2021 (5) TMI 662 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - unexplained share capital - assessee not explaining the genuine share application money received from the Investor Companies - HELD THAT - AO recorded wrong, incorrect and non-existing reasons in the reasons recorded for reopening of the assessment and has merely relied upon the report of Investigation Wing without any verification. The information received by the A.O. is vague and do not lead to formation of belief that any income chargeable to tax has escaped assessment. In these circumstances, it was the duty of the A.O. to verify the facts before coming into the conclusion that there is an escapement of income on account of credit entries received in the Bank A/c of the assessee. A.O. even did not verify the information received from the Investigation Wing and even did not verify the name of the assessee. Thus, the A.O. recorded incorrect and wrong reasons for reopening of the assessment and did not apply his mind to the facts of the case before recording reasons for reopening of the assessment. Even the Sanctioning Authority has not applied his mind to the conclusion drawn by the A.O. based on specific material on record which clearly reveal that reasons recorded by the A.O. are wrong, incorrect and based on no evidence. It is, therefore, clear case of non-application of mind by the A.O. at the time of recording reasons for reopening of the assessment. Addition u/s 68 - Non-production before the A.O. would not be a ground to make the addition against the assessee. Since the initial onus to prove genuine credits received by assessee from the Investor Companies have been duly discharged by the assessee and no material have been produced by the A.O. to rebut the documentary evidences filed by the assessee, therefore, there were no reason for the authorities below to make any addition against the assessee. Originally assessee company was incorporated on 27.02.2003 and the financial year ended on 31.03.2003 relevant to assessment year 2003-2004 under appeal. It is difficult to believe that during a period of about one month assessee would have earned such a huge unaccounted money. Since it is the first year of the business and Incorporation of the Assessee-Company and share application money is received at the end of the financial year after Incorporation of the Assessee-Company, therefore, there were no justification to held that assessee received unexplained share application money. Assessee produced sufficient documentary evidences before A.O. to prove ingredients of Section 68 of the I.T. Act, 1961. The Investors have directly confirmed making investment in assessee company in reply to the notice under section 133(6) of the I.T. Act, 1961 at the appellate stage. Therefore, the assessee has discharged its initial onus to prove the identity of the Investor Companies, their creditworthiness and genuineness of the transaction. No evidence have been brought on record by the A.O. if assessee paid any commission to any person of ₹ 1,96,000/-. Therefore, there is no justification to make both the additions against the assessee. In view of the above discussion, we set aside the Orders of the authorities below and delete the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (A.O.) to pass the re-assessment order.
2. Validity of re-assessment proceedings under section 147/148 of the I.T. Act.
3. Addition of ?98 lakhs on account of share capital/share application money under section 68 of the I.T. Act.
4. Addition of ?1,96,000/- on account of commission.

Issue-wise Detailed Analysis:

1. Jurisdiction of the A.O. to pass the re-assessment order:
The initial appeal was heard regarding the jurisdiction of the A.O. The Tribunal noted that the assessee had undergone multiple name changes and PAN changes, and the records were requested to be transferred to the concerned A.O. The Tribunal held that the assessment order passed by the A.O. was without jurisdiction and quashed the assessment order. However, the Revenue challenged this before the Hon’ble Delhi High Court, which ruled in favor of the Revenue, stating that the conditions of Section 124(3)(a) were overlooked by the ITAT. The matter was remitted for consideration on merits by ITAT.

2. Validity of re-assessment proceedings under section 147/148 of the I.T. Act:
The assessee challenged the re-assessment proceedings on several grounds, including the illegality of the notice under section 148 and the lack of reasons to believe that income had escaped assessment. The A.O. relied on information from the Investigation Wing, which was considered vague and based on incorrect facts. The Tribunal found that the A.O. recorded incorrect and non-existing reasons for reopening the assessment without proper verification, leading to non-application of mind. The Tribunal cited several judgments supporting the view that reopening based on incorrect or vague information is invalid. Consequently, the Tribunal quashed the reopening of the assessment, deeming it illegal and bad in law.

3. Addition of ?98 lakhs on account of share capital/share application money under section 68 of the I.T. Act:
The assessee provided substantial documentary evidence, including share application forms, affidavits, income tax returns, bank statements, and balance sheets of the share applicants. The A.O. made the addition due to the non-production of the share applicants' principal officers and the return of summons unserved. The Tribunal noted that the assessee had requested the A.O. to issue summons to the investors and provided their current addresses and PAN. The investors confirmed the transactions and investments through replies to notices under section 133(6). The Tribunal held that the initial onus to prove the genuineness of the share capital was discharged by the assessee, and the A.O. failed to rebut the evidence provided. The Tribunal relied on multiple judicial precedents supporting the assessee's position and concluded that the addition of ?98 lakhs was unjustified and deleted it.

4. Addition of ?1,96,000/- on account of commission:
The Tribunal found no evidence on record to support the claim that the assessee paid any commission. The A.O. made the addition based on assumptions without any supporting material. The Tribunal, therefore, deleted the addition of ?1,96,000/-.

Conclusion:
The Tribunal quashed the reopening of the assessment as illegal and invalid. Consequently, all additions, including ?98 lakhs on account of share capital/share application money and ?1,96,000/- on account of commission, were deleted. The appeal of the assessee was allowed.