2022 (9) TMI 978 - AT - Income Tax

ITAT partially allows appeal on share capital addition, orders investigation into potential financial fraud

The ITAT partially allowed the appeal, setting aside the addition of share capital under section 68 of the Income Tax Act and directing further ... Reopening of assessment u/s 147 - Addition u/s 68 - unexplained share capital - HELD THAT:- As there is an information received by learned AO about the share capital received by the assessee at a huge premium which does not support the financial of the assessee, the return of income of the assessee was examined, which did not show any financials to support the above share capital, the funds have been diverted from the assessee to Sahara group, the income of the assessee is meager and therefore all these reasons clearly established that the learned assessing officer has ‘reason to believe’ that income of the assessee has escaped the assessment. The requisite notices have been duly served on the assessee. The assessee has chosen not to respond to them. Therefore, we do not find any infirmity in the order of the learned assessing officer in assuming jurisdiction u/s 147 of the income tax act. The learned assessing officer has a tangible material, return of income of the assessee was not picked up for scrutiny, the return of income was examined before the issue of notices, belief entertained by the assessee is of a reasonable person and therefore, reopening is upheld. No infirmity is found in the order of the learned CIT – A in confirming the same. Therefore, ground numbers 1 – 4 of the appeal are dismissed. Addition u/s 68 - The companies are registered in Mumbai, but their bank accounts were operated from Lucknow. This coincidence is further corroborated from the fact that now the assessee in form number 36 has given its address which is also at Sahara India point. The company does not have any net worth but amount advanced to Sahara group. Therefore, it is a clear ploy to transfer the money to Sahara group through this shell companies. The information mentioned in the email column of form number 36 is also irrelevant. Form number 36 is also not verified by the managing director of the company. The form number 35 is signed by one person and form number 36 is signed by different person but there is no certification that any of them is the director of the company or managing director of the company authorised to sign return of income u/s 140 of the act. Even the interest of the assessee is also very clear that it wants to get the amount of the addition confirmed in the hands of this assessee, therefore, the real beneficiary of the money is not at all touched. The confirmation of addition in the hands of this company will allow the real beneficiary of the above sum go Scott free. Accordingly, we set-aside the addition added in the hands of the assessee u/s 68 of the Income Tax Act as unexplained share capital, back to the file of the learned assessing officer with a direction to the AO to issue enquiry letter to the banker of these company i.e. ICICI bank, Lucknow to find out who operated this account, the necessary summons to the director of this company as well as the company who received the above sum should also be issued and they must be examined before making addition in the hands of this assessee or deleting the addition. AO is further directed to intimate/initiate if the transaction leads to any violation of the Prohibition of Benami transaction act, 1988. After all these examination, the assessee is directed to show the identity and creditworthiness of the persons who invested money into the assessee, the summons would also be issued to the investor in this company to examine the genuineness of the transaction. If on examination, the learned assessing officer reaches at a conclusion that there is a bigger financial fraud committed by the assessee, the respective authorities are also required to be intimated. Accordingly, ground number 5 and 6 of the appeal are set-aside to the file of the learned assessing officer with above direction. Appeal of the assessee is partly allowed. Issues:Appeal against order passed by CIT(A) confirming addition made by Assessing Officer under section 144 read with section 147 of the Income Tax Act, 1961 for assessment year 2011-12.Detailed Analysis:1. Reopening of Assessment and Jurisdiction:The appeal challenged the reopening of the assessment under section 147/148 of the Income Tax Act, 1961. The assessing officer had reasons to believe that income chargeable to tax had escaped assessment due to discrepancies in the company's financials, including a substantial share capital raised at a premium with minimal income. Despite proper notices, the assessee did not respond, leading to the assessment order. Both the CIT(A) and the ITAT upheld the reopening, citing tangible material and non-response from the assessee, affirming the jurisdiction under section 147. Grounds 1-4 of the appeal were dismissed.2. Addition under Section 68 - Share Capital Issue:The addition of Rs. 1,822,550,440 under section 68 of the Income Tax Act was contested. The assessing officer lacked information on the identity and creditworthiness of the share capital investors, leading to the addition. The CIT(A) upheld this addition, noting the absence of contrary evidence from the assessee. Despite opportunities provided for representation, the assessee failed to present any material to challenge the addition. The ITAT affirmed the addition, as the initial onus was not discharged by the assessee. Grounds 5 and 6 of the appeal were dismissed.3. Direction for Further Investigation:Concerns were raised regarding the diversion of funds to the Sahara group through shell companies, indicating a potential financial fraud. The ITAT set aside the addition of Rs. 1,822,550,440 and directed the assessing officer to conduct a detailed inquiry. This included summoning bank officials, directors, and companies involved, examining the source of funds, and assessing potential violations of the Prohibition of Benami Transactions Act, 1988. The assessing officer was instructed to verify the identity and creditworthiness of investors and investigate any financial fraud. Grounds 5 and 6 were remanded to the assessing officer for further investigation.4. Final Decision:The ITAT partially allowed the appeal, setting aside the addition of share capital and directing a comprehensive investigation into the financial transactions. The order was pronounced on 20.09.2022, emphasizing the need for thorough scrutiny and verification of the financial dealings involved.