2018 (4) TMI 43 - AT - Income Tax

Reopening of assessment - eligible reasons to believe - no allegation against the petitioner of failing to disclose fully and truly all material facts - pre-requisite for issuing notice u/s 148 - unexplained receipt of share capital - Held that - No reassessment framed under Section 143(3) will be reopened after a period of 4 years unless AO record a satisfaction that on the basis of the information received that he is of the view that there is a failure on the part of the assessee. Not mentioning of this formation of belief that there is a failure on the part of the assessee, in the reasons, means that AO has not applied his mind on this aspect and merely on the receipt of the information from Investigation Wing, he has straight away reopened the assessment. In the present case, in the absence of any such satisfaction being recorded that there was a failure on the part of the assessee to disclose fully and truly all material and facts which led to escapement of income, it is of the view that reopening of the assessment framed originally under Section 143(3) after a period of 4 years will be barred by limitation For unexplained receipt of share capital addition there is a difference in making an allegation and sustaining the allegation. On the basis of allegation, the AO can carry out the investigation but the addition can be sustained only when there are sufficient evidences to support the allegation. In the present case, it is of the view that the assessee has fairly discharged this onus. - Decided in favour of assessee

Issues Involved:

1. Reopening of the assessment under Section 147.
2. Addition of ?35,00,000/- as income from undisclosed sources under Section 68.
3. Identity, creditworthiness, and genuineness of the share applicants.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment under Section 147:

The assessee challenged the reopening of the assessment on the grounds that it was barred by limitation, as the notice was issued after four years from the end of the relevant assessment year. The proviso to Section 147 allows reopening after four years only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal observed that the reasons recorded by the AO did not allege any failure on the part of the assessee to disclose material facts. The AO merely relied on the information from the Investigation Wing without independent verification. The Tribunal held that reopening of the assessment after four years without such an allegation is barred by limitation and thus, quashed the reassessment proceedings.

2. Addition of ?35,00,000/- as Income from Undisclosed Sources under Section 68:

The AO added ?35,00,000/- to the income of the assessee, alleging it to be from undisclosed sources, based on information from the Investigation Wing that the assessee received accommodation entries. The CIT(A) deleted the addition, holding that the assessee had established the identities and creditworthiness of the share applicants and the genuineness of the transactions. The Tribunal upheld the CIT(A)’s order, noting that the assessee provided comprehensive documentation, including confirmations, share application forms, board resolutions, affidavits, audited balance sheets, ITR acknowledgments, and bank statements. The AO did not point out any defects in these documents or bring any adverse material on record.

3. Identity, Creditworthiness, and Genuineness of the Share Applicants:

The assessee submitted detailed documents to establish the identity, creditworthiness, and genuineness of the share applicants, which included confirmations, share application forms, board resolutions, affidavits, audited balance sheets, ITR acknowledgments, and bank statements. The AO issued notices under Section 133(6) to the share applicants, who responded with the same set of documents. The Tribunal noted that the AO did not conduct further inquiries or bring any adverse material on record. The Tribunal emphasized that the burden of proof shifts to the AO once the assessee has provided sufficient evidence. The AO's failure to discredit the evidence or conduct further inquiries meant that the assessee had discharged its onus under Section 68. The Tribunal cited several judgments, including those from the Supreme Court and High Courts, supporting the principle that mere suspicion or information from the Investigation Wing is insufficient for making additions without proper verification and evidence.

Conclusion:

The Tribunal quashed the reassessment proceedings as barred by limitation and upheld the CIT(A)’s order deleting the addition of ?35,00,000/-, concluding that the assessee had sufficiently discharged its onus under Section 68 by providing comprehensive documentation to establish the identity, creditworthiness, and genuineness of the share applicants. The appeal of the Revenue was dismissed, and the cross-objection of the assessee was allowed.

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