2020 (6) TMI 29 - AT - Income Tax

Re-opening of assessment u/s 147 - addition of the sale proceeds u/s 68 - re-opening in this case is beyond a period of 4 years from the end of the assessment year - Approval in such cases is to be obtained from ACIT or JCIT u/s 151 of the Act and not from the Pr. CIT - HELD THAT - It is not clear from where the AO picked up these figures for making the addition. DR could not prove the correctness of these figures. AO has mixed up the facts with some other case. Re-opening made based on such incorrect facts or such wrong figures cannot be sustained. The re-opening in this case is beyond a period of 4 years from the end of the assessment year. The AO states that approval for re-opening of assessment was obtained from the Pr. CIT, Kol-5. The original return file was processed u/s 143(1). Approval in such cases is to be obtained from ACIT or JCIT u/s 151 and not from the Pr. CIT. In any event no proof of approval from any authority is produced before me. There is non-application of mind by the AO to the information received, prior the re-opening of the assessment. This fact is clear from the facts and figures given in the reasons recorded are wrong. Such non-application of mind to the information received by the AO prior to recording of reasons for re-opening of assessment makes the reopening bad in law. Re-opening of assessment based on wrong facts and figures is bad in law. The re-opening is also bad in law as it proves non-application of mind by the AO. Addition of the sale proceeds u/s 68 - Assessee has disclosed the sale of shares in its books of account. Once the sale is declared as income by the assessee, the question of treating the same amount as a cash credit u/s 68 of the Act results in double addition. Moreover, the gross receipt cannot be brought to tax, specifically when the assessee had acquired the shares to an allotment as evidenced by the letter of allotment payment details etc. Thus, the addition is also bad on merits. - Decided in favour of assessee.

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of the addition of ?15 lakhs related to the sale of shares under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147 of the Income Tax Act, 1961:

The assessee challenged the reopening of the assessment on several grounds:
- The information based on which the reopening was initiated was factually incorrect.
- There was no allegation of escapement of income in the information received.
- The Assessing Officer (AO) did not apply his mind to the information received, indicating non-application of mind.
- A copy of the approval from the competent authority for reopening was not provided to the assessee.
- The reason for reopening was that ?12 lakhs received by the assessee had escaped assessment, but no addition was made for this amount in the final assessment order.
- The AO's reply to the objections raised by the assessee contained incorrect figures, indicating non-application of mind.

The Tribunal held that the reopening of the assessment was based on incorrect facts and figures. The AO's reasons for reopening were found to be factually incorrect, and the figures mentioned were not substantiated. The Tribunal noted that the AO mixed up facts with another case, which led to the conclusion that the reopening was invalid.

Additionally, the Tribunal observed that the reopening was beyond four years from the end of the assessment year, and the approval for reopening should have been obtained from the ACIT or JCIT, not from the Pr. CIT. The Tribunal found no proof of approval from any authority.

The Tribunal cited several judicial precedents to support its decision, including:
- The Delhi High Court's decision in Commissioner of Income-tax, IV v. Insecticides (India) Ltd., where it was held that vague and scanty reasons for reopening cannot be sustained.
- The Gujarat High Court's decision in Mumtaz Haji Mohmad Memon vs. ITO, which emphasized that reopening based on incorrect factual grounds cannot be upheld.

The Tribunal concluded that the reopening of the assessment was bad in law due to non-application of mind by the AO and incorrect factual grounds.

2. Validity of the Addition of ?15 Lakhs Related to the Sale of Shares under Section 68 of the Income Tax Act, 1961:

On the merits of the case, the assessee argued that the addition of ?15 lakhs was arbitrary and illegal. The assessee provided evidence of the allotment of shares, payment through cheques, and the sale of shares, all of which were recorded in the books of account and disclosed to the Department. The assessee contended that the addition of the sale proceeds under Section 68 was unjustified as the amount was already disclosed as income.

The Department argued that the assessee company had no real business and was part of a chain of companies incorporated for circulating funds. The Department maintained that the identity, creditworthiness, and genuineness of the transaction were not proved by the assessee.

The Tribunal found that the assessee had disclosed the sale of shares in its books of account, and treating the same amount as a cash credit under Section 68 would result in double addition. The Tribunal also noted that the gross receipt could not be brought to tax, especially when the assessee had acquired the shares through an allotment, evidenced by the letter of allotment and payment details.

The Tribunal concluded that the addition of ?15 lakhs was bad in law on merits.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment was invalid due to non-application of mind and incorrect factual grounds. Additionally, the addition of ?15 lakhs under Section 68 was found to be unjustified and was also invalid on merits. The appeal was thus allowed in favor of the assessee.

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