2022 (11) TMI 1541 - AT - Income Tax

Revenue's appeal dismissed for inadequate enquiry into bogus share capital additions under section 68

Deputy Commissioner of Income Tax, Central Circle-1 (2), Kolkata Versus P & P Highrise Pvt. Limited.

The ITAT Kolkata dismissed the revenue's appeal regarding bogus share capital additions under section 68. The Assessing Officer failed to conduct proper ... Bogus share capital including share premium u/s 68 - HELD THAT:- A perusal of the assessment order would indicate that the ld. Assessing Officer has not conducted any enquiry. The assessee has submitted the material in support of its contention, but those materials have not been rebutted by the AO. He made reference to the finding of the DDIT (Investigation), Unit-2(1), Kolkata, but that was not an adjudicatory finding. It was a process of collecting incriminating material against the assessee and preparation of a report to consider that material. The opportunity to the assessee is to be given during an assessment proceeding when it can explain this material and AO is bound to verify to the contentions of the assessee in the light of that material in an analytical manner. That exercise is totally missing here. It is pertinent to note that copy of the reasons for reopening is available. According to the assessee, this is the information supplied by the ld. Assessing Officer, but it does not contain complete copy as well as the approval, if any, granted by the Principal CIT, Kolkata. Though to our mind, it is an irregularity and if we are called upon to test the veracity of impugned order only on this fold of dispute, then we would have remitted the issue back for adjudication of the objections against reopening as well as supply of complete copy of the reasons. But we do not deem it appropriate to explore that procedure because we concur with the finding of the ld. CIT(Appeals) on merit. AO has not conducted any enquiry for pointing out faults in the details submitted by the assessee running into more than 140 pages as discernable from the details mentioned in the Index with the paper book. Therefore,we do not find any merit in this appeal. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the Commissioner of Income Tax (Appeals) erred in deleting the addition of alleged bogus share capital and share premium under Section 68 of the Income Tax Act, 1961.Whether the reopening of the assessment under Section 148 of the Income Tax Act was justified.Whether the Assessing Officer adequately addressed the objections raised by the assessee regarding the reopening of the assessment.Whether the addition under Section 68 was sustainable based on the evidence and material submitted by the assessee.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Deletion of Addition under Section 68Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act requires the assessee to explain the nature and source of any sum credited in its books. The explanation must satisfy the Assessing Officer regarding the identity, genuineness, and creditworthiness of the investors. Key precedents include the judgments in CIT v. Lovely Exports and CIT v. Novadaya Castles.Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer failed to conduct any meaningful inquiry or verify the evidence provided by the assessee. The Tribunal emphasized that the burden of proof lies with the Assessing Officer once the assessee has provided prima facie evidence of the genuineness of the transactions.Key Evidence and Findings: The assessee submitted extensive documentation, including share application forms, bank statements, and financial statements of the investor companies. The Assessing Officer did not refute these documents or conduct further inquiries.Application of Law to Facts: The Tribunal applied the principles from relevant precedents, concluding that the Assessing Officer did not satisfy the requirements of Section 68. The mere suspicion or circumstantial evidence was insufficient to justify the addition.Treatment of Competing Arguments: The Tribunal considered the Revenue's reliance on the investigation report but found it inadequate due to the lack of specific findings against the assessee. The Tribunal also noted the absence of any adverse material or evidence against the assessee.Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition, finding the assessee's evidence credible and the Assessing Officer's inquiry inadequate.Issue 2: Justification for Reopening the AssessmentRelevant Legal Framework and Precedents: Reopening of assessments under Section 148 requires the Assessing Officer to have 'reason to believe' based on tangible material that income has escaped assessment. The Supreme Court's decision in GKN Driveshafts India Ltd. v. ITO is pertinent.Court's Interpretation and Reasoning: The Tribunal found that the reopening was based on borrowed satisfaction without independent verification or inquiry by the Assessing Officer. The Tribunal emphasized the need for the Assessing Officer to dispose of objections raised by the assessee.Key Evidence and Findings: The Tribunal noted that the reasons for reopening were vague and did not specify the names of the alleged bogus creditors or the basis for considering the share capital as bogus.Application of Law to Facts: The Tribunal applied the principles from GKN Driveshafts, finding that the Assessing Officer failed to follow due process in addressing the assessee's objections to the reopening.Treatment of Competing Arguments: The Tribunal considered the Revenue's arguments but found them lacking due to the absence of specific and credible evidence supporting the reopening.Conclusions: The Tribunal concluded that the reopening was not justified, as the Assessing Officer did not provide adequate reasons or follow the required procedure.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The Assessing Officer has not conducted any enquiry for pointing out faults in the details submitted by the assessee... Therefore, on due consideration of the above facts and circumstances, we do not find any merit in this appeal.'Core Principles Established: The judgment reinforces the principle that the burden of proof under Section 68 lies with the Assessing Officer once the assessee provides prima facie evidence. It also emphasizes the necessity for the Assessing Officer to conduct independent inquiries and address objections adequately before reopening assessments.Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition under Section 68. It also dismissed the Cross Objection filed by the assessee due to the lack of specific grievances against the impugned order.