2023 (6) TMI 133 - HC - Income Tax

Reopening of assessment - addition u/s 68 - unexplained cash credit - shares were issued to the Director of assessee Company at Rs. 10 whereas, shares were allotted to M/s. Walden at a premium of Rs. 990, thus nature of money received from M/s. Walden was not satisfactorily explained - HELD THAT - So far as any sum credited consists of share application money, the same is dealt by proviso to Section 68. Admittedly, the proviso had been inserted with effect from 01.04.2013. Admittedly the Assessment year in this case is 2008-09. Therefore as held in Kumar Nirman 2020 (3) TMI 340 - KARNATAKA HIGH COURT the authority in NRA Iron Steel Pvt. Ltd 2019 (3) TMI 323 - SUPREME COURT has no application. As decided in Gagandeep Infrastructure Pvt Ltd 2017 (3) TMI 1263 - BOMBAY HIGH COURT pre-amended section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee s income as unexplained cash credit. Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reopening the assessment.
2. Adequacy of reasons recorded for reopening the assessment.
3. Justification of addition under Section 68 of the Income Tax Act.
4. Applicability of Section 68 when the appellant provided necessary details.
5. Determination of real income concerning share premium received.

Summary:

1. Validity of Reopening the Assessment:
The court examined whether the authorities were justified in holding that the mandatory conditions for reopening the assessment were met. The court noted that the Assessing Officer (AO) initially dropped the re-assessment proceedings after the first notice under Section 148 but later issued a second notice, which the assessee contested as illegal and without jurisdiction.

2. Adequacy of Reasons Recorded for Reopening:
The court scrutinized whether the reasons recorded constituted "reasons to believe" for reopening the assessment. The AO's reasons included suspicions about the genuineness of investments made by M/s. Walden Properties Investments Pvt Ltd in the assessee company. The court found that the reasons recorded were insufficient to form a belief that income had escaped assessment, deeming the reopening invalid.

3. Justification of Addition under Section 68:
The court evaluated the Tribunal's decision to confirm the addition of Rs. 49.50 crores under Section 68 of the Income Tax Act, treating it as unexplained cash credit. The court concluded that the AO's reasons, including the discrepancy in share pricing between the Director and M/s. Walden, did not justify the addition. The court emphasized that the share premium received was a capital receipt and could not be taxed as income.

4. Applicability of Section 68:
The court assessed whether Section 68 was applicable when the appellant had provided all necessary details to prove the credit. The court noted that the assessee had established the identity, capacity, and genuineness of the transaction with M/s. Walden, fulfilling all conditions to discharge its onus. The court found that the AO's conclusion was unsustainable, as the transfer of funds was genuine and through proper banking channels.

5. Determination of Real Income:
The court examined whether the amount of Rs. 49.50 crores constituted real income of the appellant. The court referred to judicial precedents and concluded that the share premium received could not be taxed as real income, especially since the relevant provisions of Section 56(1)(viib) were not applicable for the assessment year in question (2008-09).

Conclusion:
The appeal was allowed, and the orders passed by the ITAT, AO, and CIT(A) were set aside. The substantial questions of law were answered in favor of the assessee and against the Revenue. No costs were awarded.