2021 (8) TMI 1166 - AT - Income Tax

Addition u/s 68 - receipt of share capital and premium - whether Appellant has established the Identity, Credit worthiness and Genuineness (ICG Test) in respect of share capital and premium received from the three share holder companies during the assessment proceedings by filing various documents with the AO - HELD THAT - We note that Hon ble jurisdictional High Court in Veedhata Tower Pvt.Ltd. 2018 (4) TMI 1004 - BOMBAY HIGH COURT has held that when all documentary evidences has been submitted by the assessee, and adverse inference is drawn only for non response by the concerned party, such adverse inference against the assessee is not sustainable. No adverse inference has been noted from the bank statement, balance sheet and other document of the parties from whom share capital share premium has been received, which were duly filed before AO. Hence, the addition on merits also is not sustainable. Accordingly, on the touchstone of above Hon ble jurisdictional High Court decision, we set aside the order of the authorities below and decide the issue in favour of the assessee

Issues Involved:
1. Validity of the reopening of the assessment under Section 148 of the Income Tax Act.
2. Addition of ?1,50,00,000 as unexplained cash credit under Section 68 of the Income Tax Act.
3. Adequacy of the opportunity provided to the assessee to explain the source of share capital and premium.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of the Assessment under Section 148:
The assessee challenged the reopening of the assessment, arguing that there was no new material that came to the knowledge of the Assessing Officer (AO) for forming the belief that income had escaped assessment. The reopening was based on information already available in the assessment record, which, according to the assessee, amounted to a change of opinion. The AO had issued a notice under Section 148 based on the information that the assessee had issued shares at a premium, which was deemed unreasonable given the intrinsic value of the shares. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the reopening, stating that the AO had formed a "reason to believe" and not merely a "reason to suspect," and that the information could come from any source. The Tribunal, however, noted that the Hon’ble Supreme Court in the case of Kelvinator of India had held that reopening based on a mere change of opinion is not permissible. Additionally, the Tribunal referred to the decision in Gagandeep Infrastructure (P.) Ltd., which held that the statute for taxing unjustified share premium was effective only from the assessment year 2012-13 onwards. Therefore, the Tribunal found the reopening to be unsustainable.

2. Addition of ?1,50,00,000 as Unexplained Cash Credit under Section 68:
The AO had added ?1,50,00,000 to the income of the assessee, treating it as unexplained cash credit under Section 68. The CIT(A) upheld this addition, stating that the assessee had failed to prove the creditworthiness and genuineness of the parties involved in the share transactions. The CIT(A) referred to several case laws to support the applicability of Section 68 to share capital and premium. The Tribunal, however, noted that the assessee had submitted all necessary documentary evidence, including share application forms, income acknowledgments, balance sheets, and bank statements. The Tribunal referred to the decision in Veedhata Tower Pvt. Ltd., which held that adverse inference against the assessee is not sustainable if all documentary evidence is provided, and the only issue is non-response from the concerned parties. The Tribunal found that no adverse inference had been noted from the bank statements, balance sheets, and other documents of the parties from whom share capital and premium were received. Therefore, the addition was found to be unsustainable on merits.

3. Adequacy of the Opportunity Provided to the Assessee:
The assessee argued that the AO did not provide an adequate opportunity to explain the source of the share capital and premium. The CIT(A) dismissed this contention, stating that the assessee had been given sufficient opportunities during the assessment and appellate proceedings. The Tribunal, however, found that the assessee had indeed submitted all relevant documents and that the AO could have made further inquiries. The Tribunal noted that the CIT(A) had asked for additional evidence during the appellate proceedings, which the assessee failed to provide. Despite this, the Tribunal found that the assessee had discharged its onus by submitting substantial documentary evidence. Therefore, the Tribunal concluded that the addition was not justified, and the assessee had been given adequate opportunity to explain the transactions.

Conclusion:
The Tribunal allowed the appeal, setting aside the orders of the lower authorities. The reopening of the assessment was found to be unsustainable, and the addition of ?1,50,00,000 as unexplained cash credit under Section 68 was also found to be unjustified. The Tribunal emphasized that the assessee had submitted all necessary documentary evidence and that adverse inference could not be drawn merely due to non-response from the concerned parties. The appeal was decided in favor of the assessee.

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