2021 (5) TMI 746 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained cash credit under section 68 - assessee has not filed return of income for the year under consideration - information gathered from ROC, as noticed that the assessee has received share premium - HELD THAT - In this case the assessee has raised share capital and share premium - AO has recorded the reasons as required u/s 148(2) of the Act to reopen the assessment after receiving information from ROC and recorded in the concluding para of the reasons that facts and information as to receipt of share premium by the assessee are not verifiable as the assessee has not filed the return of income. AO has mentioned in the reasons recorded that the facts and information as regards share premium are not verifiable as no return of income has been filed by the assessee and considering these facts, he has reason to believe that income chargeable to tax has escaped assessment and accordingly initiated proceedings u/s 147 - We find merit in the contentions and arguments of the Ld. A.R. that the AO has not formed any independent belief or recorded a finding that income of the assessee has escaped assessment but merely stated in the reason to believe that these facts and information need proper verification and hence reopened the case in order to carry out the verification of these facts which are not permissible under the Act. We are of the considered view that the AO has not formed a prima facie and independent belief in the reasons recorded that income has escaped assessment but initiated proceedings u/s 147 of the Act for carrying out the verification of facts/information qua the share premium raised by the assessee. Under these facts and circumstances, we are in full agreement with the finding of the Ld. CIT(A) holding the proceedings under section 147 of the Act as invalid Under these facts and circumstances, the order of Ld. CIT(A) is required to be upheld on the jurisdictional issue. - Decided against revenue.

Summary

Issues Involved:

1. Validity of the jurisdiction exercised under section 147 of the Income Tax Act.
2. Deletion of addition of ?4,79,90,000/- made by the AO on account of unexplained cash credit under section 68 of the Act.

Detailed Analysis:

1. Validity of the jurisdiction exercised under section 147 of the Income Tax Act:

The primary issue raised by the Revenue is the quashing of the jurisdiction exercised under section 147 by the Assessing Officer (AO) as bad in law by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO initiated the scrutiny under section 147 read with section 148 based on the information that the assessee received share premium of ?1,12,41,000/- during the Financial Year 2007-08 relevant to Assessment Year 2008-09 without filing any return of income. The AO formed a belief that this share premium was not verifiable and thus, income chargeable to tax had escaped assessment.

The CIT(A) observed that the AO's belief that income had escaped assessment was based on mere suspicion without any material evidence. The AO did not provide any prima facie case or material indicating that the share premium was bogus. The CIT(A) relied on the Supreme Court judgment in ITO vs. Lakhmani Mewal Das, emphasizing that there must be a direct nexus or live link between the material and the belief that income had escaped assessment. The CIT(A) concluded that the reopening of the assessment was based on mere suspicion, which is not sustainable in law.

The Revenue contended that the AO had tangible and fresh material from the ROC to form a belief that income had escaped assessment. However, the assessee argued that the AO's reasons for reopening were merely for verification purposes, which is not permissible under section 147. The assessee cited several judicial precedents, including PCIT v Manzil Dineshkumar Shah and Inductotheran (India) P. Ltd. v DCIT, to support their argument that reopening for verification is invalid.

The Tribunal agreed with the assessee, noting that the AO did not form an independent belief that income had escaped assessment but merely sought to verify the information received from the ROC. The Tribunal cited various judicial decisions, including the Supreme Court and High Court rulings, which held that reopening for verification purposes is not valid. Consequently, the Tribunal upheld the CIT(A)'s decision that the reopening under section 147 was invalid.

2. Deletion of addition of ?4,79,90,000/- made by the AO on account of unexplained cash credit under section 68 of the Act:

Since the Tribunal upheld the CIT(A)'s decision on the jurisdictional issue, the grounds raised by the Revenue on the merits of the addition of ?4,79,90,000/- under section 68 were not adjudicated.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the reopening of the assessment under section 147 was invalid. Consequently, the addition of ?4,79,90,000/- made by the AO on account of unexplained cash credit under section 68 was not adjudicated. The order was pronounced in the open court on 08.03.2021.