2024 (11) TMI 814 - AT - Income Tax

Reopening of assessment after four years - Addition u/s 68 - independent application of mind v/s borrowed satisfaction - HELD THAT - As undisputed fact that the original assessment in the case of the assessee u/s 147 was already completed on 27.11.2018. The notice u/s 148 for the second time for reopening of the case was issued on 22.03.2019 after the end of the four years period from the end of assessment year 2011-12. The four years period was expired as on 31.03.2017. We have perused the return of income filed by the assessee as referred supra in this order wherein the assessee has disclosed the information and facts relating to the receipt of share capital from the three entities in the ITR Form 6 and in the financial statements filed before the AO at the time of original assessment order passed u/s 147 of the Act on 27.11.2018. AO failed to substantiate that there was any fault on the part of the assessee to disclose fully and truly all material facts. As decided in case of Everest Kanto Cylinder Ltd. 2024 (2) TMI 163 - BOMBAY HIGH COURT since the notice u/s 148 has been issued more than 4 years after the expiry of the relevant assessment year, proviso to section 147 shall apply in as much as re-assessment is not permissible unless there has been failure to truly and fully disclosed necessary facts required for the assessment. We have also perused the decision of Ananta Landmark (P) Ltd. 2021 (10) TMI 71 - BOMBAY HIGH COURT wherein it is held that after a period of 4 years even if the assessing officer has some tangible material given to the conclusion that there is an escapement of income from assessment, he cannot exercise the power to reopen unless he discloses what was the material fact which was not truly and fully disclosed by the assessee. Thus as considered that the assessee had already disclosed the detail of all the shareholder who have subscribed to the share capital of the assessee in the case of the shareholders, the assessing officer has already made addition in the case of one shareholder in the original reopening assessment order passed in the case of the assessee as already discussed above in this order. It is categorically mentioned in the proviso to section 147 of the Act that condition of reopening of the assessment beyond the period of 4 years of the assessment year in which the return was filed is also applicable to the cases reopened u/s 147 of the Act. Therefore, we consider that reopening of the assessment in the case of the assessee made by the assessing officer beyond the period of 4 years without bringing on record any lapses on the part of the assessee for not disclosing fact of the case truly and fully is invalid. Appeal of the assessee is allowed.

Summary

Issues:
1. Validity of re-opening of the case and consequent assessment order under section 147 of the Income Tax Act, 1961.
2. Addition of Rs. 75,00,155/- under section 68 of the Act regarding share capital and share premium.
3. Treatment of pre-incorporation expenses of Rs. 85,000/- as unexplained cash credit under section 68 of the Act.

Issue 1: Validity of re-opening of the case and consequent assessment order under section 147 of the Income Tax Act, 1961:
The appellant challenged the re-opening of the case and the assessment order passed under section 147 of the Act. The appellant argued that the re-opening and subsequent assessment were invalid, beyond the law, and should be quashed. The appellant contended that the re-opening was impermissible under the first proviso to section 147 of the Act. The appellant also raised concerns about the lack of specific failures on their part to disclose material facts. The tribunal noted that the original assessment was completed before the re-opening notice was issued, which was beyond the four-year period from the end of the relevant assessment year. Citing legal precedents, including decisions of the Hon'ble Bombay High Court, the tribunal held that re-assessment beyond the four-year period is impermissible unless there was a failure to fully and truly disclose necessary facts for assessment. As the assessing officer failed to demonstrate any fault on the part of the assessee in disclosure, the tribunal allowed the grounds related to the invalidity of the re-opening of the assessment.

Issue 2: Addition of Rs. 75,00,155/- under section 68 of the Act regarding share capital and share premium:
The assessing officer had added Rs. 75,00,155/- under section 68 of the Act, alleging that the share capital and share premium received by the appellant were accommodation entries. The appellant contested this addition, arguing that the assessment was based on the statement of an irrelevant person recorded years later without providing a copy to the appellant. The tribunal noted that the appellant had disclosed information regarding the share capital from the entities in question in the return of income and financial statements filed during the original assessment. The tribunal emphasized that the assessing officer did not establish any failure on the part of the appellant to disclose material facts. Considering the legal provisions and case laws cited, the tribunal held that the addition made by the assessing officer and confirmed by the CIT(A) was unjustified and contrary to settled law. Consequently, the tribunal directed the deletion of the addition.

Issue 3: Treatment of pre-incorporation expenses of Rs. 85,000/- as unexplained cash credit under section 68 of the Act:
The appellant contested the treatment of pre-incorporation expenses of Rs. 85,000/- as unexplained cash credit under section 68 of the Act. The appellant argued that these expenses were wrongly assumed to be unexplained cash credit. The tribunal observed that the assessing officer did not provide evidence of the expenses being unexplained cash credit. The tribunal noted that the appellant's promoter/director had incurred these expenses in relation to the incorporation of the company and credited them to his account on the first day of incorporation. The tribunal held that the treatment of these expenses as unexplained cash credit was erroneous. Therefore, the tribunal directed the deletion of this addition.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal of the assessee, primarily on the grounds of the invalidity of the re-opening of the case and the consequent assessment order under section 147 of the Income Tax Act, 1961. The tribunal also directed the deletion of the additions made under section 68 of the Act regarding share capital and share premium, as well as the treatment of pre-incorporation expenses as unexplained cash credit.