2018 (3) TMI 2043 - HC - Income Tax

Reopening of assessment - addition u/s 68 - Eight different companies who had between themselves advanced a sum during the year under consideration which on verification were found not to have necessary resources for making such large advances - HELD THAT - Firstly, the AO himself has recorded that the advances made by the said eight companies were squared up on the same date on each occasion. There is nothing on the record to show that such amounts were later on converted from unsecured loans into share capital of the company with premium. When the advances were squared up on the same date, nothing remained outstanding at the end of the day, much less at the end of the financial year. There was no question of such amounts being unsecured loans of the company which stood converted into share capital with premium. In fact, accounts of the assessee company for the subsequent assessment year which have been produced on the record would show that the share premium shown to have been received was from one Vikas TV Alliance Private Limited and it is this Vikas TV Alliance Private Limited which had advanced unsecured loan during the said period. If the Assessing Officer had reason and therefore wanted to target this transaction, the issue would have been examined differently. However, apparently, the Assessing Officer seems to have linked the unsecured loans shown in the accounts book of the Company received from eight different companies to the action of the company of converting unsecured loans in the later year. There is absolutely no link between the two sets of transactions. Assessing Officer seems to have proceeded completely on misapplication of facts. Counsel for the Revenue, however, vehemently contended that this was a simple case of unaccounted credit in the accounts of the company when it is found that the later on these companies did not have the creditworthiness, provisions of Section 68 of the Act could be invoked. Had this being the reasonings of the Assessing Officer, we would have surely examined the same in light of the legal parameters. However, this is the reading by the counsel of the reasons recorded by the AO, that much we are unable to concur. AO has proceeded entirely on different footing, noted above. His case simply put is that this amount which was in the form of unsecured loan was in the later year converted into share capital with premium, a facet which he would be unable to support from the material on record. For such reasons, impugned notice is set-aside. Decided in favour of assessee.

Summary

Issues:
1. Validity of the notice dated 30th March 2017 issued by the Assessing Officer to reopen the petitioner's assessment for the assessment year 2010-2011.
2. Rejection of objections raised by the petitioner against the notice of reopening by the Assessing Officer.
3. Compliance with the statutory provisions under Section 143(3) of the Income-tax Act, 1961 in issuing the impugned notice.
4. Assessment of the validity of the reasons recorded by the Assessing Officer for reopening the assessment.
5. Application of Section 68 of the Income-tax Act in the case of unsecured advances made to the petitioner-company by eight different companies.

Analysis:

1. The petitioner challenged a notice issued by the Assessing Officer to reopen the assessment for the year 2010-2011. The notice was based on the receipt and repayment of substantial amounts from various companies by the petitioner. The petitioner objected to the notice, which was rejected by the Assessing Officer, leading to the filing of the petition.

2. The petitioner had filed the return of income for the relevant year, which was scrutinized by the Assessing Officer, resulting in an assessment order. The notice for reopening was issued beyond the statutory period of four years from the end of the assessment year, raising concerns about its validity.

3. The petitioner contended that the reasons recorded for reopening lacked validity and were issued without proper application of mind. The Assessing Officer's decision to reopen for further investigation was challenged as impermissible.

4. The revenue argued that the reasons for reopening were valid, citing unsecured advances totaling Rs. 4.82 Crores made by eight companies to the petitioner. The lack of creditworthiness of these companies for such advances was highlighted as a basis for invoking Section 68 of the Income-tax Act.

5. The court analyzed the reasons recorded by the Assessing Officer and found discrepancies in linking the unsecured loans to subsequent share capital conversion. The lack of a clear connection between the transactions led to the setting aside of the notice. The court emphasized the misapplication of facts by the Assessing Officer and the inability to support the conversion claim based on the available material.

In conclusion, the court set aside the impugned notice, disposing of the petition in favor of the petitioner.