2017 (2) TMI 632 - AT - Income Tax

Assessment Reopening Quashed: Lack of Evidence & Incorrect Assumptions

The Tribunal quashed the reopening of the assessment due to lack of specific material evidence and incorrect assumptions by the Assessing Officer. The ... Validity of reopening of assessment - share premium subscribed by different companies in the assessee's share capital as re-investment of latter's unaccounted money itself - Held that:- We afforded sufficient opportunity to Shri Patel to take us to any such material in BF-01 forming part of the paper so as to even prima facie indicate at slightest pretext that there is even any evidence much less a conclusion indicating the assessee's unaccounted income have been invested in the share capital in question. He fails to refer to any such material. We accordingly observe that the impugned reopening reasons nowhere indicate any live nexus between the income sought to be reassessed. Our view therefore is that the Assessing Officer has proceeded on a mere apprehension leading to the impugned long drawn process of roving inquiry which has held to be not permissibl. This first reason accordingly fails the test of cause-effect relationship as discussed in the preceding paras. The assessee's first limb of argument is thus accepted. Second reason of the impugned reopening that the assessee-company bought back the share capital in question from the ten investor companies by paying them a sum of ₹ 75.20 lakhs no more survives in view of the Assessing Officer's remand report as well as the Commissioner of Income-tax (Appeals)'s lower appellate findings that it is the relatives of the assessee's directors who have been found to be the purchasers of the share capital in question. We put up a specific query to Shri Patel to point out that the above four share capital purchasers are in any way related to the assessee's directors. His case is that the assessee is a closely held company and it is not possible for the Department to prove this relationship. This plea does not impress upon us. Our view is that neither there is any material on record to point out specified relationship under section 40A(2)(b) of the Act nor are their assessment records placed in the case file to prove this crucial relationship. We are also of the opinion that this negative burden that these purchasers are not its relatives cannot be put to the assessee. Nor the Department in instant case made any effort to find about finding of the assessment in cases of investor companies as well as the four individual assessee who have repurchased the share capital despite that the fact it itself is the assessing authority of all of them. We rely on the case law in preceding paragraphs that the basic tenet of cause-effect relation between the reopening reasons and taxable income having escaped assessment is accordingly not made out. The assessee succeeds in the instant argument as well. Assessee's third limb of argument that the mere fact of Shri Jain's statement not being able to furnish names of the investor companies or their negotiators cannot form the reason to believe of its taxable income having escaped assessment, we notice survey party's specific queries as to whether he remembered the above state particulars of the investors. His reply was that he did not remember. We reiterate that the assessee transferred its share capital in financial year 2008-09 and this survey statement is dated September 3, 2012 i.e. after a time gap of four years. There is further no issue that the Department had already impounded BF-01 on August 31, 2012 stating all details of the assessee's companies contained in its annual statement and other documents. The same was furnished back only after issuance of reopening notice. There is thus nothing in Shri Jain's statement which could be held to be treated as an admission or that it is pointing towards introduction any unaccounted income in share capital. The Central Board of Direct Taxes Circular dated March 10, 2003 (as reiterated on December 18, 2014 vide clarification No. 286/98/2013-IT (Inv-II)) has already clarified that search/survey teams have to collect evidence instead of obtaining confessions of the concerned assessee. As in Kailashben's case (2008 (9) TMI 525 - GUJARAT HIGH COURT) concluded that an addition in absence of corroborative evidence ought not to be made merely on the basis of the assessee's admission. We accordingly reject the Revenue's contentions supporting this third limb of the impugned reopening as well. Assessee's written correspondence dated September 3, 2012 and September 4, 2012 disclosing names of ten investor companies through whom it had allegedly introduced the impugned unaccounted money Assessing Officer did not collect any material even up to section 148 notice on February 13, 2013 despite the fact that he was having at his disposal all the impounded material coupled with details of the ten investor companies. The Revenue at this stage seeks to involve estoppel principle. Its case is that the above correspondence binds the assessee since filed during survey or under section 131 of the Act as the case may be. We do not agree with this plea either way. We quote the Board's circular hereinabove to hold that the same hardly carries any significance in absence of corroborative evidence. The Revenue's latter limb of argument is also devoid of merits because if this admission is not even admissible in special provisions of search or survey, it can be safely held that the very analogy covers section 131 proceedings for general provisions as well. We adopt the very reasoning to observe that the Revenue's approach in seeking to assess the assessee's amount declared of ₹ 9 crores and at the same time questioning genuineness thereof by adopting pick and choose method is accordingly rejected. The assessee therefore succeeds in its fourth argument as well. Decided in favour of assessee 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.