2021 (12) TMI 710 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - assessee had received some share capital from some foreign parties - money was actually undisclosed income of the assessee, which had been recycled by the said entity into the company of the assessee - CIT-A deleted the addition as this material could not be held to be justified for adding the amount of investment into the company as income of the assessee also confirmed by ITAT - HELD THAT - As even if for the sake of arguments this assertion is accepted, the crux of the matter is whether the conclusion that the entity was a shell company, could inevitably give rise to the subsequent conclusion that the money received from that company was actually undisclosed income of the assessee without any material to show any link between the said entity and the assessee. Learned counsel for the appellant - revenue has argued that under Section 68 of the I.T Act, such a presumption can be drawn and it was for the assessee to prove that the income was infact not his income. In our considered opinion this argument is too far-fatched It may have been different if some link had been established between the said entity and the assessee, but in the absence thereof, it cannot be held that the presumption under Section 68 of the IT Act, is available. No fault can be found with the judgments of the Commissioner and the Tribunal. - Decided against revenue.

Summary

Issues:
Challenge to orders of Commissioner Appeals and Income Tax Appellate Tribunal setting aside Assessing Officer's orders under Section 68 read with Section 147 and 148 of the Income Tax Act, 1961.

Analysis:
The case involved a challenge by the revenue against orders of the Commissioner Appeals and the Income Tax Appellate Tribunal that set aside the Assessing Officer's orders under Section 68 read with Section 147 and 148 of the Income Tax Act, 1961. The respondent had received share capital from foreign parties, leading to the Assessing Officer seeking explanations regarding the investment, its source, fund, object, purpose, identity, creditworthiness of the investing company, and genuineness of the transaction. The Assessing Officer concluded that the entity appeared to be a shell company, treating the money as undisclosed income of the assessee recycled by the said entity. However, the Commissioner Income Tax and the Tribunal held that the material provided was insufficient to add the investment amount into the assessee's income, especially considering the reopening of the case beyond the statutory time limit and the assessee's full disclosure during the original assessment proceedings.

The Tribunal emphasized that the reopening of the case was done beyond the prescribed period and questioned the delay in acting on information received from the Foreign Tax Division. It noted that the assessee had provided all necessary information during the original assessment, invoking the first proviso to Section 147. The Tribunal dismissed the appeal by the Revenue, highlighting the lack of failure by the assessee to disclose material facts. The judgment underscored that mere suspicion based on later-received information was insufficient to link the investment to the assessee's unaccounted income, especially without establishing a connection between the entity and the assessee. The Tribunal found no merit in the Revenue's appeal and upheld the decision to set aside the Assessing Officer's orders.

The High Court dismissed the appeal, affirming the judgments of the Commissioner and the Tribunal. It rejected the argument that a presumption under Section 68 of the IT Act could be drawn without establishing a link between the entity and the assessee. The court held that without such a connection, the presumption was not applicable. The judgment emphasized that the conclusions drawn by the Commissioner and the Tribunal were valid, ultimately leading to the dismissal of the appeal. Additionally, the court disposed of any pending civil miscellaneous applications following the dismissal of the main case.