2022 (7) TMI 433 - AT - Income Tax

Reopening of assessment u/s 147 - addition on account of share capital and share premium treating the same as an unexplained cash credit u/s 68 - HELD THAT - We find that assessee has filed its return of income, the same return of income has been accepted as it is without any scrutiny, later on the information is available in the form of statement during the course of survey of the directors of one of the group companies that the share capital obtained by the assessee is bogus, the learned assessing officer cannot be found fault for issuing a notice u/s 148 of the act beyond four years as assessee has failed to disclose the true character of the share capital issued by it. The case of the assessee is squarely covered in favour of the revenue by the decision of the honourable Supreme Court in case of Raymond woolen Mills Ltd versus ITO ( 1997 (12) TMI 12 - SUPREME COURT and ACIT versus Rajesh Jhaveri stockbrokers private limited ( 2007 (5) TMI 197 - SUPREME COURT . Therefore, we hold that there is a tangible material available with the assessing officer to form a reason to believe that the income of the assessee has escaped assessment. Accordingly, ground numbers 1 3 of the appeal are dismissed. Addition on account of share capital and share premium treating the same as an unexplained cash credit u/s 68 - the assessee could able to substantiate its case and satisfy three ingredients being identity, creditworthiness and genuineness of the transactions - As elaborately on the net worth of these companies and percentage of the investments are comparatively lower than total net worth of the investor companies. Accordingly, set aside the order of the CIT(A) and direct the assessing officer to delete the addition and allow this ground of appeal in favour of the assessee

Issues Involved:
1. Reopening of assessment under Section 143(3) read with Section 147 of the Income Tax Act.
2. Addition of ?41 lakhs under Section 68 of the Income Tax Act.
3. Initiation of penalty proceedings under Sections 234B, 234C, 234D, and 271(1)(C) of the Income Tax Act.

Detailed Analysis:

1. Reopening of Assessment:
The assessee challenged the reopening of the assessment, arguing that the reassessment was improper due to the retraction of Mr. Rajesh Agrawal's statement and the vague nature of the information relied upon by the Assessing Officer (AO). The AO had reopened the assessment based on information obtained during a search in the Lotus/Green Valley group of cases, where it was noted that the assessee received ?3,690,000 from various companies based out of Calcutta. Mr. Agrawal had initially admitted the undisclosed income but later retracted his statement.

The Tribunal upheld the reopening of the assessment, stating that the AO had tangible material in the form of Mr. Agrawal's initial statement and that the original return of income was accepted without scrutiny. The Tribunal relied on the Supreme Court decisions in Raymond Woolen Mills Ltd. vs. ITO and ACIT vs. Rajesh Jhaveri Stockbrokers Pvt. Ltd., confirming that there was a reason to believe that income had escaped assessment.

2. Addition of ?41 Lakhs under Section 68:
The AO added ?41 lakhs to the assessee's income, treating it as unexplained cash credit under Section 68. The AO's decision was based on the initial statement of Mr. Agrawal, who admitted that the share capital entries were bogus and represented his unaccounted money. Despite the retraction of his statement, the AO considered the original statement valid and noted that the investors were not available at the addresses provided by the assessee.

The assessee submitted extensive documentation to prove the identity, creditworthiness, and genuineness of the transactions, including share application forms, bank statements, share certificates, board resolutions, audit reports, and income tax returns of the investors. The CIT(A) upheld the AO's decision, noting that the notices issued under Section 133(6) to the investors were returned undelivered, and the investors did not independently respond to the AO.

The Tribunal, however, found that the issue was covered in favor of the assessee by several judicial precedents, including decisions in the cases of Binni Builders Pvt. Ltd., Moongipa Development and Infrastructure Ltd., and the assessee's own case for the subsequent assessment year. The Tribunal noted that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal also highlighted that the AO did not conduct any independent inquiry with respect to the depositors. Consequently, the Tribunal directed the deletion of the addition of ?41 lakhs.

3. Initiation of Penalty Proceedings:
The CIT(A) had initiated penalty proceedings under Sections 234B, 234C, 234D, and 271(1)(C) of the Income Tax Act. However, given the Tribunal's decision to delete the addition of ?41 lakhs under Section 68, the initiation of penalty proceedings was rendered inconsequential.

Conclusion:
The Tribunal allowed the assessee's appeal in part. It upheld the reopening of the assessment but directed the deletion of the addition of ?41 lakhs under Section 68, citing the assessee's successful demonstration of the identity, creditworthiness, and genuineness of the transactions. The initiation of penalty proceedings was dismissed as a consequence of the deletion of the addition.

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