2021 (5) TMI 22 - AT - Income Tax

ITAT invalidates reassessment under Income Tax Act due to lack of independent assessment

M/s Future Tech IT Systems Pvt. Ltd. Versus The ITO, Ludhiana-Punjab And M/s Abacus Edutech Pvt. Ltd. Versus The ITO Ward 7 (1) Ludhiana-Punjab And M/s Axis Education Technologies (P) Ltd. Versus The ITO Ward 7 (1), Ludhiana

The Income Tax Appellate Tribunal (ITAT) quashed the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961. The ITAT found that ... Reopening of assessment u/s 147 - unexplained share application money - non independent application of mind by AO - borrowed satisfaction - HELD THAT:- Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of M/s Indo Global Techno Trade Limited [2020 (6) TMI 375 - ITAT CHANDIGARH] so respectfully following the aforesaid referred to order dt. 15/06/2020, we are of the view that reopening by the AO in the present case was not justified. Moreover the AO himself admitted that the reopening in this case was based on the information received from Director of Income Tax (Intelligence & Criminal Investigation) Chandigarh which is evident from the observation of the Ld. CIT(A). In the present case, the AO initiated the proceedings under section 147 r.w.s 148 of the Act on the basis of the information received from Director of Income Tax (Intelligence & Criminal Investigation) Chandigarh - On a similar issue in M/S RAJSHIKHA ENTERPRISES PVT. LTD. VERSUS INCOME TAX OFFICER, WARD-15 (2) , NEW DELHI [2016 (6) TMI 1406 - ITAT DELHI] wherein held AO acted upon the report of the Investigation Wing only and on that basis initiated the proceedings for reopening the assessment by issuing the notice u/s 148 of the Act. Therefore, the reassessment proceeding was not valid. In the present case also since the AO acted upon the report of the investigation wing and on that basis initiated the proceedings for reopening the assessment by issuing the notice under section 148 of the Act therefore reassessment proceedings were not valid. In that view of the matter also the reassessment framed by the AO deserves to be quashed. In view of the aforesaid discussions legal issue raised by the assessee relating to the jurisdiction of A.O for reopening of the assessment is decided in favour of the assessee. Since we have decided the legal issue relating to the validity of the assumption of jurisdiction by the AO to reopening the assessment in favour of the assessee. Issues Involved:1. Legitimacy of proceedings initiated under Section 148 of the Income Tax Act, 1961.2. Justification of the addition of Rs. 1,17,00,000 on account of share premium under Section 56(vii)(b) of the Act.3. Validity of the addition upheld under Section 68 of the Income Tax Act, 1961.4. Legitimacy of the enhancement of income by Rs. 13,00,000 under Section 251(2) of the Income Tax Act, 1961.5. Appropriateness of invoking Section 251(2) for income enhancement.Detailed Analysis:Issue 1: Legitimacy of Proceedings Initiated Under Section 148The primary issue raised was the challenge against the initiation of proceedings under Section 148 of the Income Tax Act, 1961. The assessee contended that the proceedings were initiated merely on the basis of suspicion without any new, fresh, reliable, and tangible material. The Assessing Officer (A.O.) received information from the Director of Income Tax (Intelligence & Criminal Investigation) that the assessee had received a share premium of Rs. 1,17,00,000 during the year under consideration, which could not be justified by the book value of the shares or the income declared by the assessee. The A.O. issued a notice under Section 148 after recording reasons under Section 147, believing that the income had escaped assessment due to the omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment.The Ld. CIT(A) upheld the A.O.'s action, stating that the information received was specific and clear, and the A.O. had correlated this information with the Income Tax Return filed by the assessee. The A.O. had issued a notice under Section 133(6) to verify the information before issuing the notice under Section 148. The Ld. CIT(A) concluded that the reopening proceedings under Section 148 were validly initiated based on solid and specific information.However, the ITAT found that the A.O. had acted on borrowed satisfaction from the investigation wing without independent application of mind. The reasons recorded for reopening the assessment did not constitute tangible material or incriminating evidence to form a belief that the income had escaped assessment. The ITAT held that the reopening was based on mere suspicion, which is not sufficient for initiating proceedings under Section 148. The ITAT quashed the reassessment order, concluding that the A.O. had wrongly and illegally assumed jurisdiction to reopen the assessment.Issue 2: Justification of the Addition of Rs. 1,17,00,000 on Account of Share PremiumThe A.O. made an addition of Rs. 1,17,00,000 on account of share premium received from various parties, treating it as 'Income from other Sources' under Section 56(2)(viib) of the Income Tax Act, 1961. The assessee argued that the share premium was justified and provided all necessary documents to prove the identity, genuineness, and creditworthiness of the investors.The ITAT did not delve into the merits of this issue as it had already quashed the reassessment proceedings on the grounds of invalid jurisdiction under Section 148.Issue 3: Validity of the Addition Upheld Under Section 68The Ld. CIT(A) upheld the addition made by the A.O. under Section 68 of the Income Tax Act, 1961, which pertains to unexplained cash credits. The assessee contended that all necessary documents were provided to prove the genuineness of the share premium received.Again, the ITAT did not address this issue on merit due to the quashing of the reassessment proceedings.Issue 4: Legitimacy of the Enhancement of Income by Rs. 13,00,000 Under Section 251(2)The Ld. CIT(A) enhanced the income of the assessee by Rs. 13,00,000 on account of share capital received from various parties by invoking the provisions of Section 251(2) of the Income Tax Act, 1961. The assessee argued that such enhancement was arbitrary and unwarranted.As the reassessment proceedings were quashed, the ITAT did not provide a separate finding on this issue.Issue 5: Appropriateness of Invoking Section 251(2) for Income EnhancementThe assessee contended that the Ld. CIT(A) erred in invoking Section 251(2) for the enhancement of income, as no such enhancement was warranted based on the facts and circumstances of the case.The ITAT did not address this issue separately due to the quashing of the reassessment proceedings.Conclusion:The ITAT quashed the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, on the grounds that the A.O. had acted on borrowed satisfaction from the investigation wing without independent application of mind. The reasons recorded for reopening the assessment did not constitute tangible material or incriminating evidence to form a belief that the income had escaped assessment. Consequently, the ITAT did not address the other issues on merit, as the reassessment order itself was deemed invalid.