2024 (9) TMI 85 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - non independent application of mind - addition u/s 56(2)(vii)(c) towards benefit derived by the appellant for buy back of shares - live link or close nexus between fresh tangible material and formation of belief of escapement by the AO or not? - HELD THAT - We find that there is no live link or close nexus between fresh tangible material and formation of belief of escapement by the AO which is discernible from the reasons recorded by the AO where the AO stated that income chargeable to tax had escaped the assessment on account of purchase of 4,17,535 shares, whereas in the assessment order passed u/s 147 AO concluded that the assessee has received 2,22,222 shares instead of 4,17,535 shares and finally assessed the income escaped the assessment at Rs. 2,75,37,750/-. From the above, it is undisputedly clear that the AO issued re-assessment notice u/s 148 of the act without any independent verification and application of mind, but simply proceeded to initiate proceedings on the basis of information received from AO of Bharat Biotech International Ltd which is nothing but a classic case of borrowed satisfaction and thus, in our considered view, the reopening of the assessment based on borrowed satisfaction is invalid and liable to be quashed. Thus, we quash notice u/s 148 of the Act and consequent assessment order passed u/s 143(3) r.w.s. 147. Assessee has challenged the addition made by the AO towards benefit received on account of purchase of 2,22,222 shares of M/s. Bharat Biotech International Ltd from M/s. Mindtree Trading Co (P) Ltd and argued that said transaction cannot be considered as purchase of shares in light of share purchase agreement dated 30.09.2015 and subsequent cancellation agreement dated 29.04.2013. Although the appellant has made various arguments, but we do not wish to consider the issue on merit because the assessment order passed by the AO u/s 143(3) r.w.s. 147 has been held to be invalid on account of incorrect assumption of jurisdiction u/s 147 - Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the I.T. Act, 1961.
2. Addition made under Section 56(2)(vii)(c) of the I.T. Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the I.T. Act, 1961:

The assessee challenged the reopening of the assessment on the grounds that it was based on "borrowed satisfaction" without independent application of mind by the Assessing Officer (AO). The AO had reopened the assessment based on information from the financial statement of M/s. Bharat Biotech International Ltd, indicating that the assessee had purchased shares at a price significantly lower than the fair market value. The AO issued a notice under Section 148 of the I.T. Act, 1961, on 12.03.2019, and the assessee responded by filing a return of income on 27.04.2019.

The learned CIT (A) upheld the reopening, stating that the AO had applied his own mind and formed a reasonable belief of income escapement. However, the Tribunal found that the AO had issued the notice based on information from another AO without any independent verification or inquiry. The Tribunal cited several judicial precedents, including the Hon'ble Supreme Court and various High Courts, which held that reopening based on borrowed satisfaction without independent application of mind is invalid. Consequently, the Tribunal quashed the notice under Section 148 and the consequent assessment order.

2. Addition Made Under Section 56(2)(vii)(c) of the I.T. Act, 1961:

The AO made an addition of Rs. 2,75,37,750 under Section 56(2)(vii)(c), stating that the assessee received shares at Rs. 1 per share when the fair market value was Rs. 124.92 per share. The assessee contended that the shares were received back due to the cancellation of a share purchase agreement and not as a new purchase. The learned CIT (A) upheld the AO's addition, citing that the assessee could not justify acquiring shares at a price significantly lower than the market value.

The Tribunal, however, did not delve into the merits of this issue since the reopening of the assessment itself was found to be invalid. Therefore, the grounds of appeal on this issue were dismissed as infructuous.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the notice under Section 148 and the consequent assessment order under Section 143(3) r.w.s. 147 of the I.T. Act, 1961. The stay application filed by the assessee was dismissed as infructuous.

Order Pronouncement:

The order was pronounced in the Open Court on 14th August, 2024.