2017 (2) TMI 632 - AT - Income Tax

Assessment Reopening Quashed: Lack of Evidence & Incorrect Assumptions

Laxmiraj Distributors Pvt. Ltd. Versus Assistant Commissioner of Income-Tax

Laxmiraj Distributors Pvt. Ltd. Versus Assistant Commissioner of Income-Tax - [2017] 53 ITR (Trib) 376 Issues Involved:1. Validity of reopening the assessment under Section 148 of the Income-tax Act, 1961.2. Merits of the addition of Rs. 7.52 crores to the assessee's income treating the share premium as unaccounted money.Issue-Wise Detailed Analysis:Validity of Reopening the Assessment:1. Reopening Reasons and Material Evidence:- The Assessing Officer (AO) issued a notice under Section 148 based on the scrutiny of impounded documents (BF-01), which allegedly indicated the introduction of unaccounted capital through share premium.- The Tribunal found that the AO's reasons for reopening did not refer to any specific material in BF-01 that indicated unaccounted income. The AO's reopening was deemed a 'mere apprehension' leading to a 'roving inquiry,' failing the cause-effect relationship test required for valid reopening (ITO v. Lakhmani Mewal Das, 103 ITR 437 (SC)).2. Incorrect Facts in Reopening:- The AO's reopening was based on the incorrect assumption that the assessee repurchased the shares from investor companies. However, it was later found that the shares were purchased by relatives of the assessee's directors.- The Tribunal noted the absence of evidence proving the relationship between the purchasers and the directors, thus invalidating the reopening based on incorrect facts (Prashant S. Joshi v. ITO, 324 ITR 154 (Bom)).3. Survey Statement and Memory Lapse:- The AO relied on the fact that the assessee's director could not recall the names of investor companies during the survey. The Tribunal held that a lapse of memory, especially after four years, cannot be the sole basis for reopening without corroborative evidence (Kailashben Manharlal Chokshi v. CIT, 328 ITR 411 (Guj)).4. Admission of Unaccounted Income:- The AO cited the director's written correspondence admitting unaccounted income. The Tribunal observed that the admission was retracted the next day, and there was no corroborative evidence to support the AO's claim.- The Tribunal emphasized that such admissions during surveys must be supported by evidence, as per CBDT Circular dated March 10, 2003.Merits of the Addition:1. Genuineness and Creditworthiness of Share Premium:- The assessee provided PAN details, income tax acknowledgments, bank statements, and confirmations of the investor companies.- The Tribunal noted that the mere fact of investor companies having meager incomes does not justify treating the share premium as unaccounted income in the hands of the assessee (CIT v. Vrindavan Farms P. Ltd., 6 ITR-OL 502 (Delhi)).2. Repurchase of Shares:- The Tribunal found that the repurchase of shares by relatives of the directors did not affect the genuineness of the initial share premium transactions (CIT v. Five Vision Promoters Pvt. Ltd., 380 ITR 289 (Delhi)).3. Absence of Cash Deposits:- The Tribunal observed that there was no evidence of cash deposits in the investor companies' bank accounts, supporting the assessee's claim of genuine transactions.Conclusion:- The Tribunal quashed the reopening of the assessment, holding that all four reasons provided by the AO were not sustainable as per settled law.- Consequently, the addition of Rs. 7.52 crores was rendered academic and not addressed on merits.Final Order:- The assessee's appeal was allowed, and the order pronounced in the open court on October 13, 2016.