2023 (4) TMI 128 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - bogus share transactions - details not furnished for the persons who had bought the shares from the assessee - Non independent application of mind by AO - Borrowed satisfaction - HELD THAT - AO has merely repeated the information received from the Investigation Wing without carrying out any verification and the addition made in the reassessment is on the basis of factually incorrect assertions/statements and fundamentally wrong facts as discussed in details above. Accordingly, we hold that the reassessment proceeding initiated by issuing notice u/s.148 of the Act and passing the order u/s. 147 of the Act is not legally valid and is directed to be set aside. Thus, ground taken by the assessee in its Cross Objection is allowed. Addition u/s 68 - Shares sold by the assessee during the year for which the addition has been made were purchased in the preceding year and formed part of the closing stock of shares as on 31.03.2009, duly reported and reflected in the audited Balance Sheet of the assessee, details of which are already extracted above - we are not inclined to interfere with the finding given by the Ld. CIT(A) on the merit of the case whereby the addition made by the Ld. AO has been directed to be deleted. Accordingly, grounds taken by the revenue in its appeal are dismissed.

Summary

Issues Involved:
1. Legality and validity of reassessment proceedings initiated by the AO.
2. Deletion of addition of Rs.1,75,32,772/- made by the AO on account of sale of unquoted shares.
3. Delay in filing the appeal by the revenue.

Detailed Analysis:

1. Legality and Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings initiated by the AO under Section 148 of the Income-tax Act, 1961, arguing that the reasons to believe were based on incorrect, ambiguous, and vague information. The Tribunal noted that the AO formed his belief merely on the basis of information received from the DDIT (Inv.) Wing-3(1), Kolkata, without applying his independent mind. It was established that the amount of Rs. 25 lakh, mentioned in the reasons to believe, was already included in the total sale consideration of Rs.1.95 Crores reported in the audited P&L Account. Thus, there was a complete absence of a live nexus for the formation of belief by the AO with the material on record, indicating that the assessee's income had not escaped assessment. The Tribunal referenced multiple judicial precedents, including the cases of Signature Hotels Pvt. Ltd. and PCIT Vs. Shodiman Investments (P) Ltd., to support its decision that the reassessment proceedings were invalid and set aside the order under Section 147 of the Act.

2. Deletion of Addition of Rs.1,75,32,772/-:
The AO had added Rs.1,75,32,772/- to the assessee's income, treating it as an unexplained receipt because the assessee did not furnish details of the purchasers of the shares. The CIT(A) noted that the AO had merely repeated the information received from the Investigation Wing without any verification. The CIT(A) found that the amount of Rs.1,75,32,772/- was already included in the P&L Account and offered for taxation, and thus, adding this amount again would lead to double taxation. The Tribunal upheld the CIT(A)'s decision, confirming that the addition was factually incorrect as the sales were already reported and taxed. The Tribunal also noted that the shares sold during the year were part of the closing stock from the preceding year, duly reflected in the audited Balance Sheet.

3. Delay in Filing the Appeal by the Revenue:
The revenue filed the appeal with a delay of 283 days, citing the Covid-19 pandemic as the reason for the delay. The Tribunal condoned the delay, referencing the Hon'ble Supreme Court's order in Suo moto Writ Petition (C) No. 3 of 2020, which excluded the period from 15.03.2020 to 28.02.2022 for the purpose of limitation and granted an additional 90 days from 01.03.2022.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, setting aside the reassessment proceedings and confirming the deletion of the addition of Rs.1,75,32,772/-. The Tribunal's decision was pronounced in the open court on 18th January 2023.