2018 (3) TMI 808 - AT - Income Tax

Tribunal upholds Income Tax Act notice for Assessment Year 2008-09, affirms income addition.

M/s. Cornerstone Property Investments Pvt. Ltd. Versus Income Tax Officer, Ward 2 (1) (2), Bangalore

The Tribunal upheld the validity of the notice under Section 148 of the Income Tax Act for the Assessment Year 2008-09, finding that the Assessing Officer ... Reopening of assessment - Validity of Notice u/s.148 - second notice issued - change of opinion - Held that:- the issue of notice under Section 148 of the Act is for assessment of income and not reassessment, as is normally understood. Since no assessment had taken place and no opinion has been formed on the issue on which the Assessing Officer had reason to believe that the assessee's income liable to tax had escaped assessment, it cannot be said that there has been a change of opinion. Since no opinion had been formed earlier, the question of change of opinion does not arise. The first notice issued under Section 148 of the Act on 18.4.2012 was dropped and a second notice under Section 148 of the Act was issued on 10.6.2013. This, in itself, does not constitute “Change of Opinion.” This fact comes out clearly from the Assessing Officer’s letter dt.4.6.2013 wherein AO has mentioned that the proceedings initiated by issue of the earlier notice under Section 148 of the Act dt.18.4.2012 was dropped as the reasons have not been properly recorded. Thus the issue of the second notice under Section 148 of the Act on 10.6.2013 for Assessment Year 2008-09 is valid, as all the other procedures mandated in the Act have been followed by the Assessing Officer. Also, since substantive issue in question was never examined under the proceedings in the first notice issued on 18.4.2012, the question of change of opinion does not arise. - Decided against assessee Addition of amount shown as “Share Premium” as ‘Income from other sources' - genuineness of the said transaction of purchase of 5 lakh shares of the assessee company @ ₹ 1,000 per share i.e. at a premium of ₹ 990 per share by M/s. Walden Properties Pvt. Ltd. in the year under consideration has not been established - Held that:- It is settled principle that the burden of proof lies with the assessee to prove the credits in its books of account are not its income, which onus, in our view has not been discharged by the assessee in the case on hand. Even before us, the assessee has not put forth any cogent reasons to controvert and repudiate any of the above findings rendered by the Assessing Officer. The arguments put forth by the assessee has been only to state and reiterate the principle that share premium cannot be assessed in the hands of the company. As we had already held, the facts of the case on hand are different from the facts and context in which the cited judicial pronouncements were rendered. The case on hand is one in which the Assessing Officer has examined the genuineness of the credits in the books of account, in continuation of earlier enquiries which established that the assessee is a conduit as part of a layering process. No infirmity in the decision of the Assessing Officer in holding that the receipt of ₹ 49.50 Crores by the assessee as its income under the head “Income from Other Sources” and confirm the decision of the learned CIT (Appeals) in upholding the aforesaid addition - Decided against assessee. Issues Involved:1. Validity of Notice under Section 148 of the Income Tax Act.2. Addition of Rs. 49.50 Crores as 'Income from Other Sources.'Issue-wise Detailed Analysis:1. Validity of Notice under Section 148 of the Income Tax Act:The assessee filed its original return for the Assessment Year 2008-09 on 30.09.2008, declaring a loss of Rs. 6,84,051, and a revised return on 14.10.2008, declaring a loss of Rs. 5,23,751. The revised return was processed under Section 143(1) of the Income Tax Act. The Assessing Officer (AO) initiated proceedings under Section 147 and issued a notice under Section 148 on 18.4.2012. After receiving the assessee's response, the AO dropped the proceedings on 4.6.2013. Subsequently, the AO re-initiated proceedings under Section 147, issued another notice under Section 148 on 10.6.2013, and provided the reasons recorded. The assessee challenged the validity of this notice, claiming no income had escaped assessment and that the notice was illegal and void ab-initio.Upon appeal, the CIT (Appeals) upheld the AO's action. The Tribunal found that the AO had followed the necessary procedures for issuing the notice, including recording reasons for initiating proceedings under Section 147 and providing these reasons to the assessee. The Tribunal agreed with the CIT (Appeals) that the AO had 'reasons to believe' that income had escaped assessment, which is sufficient for issuing a notice under Section 148. It was noted that since the original return was processed under Section 143(1) and not assessed under Section 143(3), the issue of notice was for assessment, not reassessment. The Tribunal found no change of opinion as no opinion had been formed earlier. The Tribunal also upheld the validity of the second notice issued on 10.6.2013, as the first notice was dropped due to improper recording of reasons. Consequently, Ground No. 2 of the assessee's appeal was dismissed.2. Addition of Rs. 49.50 Crores as 'Income from Other Sources':The AO observed that the assessee received Rs. 50 Crores from M/s. Walden Properties Pvt. Ltd., issuing 5 lakh shares at a face value of Rs. 10 per share with a premium of Rs. 990 per share, totaling Rs. 49.50 Crores as share premium. The AO held this transaction to be a conduit as part of a layering process and added the premium amount as income under 'Income from Other Sources.' The CIT (Appeals) upheld this view.The Tribunal examined whether Section 68 of the Act could be invoked for such transactions. It referred to the Hon'ble Calcutta High Court's decision in Pragati Financial Management Pvt. Ltd. Vs. CIT, which held that Section 68 could be used to examine the genuineness of share premium transactions. The Tribunal noted that the AO had examined the genuineness of the transaction and found several discrepancies, including the allotment of shares at par to the Director around the same time and the inability to justify the high premium charged. The AO concluded that the transaction was not genuine and added the premium amount to the assessee's income.The Tribunal found that the assessee failed to discharge the onus of proving the genuineness of the transaction. The Tribunal dismissed the assessee's argument that share premium cannot be assessed in the hands of the company, noting that the facts of the case indicated a conduit in a layering process. Consequently, Ground No. 3 of the assessee's appeal was dismissed.Conclusion:The Tribunal dismissed the assessee's appeal for the Assessment Year 2008-09, upholding the validity of the notice under Section 148 and the addition of Rs. 49.50 Crores as 'Income from Other Sources.'