2022 (11) TMI 811 - AT - Income Tax

Validity of reopening of assessment u/s 147 - amount received by the assessee towards share application money and sale of shares not genuine - HELD THAT - Admittedly, the return of income filed by the assessee was not subjected to scrutiny but was only process u/s 143(1) - Therefore, the assessing officer had no occasion to verify various issues relating to assessee s affairs in the year under consideration. It is a fact on record that subsequent to processing of return of income u/s 143 (1) AO received information from the Investigation Wing indicating that the amount received by the assessee towards share application money and sale of shares are not genuine. Based on such information, the assessing officer had reopened assessment under Section 147 of the Act. Thus, it is a fact on record that at the time of reopening of assessment, the assessing officer had tangible material to form prima facie belief that income had escaped assessment. The final outcome of the proceeding is not relevant. Hence, AO was not required to conclusively establish the fact of escapement of income. That being the position in law, find no merit in assessee s challenge regarding validity of reopening of assessment under Section 147 - Thus hold that the assessing officer has validly reopened the assessment under Section 147. Addition u/s 68 - Facts on record reveal that the additions were made on conjecture and surmises by entertaining doubts regarding the genuineness of the transaction. It is fairly well settled, suspicion, howsoever, strong cannot take place of evidence - amount representing share application money received from M/s. Rapid Impex Pvt. Ltd., cannot be treated as unexplained cash credit under Section 68 of the Act. More so, when it is a fact on record that against the share application money, the assessee has issued equity shares to the concerned party. As regards, sale of shares of M/s. Taurus Packaging Pvt. Ltd. to M/s. Globetec Solution Pvt. Ltd., facts are more or less identical with the share application money received from M/s. Rapid Impex Pvt. Ltd. In this regard, the assessing officer has primarily relied upon the statement of Shri S.H. Malik to conclude that the share transaction is ingenuine. However, as discussed earlier, in the statement recorded from Shri S.H. Malik, the name of M/s. Globetec Solution Pvt. Ltd. does not appear. The assessee has also furnished various documentary evidences, such as, copy of ITR, company master data of ROC, confirmation etc. to prove the identity and creditworthiness. Further, the transaction has been carried out through banking channel. Therefore, my reasoning for not sustaining the addition of share application money received from M/s. Rapid Impex Pvt. Ltd. would also apply to this transaction as well. Thus delete the addition - As a natural corollary, the disallowance of long term capital gain also stands deleted. For the very same reason, the addition being the alleged commission paid is also deleted.

Summary

Issues:
1. Validity of reopening of assessment under Section 147 of the Act
2. Addition of share application money and sale of shares as unexplained cash credit
3. Alleged commission paid for availing accommodation entries
4. Disallowance of long term capital gain on sale of shares

Validity of Reopening of Assessment:
The assessing officer reopened the assessment under Section 147 of the Act based on information received from the Investigation Wing, indicating possible escapement of income. The Tribunal held that the assessing officer had tangible material to form a prima facie belief of income escapement, and thus, the reopening was valid. The Tribunal emphasized that at the reopening stage, conclusive establishment of income escapement was not required.

Addition of Share Application Money and Sale of Shares:
The assessing officer treated the share application money and sale of shares as unexplained cash credit, alleging them to be accommodation entries. The Tribunal found that the assessee had received the share application money and sale consideration through banking channels, with documentary evidence like ITR copies, ROC data, and confirmations provided to establish the genuineness of the transactions. The Tribunal noted discrepancies in the assessing officer's conclusions based on statements, lack of corroboration, and failure to follow due process. Consequently, the Tribunal deleted the additions.

Alleged Commission Paid for Accommodation Entries:
The assessing officer added an amount as alleged commission for availing accommodation entries. However, since the Tribunal found the underlying transactions genuine, it deleted the alleged commission amount.

Disallowance of Long Term Capital Gain:
The assessing officer disallowed long term capital gain on the sale of shares, treating it as bogus due to suspicions regarding the transaction's genuineness. The Tribunal, after finding the transactions genuine, deleted the disallowance of long term capital gain.

In conclusion, the Tribunal partly allowed the appeal, deleting the additions related to share application money, sale of shares, alleged commission, and disallowance of long term capital gain. The Tribunal emphasized the importance of following due process and substantiating claims with evidence in such assessments.