2021 (1) TMI 123 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reasons recorded by acquiring jurisdiction u/s.147 - Addition u/s. 68 being share capital received during the year - HELD THAT - On careful perusal of reasons, it emerges that assessing officer received detailed information from DCIT Circle 2(2), Mumbai as per which search action was undertaken on Shrish C Shah and it was found that the said person engaged in the business of providing accommodation entries. The reasons also make reference to impounded material wherein the name of assessee has been mentioned as beneficiary. In addition to above, the assessing officer also examined the return of the appellant company to corroborate the information from Investigation Wing and only thereafter the reasons were recorded - fact that M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) is a listed company has no relevance as being listed on a stock exchange is not a certificate of sainthood and even the listed companies have been found to be engaged in unholy practices. The argument of the appellant tat reasons are based on borrowed satisfaction is devoid of any merits as the assessing officer has recorded the reasons only after analysing the information from investigation wing and matching the same with return of income filed by the appellant. Even though we agree that assessing officer should have also carried out preliminary enquiry vis- -vis M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.) so as to verify the allegations of accommodation entry, however, in our view, non carrying of out such exercise will have little effect on validity of notice u/ 147 which is based on specific information from investigation wing. In view of above, we find that the reasons recorded for issue notice u/s 148 satisfies the jurisdictional requirement of section 147 of the Act and as such the validity of notice u/s 147 is upheld. AO has not properly disposed off the objections to notice u/s 148 - It is also the contention of Ld. AR that assessing officer has not properly disposed off the objections to notice u/s 148 of the Act. On examination of order disposing objections, it is evident that assessing officer has para-wise dealt with the objections of the appellant. We do not feel the need to delve into the issue of sufficiency of reasoning given by the assessing officer while rejecting the objections as the same is of academic nature since we have already upheld the validity of notice u/s 148. Addition u/s. 68 - Issuance of share at premium is prerogative of the board and wisdom of the investor. Moreover, in absence of any prohibition with regard to share premium in the Income tax Act, 1961 as relevant for the year under reference i.e. AY 2010-11, no adverse inference is warranted. In any case, the assessing officer having not disputed the value of shares or premium, we fail to see any merit in the contention of Ld DR particularly when the identity, creditworthiness and genuineness of transaction stood established - Appellant has discharged the onus u/s 68 to prove the identity, genuineness and creditworthiness of investor company M/s. Prraneta Industries Ltd. (now known as M/s. Aadhaar Ventures India Ltd.). Accordingly, the assessing officer is directed to delete the addition u/s 68. Reassessment proceedings - Addition u/s 68 - bogus share capital - Whether CIT(A) has grossly erred in confirming the addition even though the same is neither part of reasons nor in respect of which any evidence or material is on record in support of allegation of any undisclosed income - HELD THAT - In the present case, in respect of share capital of ₹ 5,12,40,000/- received from 18 parties, the assessing officer initiated fresh enquiry during the course of reassessment proceedings on the basis of books of account of the appellant. There is no dispute that very same material was in existence when assessing officer recorded reasons and it is neither the case of the assessing officer that there was any failure or omission on part of the appellant in disclosing any information nor any case of fresh information coming to the notice of the assessing officer. The original action u/s 148 was on the basis of some information which was has already been affirmed by us. However, in respect of other items, the assessing officer himself made random enquiry which is absolute misuse of power in the context of scope of section 147 as well as settled legal principle. There is no iota of material or information with regard to share capital of ₹ 5,12,40,000/- received from 18 parties. In fact the assessing officer gathered the information after calling for bank statement from the bank as evident from para 10 of the assessment order. It is classic case of roving enquiry where the assessing officer is exceeding its jurisdiction in total disregard to scheme and intent of section 147 of the act. Such action of the assessing officer not only renders the purpose of approval u/s 151 otiose but also strikes at the root of section 147 of the Act. We are of the view that assessing officer was not justified in expanding the scope of reassessment proceedings u/s 147 without following the due course and as such the addition is in the teeth of provisions of section 147.

Summary

Issues Involved:
1. Lack of proper opportunity by the first appellate authority.
2. Validity of reopening of assessment under sections 147/148 of the Income Tax Act, 1961.
3. Addition of ?2,50,00,000 under section 68 of the Income Tax Act, 1961.
4. Addition of ?5,12,40,000 under section 68 of the Income Tax Act, 1961.
5. Legality of additions made over and above the reasons recorded for reopening.

Detailed Analysis:

1. Lack of Proper Opportunity by First Appellate Authority:
The assessee contended that the CIT(A) dismissed the appeal without proper opportunity or appreciation of the written submissions. However, the Tribunal found that the CIT(A) had reproduced and dealt with the detailed submissions filed by the appellant. No specific instances were brought to show that necessary submissions or documents were not allowed to be filed. Thus, this ground of appeal was dismissed.

2. Validity of Reopening of Assessment under Sections 147/148:
The assessee argued that the reopening was based merely on information from DCIT CC-2(2) Mumbai without independent application of mind. It was contended that the reasons recorded were based on borrowed satisfaction and without proper application of mind. The Tribunal noted that the reasons recorded must be based on tangible material with a live link nexus to income escaping assessment. The assessing officer received detailed information from DCIT Circle 2(2), Mumbai, indicating that the assessee received accommodation entries. The Tribunal upheld the validity of the notice under section 148, finding that the reasons recorded satisfied the jurisdictional requirement of section 147.

3. Addition of ?2,50,00,000 under Section 68:
The assessee contended that the addition was based on unreliable statements and that the assessing officer failed to provide necessary documents or opportunity for cross-examination. The Tribunal noted that the entire premise of the Assessing Officer's addition was based on the statement of Shri Omprakash Khandelwal, which was later retracted. The Tribunal referred to the Madhya Pradesh High Court decision in the case of PCIT vs. Chain House International Pvt. Ltd., which found the credentials of the shareholder company M/s. Prraneta Industries Ltd. to be genuine. The Tribunal concluded that the appellant had discharged the onus under section 68 to prove the identity, genuineness, and creditworthiness of the investor company, and directed the assessing officer to delete the addition.

4. Addition of ?5,12,40,000 under Section 68:
The Tribunal noted that the reassessment was initiated based on share capital of ?2.50 crores received from M/s. Prraneta Industries Ltd., but the assessing officer also made additions for share capital received from other parties. Since the foundational base of reassessment (?2.50 crores) was deleted, the remaining addition of ?5,12,40,000 had no legs to stand on and was ordered to be deleted. The Tribunal emphasized that the scope of reassessment should not be expanded arbitrarily and must be based on tangible material.

5. Legality of Additions Made Over and Above the Reasons Recorded:
The Tribunal highlighted that the provisions of section 147 are potent and restricted to deserving cases with tangible material evidencing escapement of income. The assessing officer cannot convert reassessment proceedings into regular scrutiny proceedings. In this case, the assessing officer initiated fresh inquiry during reassessment based on existing material, which was not permissible. The Tribunal concluded that the assessing officer's actions exceeded the jurisdiction under section 147, and the addition of ?5,12,40,000 was deleted.

Conclusion:
The Tribunal upheld the validity of the notice under section 148 but deleted the additions of ?2,50,00,000 and ?5,12,40,000 under section 68, finding that the assessee had discharged the onus of proving the identity, genuineness, and creditworthiness of the investor company. The Tribunal emphasized the importance of tangible material and proper application of mind in reassessment proceedings.