to substantiate the share premiums and that the AO's reasons for additions were not supported by adequate material or inquiries. Consequently, the Tribunal allowed the appeals of the assessees and deleted the additions made by the AO.
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