2021 (3) TMI 721 - AT - Income Tax

Initiation of re-assessment proceedings - AO s jurisdiction to initiate reassessment - Unexplained share capital - HELD THAT - In order to get jurisdiction, what is necessary is to see the existence of reason to believe about the escapement of income and not any conclusive evidence of escapement, which aspect assumes significance only when the reassessment proceedings are taken up after initiation. ITO acquires jurisdiction to reopen assessment under s. 147(a) r/w s. 148 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission of failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In that case, the ITO was held to have rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific, relevant and reliable. As such, we do not find any infirmity in the initiation of reassessment proceedings in the facts of the case under consideration. That apart, the assessee has also challenged that the ld. Addl. CIT erred in according approval to the reasons recorded by the AO for reassessment. In view of the elaborate discussion above about the factual panorama prevailing in the extant case, we do not concur with the submission advanced by the assessee. Any person properly instructed in law, would not hesitate, even once, in according his imprimatur to proposal for re-assessment in the facts of the case as are obtaining herein. We, therefore, uphold the impugned order and dismiss the grounds raised by the assessee. Addition u/s.68 of the Act on account of share capital and share premium - Section 68 requires making of an addition when the identity of the creditor, his capacity or genuineness of the transaction are not proved. Here is a case in which though the identity is proved because of the alleged shareholders being companies, but the genuineness of the transactions is wanting. In the absence of any business activity of a company, which was closed since 2007, we fail to appreciate as to how all the corporate investors coming exclusively from Mumbai and Kolkata would join and invest in the shares of such a company, and that too at a premium of 300% of the face value, which had no running business and further there were no returns on such investment. None of the alleged investors responded to the AO s notices u/s.133(6) except one company which also denied to have any transaction with the assessee company. It is further worth mentioning that no correspondence took place between the assessee company and the alleged investors companies prior to making of huge investment or after such activity as has been noted in the impugned order. In such circumstances, we are satisfied that the assessee miserably failed to prove the genuineness of the transactions. Hon ble Bombay High Court in Royal Rich Developers Pvt. Ltd. 2019 (7) TMI 1372 - BOMBAY HIGH COURT has upheld the addition made u/s 68 by observing that no rational person will invest in shares of a shell/paper company having no worthwhile business at a premium of ₹ 35. In view of the foregoing, we uphold the impugned order in sustaining the addition u/s 68 - Decided against assessee.

Issues:
1. Initiation of re-assessment proceedings
2. Approval for reassessment reasons
3. Confirmation of addition of share capital and premium
4. Levy of interest u/s.234B

Issue 1: Initiation of re-assessment proceedings
The appeal concerns the initiation of re-assessment proceedings by the AO based on the belief that income had escaped assessment. The AO issued notices u/s.133(6) to investors, with many notices being returned or unanswered. The AO relied on Supreme Court precedents to justify the initiation of reassessment, emphasizing the need for a reason to believe in income escapement at the initiation stage, not conclusive evidence. The Tribunal found the initiation valid, citing specific, reliable, and relevant information supporting the AO's actions.

Issue 2: Approval for reassessment reasons
The assessee challenged the approval given by the Addl. CIT for the reassessment reasons recorded by the AO. The Tribunal, after a detailed analysis of the factual scenario, upheld the approval, stating that any legally informed person would approve the reassessment proposal in the circumstances of the case. The Tribunal dismissed the assessee's contentions, concluding that the approval was justified.

Issue 3: Confirmation of addition of share capital and premium
The AO made an addition of ?8.40 crore u/s.68 of the Act concerning share capital and premium. The Tribunal noted discrepancies in the responses of alleged investors and the lack of genuine transactions due to the absence of business activity by the assessee company since 2007. The Tribunal found the genuineness of transactions lacking and upheld the addition under section 68, emphasizing the failure to prove the authenticity of the investments.

Issue 4: Levy of interest u/s.234B
The Tribunal disposed of the issue of interest levy u/s.234B as consequential to the other findings and upheld the dismissal of the appeal. The Tribunal pronounced the order on 17th March 2021, confirming the decision to dismiss the appeal based on the issues discussed and analyzed in the judgment.

This comprehensive summary covers the key issues addressed in the legal judgment delivered by the Appellate Tribunal ITAT Pune, providing a detailed analysis of each issue involved in the appeal.

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