2019 (9) TMI 45 - AT - Income Tax

Addition u/s 68 - share application money received by the assessee company from alleged bogus share holders - Addition based on statement made u/s 131 - HELD THAT - No doubt, none of the investors companies have responded to 133(6) notices issued by the AO, but fact of the matter is when, assessee has filed complete set of documents, including name and address of the parties, it is for the AO to carry out further investigation by exercising all possible options available to him, but non attendance of parties in response to 133(6) cannot be attributed to the assessee, because due to time lag certain persons might have left the place and for this no responsibility can be fastened upon the assessee. It is a settled position of law that once, any third party information/statements is relied upon to make additions, it is the obligation of the AO to provide copies of such statements/information and also to provide an opportunity of cross examination of the person, who gave the statement, when such opportunity has been availed by the person against whom, such statements are used. The Hon ble Supreme Court in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II 2015 (10) TMI 442 - SUPREME COURT had also upheld a similar legal position and held that not allowing the assessee to cross-examine the witnesses by the adjudicating the authority, though the statements and those witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. Therefore, on this count also the additions made by the AO cannot be sustained. Additions by invoking the provisions of section 56(2)(viib) - We find that the said provision has been inserted by Finance Act, 2012 w.e.f 10.04.2013, where it provides that where a closely held company issues its shares at a price which is more than its fair market value, then amount received in excess of fair market value will be charged to tax in the hands of the company as income from other sources. On perusal of amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of section 56(2)(viib) and section 68 it is very clear that where the assessee has issued shares at premium and also received share capital and if such company do not offer any explanation about the nature and source, then sum so received may be regarded as income of the assessee from undisclosed sources. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee.Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application. - Decided against revenue

Summary

Issues Involved:
1. Justification of CIT(A) in deleting the addition of ?8,82,00,000/- made by the Assessing Officer (AO).
2. Validity of reopening the assessment u/s 147 of the Income Tax Act, 1961.

Detailed Analysis:

1. Justification of CIT(A) in Deleting the Addition of ?8,82,00,000/-:

The AO made additions towards share capital and premium, asserting that the assessee failed to prove the genuineness of the transactions and the creditworthiness of the parties. The AO relied on statements from Shri Kamal Khetan and Shri Vikas Sankhlecha, recorded during a survey, which indicated that the share capital and premium were unexplained credits. The AO also noted that the financial statements of the assessee did not support the high valuation of shares issued at a premium.

The CIT(A) deleted the additions, stating that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the investors. The CIT(A) emphasized that the AO failed to investigate the details provided by the assessee and relied on third-party statements without allowing cross-examination, violating principles of natural justice. The CIT(A) also noted that the AO's reliance on the statements was misplaced as they referred to events in subsequent years and not the assessment year in question.

The ITAT upheld the CIT(A)'s decision, agreeing that the assessee had discharged its initial onus by filing necessary documents and that the AO failed to conduct further investigations. The ITAT also highlighted that the AO's reliance on statements without providing an opportunity for cross-examination was against the principles of natural justice.

2. Validity of Reopening the Assessment u/s 147 of the Income Tax Act, 1961:

The assessee contested the reopening of the assessment, arguing that it was based on information from the DIT(I&CI) without the AO applying his mind and without fresh tangible material. The CIT(A) upheld the reopening, stating that the AO had credible information leading to a belief that income had escaped assessment, which justified the reopening under section 147.

The ITAT concurred with the CIT(A), noting that the AO had followed due procedure and had valid reasons for reopening the assessment based on credible information. The ITAT emphasized that at the stage of issuing notice, the AO only needed a prima facie reason to believe that income had escaped assessment, not conclusive evidence.

Conclusion:

The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s deletion of the additions and confirming the validity of the reopening of the assessment. The cross-objection filed by the assessee challenging the reopening of the assessment was dismissed as infructuous.