2025 (3) TMI 516 - AT - Income Tax

Reopening of assessment - recording the reasons to believe that the Assessee had taken accommodation entry in the form of share application money fortified - HELD THAT - As in the assessment order no such addition has been made on account of share application money forfeited and the A.O. has examined the issue of fresh share application of money received by the Assessee during the year and thereby made addition u/s 68 on the ground that the Assessee has failed to establish the creditworthiness of the persons/entity who have invested the amount and also opined that the Assessee has failed to prove the genuineness of the transaction. Thus it is crystal clear that the A.O. has initiated the re-assessment proceedings on one issue and has not made any addition on that issue. Thus no infirmity in the order of the Ld. CIT(A) in quashing the reopening proceedings initiated by the A.O. u/s 147. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

1. Whether the reopening of the assessment proceedings under Section 147 of the Income Tax Act was justified based on the reasons recorded by the Assessing Officer (A.O.) regarding the alleged accommodation entry of Rs. 42,00,000/-.

2. Whether the deletion of the addition of Rs. 2,70,50,000/- made by the A.O. on account of unexplained share application money was appropriate, given the A.O.'s assertion that the genuineness and creditworthiness of the investor company were not established.

ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessment Proceedings under Section 147

- Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act allows the A.O. to reassess income if there is a reason to believe that income has escaped assessment. The case law cited includes the Delhi High Court's decision in Ranbaxy Laboratories Ltd. Vs. CIT, which discusses the conditions under which reassessment is permissible.

- Court's Interpretation and Reasoning: The Tribunal noted that the A.O. initiated reassessment proceedings based on the belief that the assessee had taken an accommodation entry of Rs. 42,00,000/- in the form of share application money. However, the A.O. did not make any addition on this specific issue in the assessment order, instead focusing on a different amount of Rs. 2,70,50,000/-.

- Key Evidence and Findings: The Tribunal found that the A.O. had not made any addition related to the initial reason for reopening, which was the alleged accommodation entry of Rs. 42,00,000/-. Instead, the A.O. made an addition concerning a different amount, which was not part of the original reasons recorded for reopening.

- Application of Law to Facts: The Tribunal applied the legal principle that the A.O. must make an addition on the specific issue for which the reassessment was initiated. Since no addition was made on the Rs. 42,00,000/- issue, the reopening was deemed unjustified.

- Treatment of Competing Arguments: The Revenue argued that the reopening was justified due to the detailed reasons recorded by the A.O. However, the Tribunal sided with the assessee, who contended that the reopening was invalid as no addition was made on the initial issue.

- Conclusions: The Tribunal upheld the decision of the CIT(A) to quash the reopening of the assessment proceedings under Section 147, finding no error in the CIT(A)'s order.

Deletion of Addition of Rs. 2,70,50,000/-

- Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act pertains to unexplained cash credits, requiring the assessee to establish the identity, creditworthiness, and genuineness of the transaction.

- Court's Interpretation and Reasoning: The Tribunal noted that the A.O. made an addition of Rs. 2,70,50,000/- under Section 68, asserting that the assessee failed to establish the creditworthiness of the investor entity and the genuineness of the transaction.

- Key Evidence and Findings: The Tribunal found that the CIT(A) had appropriately deleted the addition, as the A.O. did not provide sufficient evidence to substantiate the claim that the investor was a shell entity lacking creditworthiness.

- Application of Law to Facts: The Tribunal agreed with the CIT(A) that the A.O. had not adequately demonstrated the lack of genuineness or creditworthiness of the investor, thus justifying the deletion of the addition.

- Treatment of Competing Arguments: The Revenue contended that the addition was justified due to the alleged shell nature of the investor. However, the Tribunal found the CIT(A)'s reasoning persuasive, supporting the deletion of the addition.

- Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2,70,50,000/-, finding no merit in the Revenue's arguments.

SIGNIFICANT HOLDINGS

- The Tribunal reiterated the principle that the A.O. must make an addition on the specific issue for which reassessment proceedings are initiated. Failure to do so invalidates the reopening of the assessment.

- The Tribunal preserved the verbatim quote from the Delhi High Court's decision in Ranbaxy Laboratories Ltd. Vs. CIT, emphasizing that reassessment proceedings cannot be justified if the reasons for initiation cease to survive.

- The Tribunal established that mere suspicion of a shell entity without substantive evidence does not justify additions under Section 68.

- The final determination was that the Revenue's appeal lacked merit, leading to its dismissal.