2022 (3) TMI 828 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - unexplained share premium - Whether assessee has established the identity and existence of the entities from whom huge share premium received by it? - HELD THAT - There is no mention of any name of the entry provider and link of accommodation entry taken by the assessee. In fact, a perusal of the assessment order itself shows that there are 99 share applicants and there is no whisper of the name of the share applicants in the list of entry providers. This clearly shows that neither there was application of mind before issuing notice under section 148 of the Act nor at the time of recording reasons for reopening the assessment. Again in the reasons, modus operandi of the entry providers have been mentioned but nowhere the Assessing Officer has mentioned as to how the assessee company has actually managed the so called accommodation entry providers. Moreover, since the assessment of the assessee was completed under section 143(3) of the Act, the AO had complete material evidence on his assessment record from which he could have found out who are the accommodation entry providers to the assessee. Other than the report of the INV Wing, there is not even a reference to any document on the basis of which the AO was satisfied that the assessee company has taken accommodation entry. As mentioned elsewhere, the names of the 99 share applicants, as mentioned in the assessment order, do not find any place in the list of accommodation entry providers. While recording the reasons for reopening the assessment, the AO did not even care to look into the assessment records. Had the AO seen the assessment record, then he would have found that during the year under consideration, the assessee had issued share capital including share premium to various parties and has also received sufficient unsecured loans from various parties and details of share application money and unsecured loans were already submitted during the course of assessment proceedings. In our considered view, the case was reopened only on the directions of the DIT, INV II, New Delhi and no reason to believe was formed for reopening of the assessment. W e hold that assumption of jurisdiction by issuing notice under section 148 of the act is bad in law which makes the notice under section 148 liable to be quashed thereby annulling the assessment order framed under section 147 of the Act. Cross objections of the assessee are allowed.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961.
2. Establishment of identity and existence of entities from whom share premium was received.
3. Validity of initiation of proceedings under Section 147 of the Act.
4. Jurisdictional applicability of Section 153C vs. Section 147.
5. Failure to disclose material facts and validity of reasons for reopening assessment.
6. Validity of approval under Section 151 for initiation of proceedings under Section 147.
7. Legality of additions based on material seized under Section 132(1) in an order under Section 143(3).

Detailed Analysis:

1. Deletion of Addition under Section 68:
The Revenue contended that the Commissioner of Income Tax (Appeals) erred in deleting the addition of ?16,88,65,000/- made by the Assessing Officer (AO) under Section 68 on account of unexplained share premium. The Tribunal noted that during the original assessment, the assessee had provided complete details and evidence regarding the share capital, share application money, and unsecured loans. This included producing three share applicants whose statements were recorded and found satisfactory by the AO. Consequently, the Tribunal upheld the deletion of the addition, as the AO had already verified and accepted these details during the initial assessment.

2. Establishment of Identity and Existence of Entities:
The Revenue argued that the CIT(A) erred in holding that the assessee had established the identity and existence of the entities from whom the share premium was received, citing an Inspector’s report that no such entities existed at the given addresses. The Tribunal found that the AO had already verified the identities and existence of these entities during the original assessment by recording statements from the share applicants. Hence, the Tribunal dismissed the Revenue's contention, affirming that the entities' identities were satisfactorily established.

3. Validity of Initiation of Proceedings under Section 147:
The assessee challenged the initiation of proceedings under Section 147, arguing it was without jurisdiction and should be quashed. The Tribunal noted that the original assessment was completed under Section 143(3) and the reopening was initiated after four years, invoking the proviso to Section 147. The Tribunal emphasized that for reopening after four years, the AO must establish that the income escaped assessment due to the assessee’s failure to disclose fully and truly all material facts. The Tribunal found no such failure on the assessee's part, making the reopening invalid.

4. Jurisdictional Applicability of Section 153C vs. Section 147:
The assessee argued that Section 153C, not Section 147, was applicable to their case. The Tribunal did not delve deeply into this issue, as it had already found the reopening under Section 147 invalid due to the lack of failure to disclose material facts by the assessee.

5. Failure to Disclose Material Facts and Validity of Reasons for Reopening Assessment:
The Tribunal scrutinized the reasons recorded for reopening the assessment and found no mention of any failure by the assessee to disclose material facts. The Tribunal highlighted that during the original assessment, the AO had made specific inquiries and received satisfactory responses with documentary evidence. The Tribunal cited judicial precedents asserting that without a failure to disclose material facts, reopening the assessment after four years is invalid.

6. Validity of Approval under Section 151:
The assessee contended that the proceedings under Section 147 were invalid due to the absence of valid approval under Section 151. The Tribunal found that the reasons for reopening did not show any independent application of mind by the AO, as they merely borrowed observations from the Investigation Wing without verifying the assessment records. This lack of independent verification rendered the approval and subsequent proceedings under Section 147 invalid.

7. Legality of Additions Based on Material Seized under Section 132(1) in an Order under Section 143(3):
The assessee argued that additions based on material seized under Section 132(1) should be brought to tax only in an order under Section 153C, not Section 143(3). The Tribunal did not find it necessary to address this issue in detail, as it had already quashed the assessment order on jurisdictional grounds.

Conclusion:
The Tribunal quashed the assessment order framed under Section 147, holding that the initiation of proceedings was invalid due to the lack of failure by the assessee to disclose material facts. Consequently, the Revenue's appeal was dismissed, and the assessee's cross objections were allowed. The Tribunal did not address the merits of the case, as the jurisdictional issue rendered the assessment order void.