Future Tech IT Systems Pvt. Ltd. Vs ITO (ITAT Chandigarh)
Conclusion: Reassessment proceedings initiated upon report of the Investigation Wing was not valid as AO had not applied his mind independently and acted solely upon the report of the Investigation Wing.
Held: Assessee derived its income from IT services and filed its return of income declaring income of Rs. 2,55,860/-. Later on AO received the information from Director of Income Tax (Intelligence & Criminal Investigation) Chandigarh that assessee had received huge share premium during the year under consideration and there was nothing in return to justify the receipt of share premium at such higher rate. AO observed that the book value of share of assessee company was just Rs. 10 i.e; Face Value because prior to the receipt of premium, assessee company had nothing in its balance sheet and that assessee had shown NIL income during the year under consideration which could not justify such a large premium received. Assessee declined to furnish the information’s with the plea that there was no cause for furnishing the required information which were apparent from the documents already on record. AO pointed out that those information were not available on the record. He was of the view that assessee had no explanation to the receipt of share premium at such higher rate, he, therefore, issued the notice under section 148 after recording the reasons under section 147. It was held that since AO had not applied his mind independently and 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 therefore, reassessment proceedings were not valid.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
These appeals by different assessee’s are directed against the separate orders each dt. 28/03/2019 of Ld. CIT(A)-3, Ludhiana. Since the issues involved in all the above appeals are common and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.
2. At the first instance we will deal with the appeal in ITA No. 543/Chd/201 9 in case of M/s Fortune Tech IT Systems Pvt. Ltd. Vs. ITO for the A.Y. 2010-11.
3. Following grounds have been raised in this appeal:
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-3, Ludhiana is against law and facts on the file in as much as she was not justified to uphold the action of the Ld. Assessing Officer in initiating proceedings u/s 148 of the Income Tax Act, 1961 merely on the basis of suspicion.
2. That the Learned CIT(A) was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in making an addition of Rs. 1, 1 7,00,000/- on account of share premium received from various parties by resort to provisions of Section 56(vii)(b) of the Act.
3. That the Learned ~~1(A) was not justified to arbitrarily hold that the addition made by the Ld. Assessing Officer by resort to provisions of Section 56 (vii) (b) is to be upheld u/s 68 of the Income Tax Act, 1961.
4. That she was further not justified to arbitrarily enhance the income of the appellant 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.
5. That she gravely erred in invoking the provisions of Section 251(2) of enhancement of income whereas in the facts and circumstances of the case no such enhancement was warranted.
4. Vide Ground No. 1 the assessee raised a legal issue challenging the action of the A.O. in initiating the proceedings under section 148 of the Income Tax Act, 1961 (for short the ‘Act’).
5. Facts of the case in brief are that the assessee derived its income from IT services and filed its return of income on 20/09/2010 declaring income of Rs. 2,55,860/-. Later on the A.O. received the information from Director of Income Tax (Intelligence & Criminal Investigation) Chandigarh that the assessee had received share premium at Rs. 1,17,00,000/- during the year under consideration and there was nothing in return to justify the receipt of share premium at such higher rate. The A.O. observed that the book value of share the assessee company was just Rs. 10 i.e; Face Value because prior to the receipt of premium, the assessee company had nothing in its balance sheet and that the assessee had shown NIL income during the year under consideration which could not justify such a large premium received.
5.1 The A.O. asked the assessee about the basis of charging the high premium, to file documentary evidence in support of working of premium thereof, to furnish the utilization of share premium alongwith documentary evidence including bank statement & cash flow statement and to furnish the details of dividend declared and distributed by the assessee company during the financial year 2008-09 to 2011-12.
5.2 The A.O. observed that in response to the above, the assessee declined to furnish the informations with the plea that there was no cause for furnishing the required information which were apparent from the documents already on record. The A.O. pointed out that those information were not available on the record. He was of the view that the assessee had no explanation to the receipt of share premium at such higher rate, he, therefore, issued the notice under section 148 of the Act after recording the reasons under section 147 of the Act.
5.3 In response the assessee submitted that the return originally filed be treated as filed in response to the notice under section 148 of the Act and also made the request for supply of the reasons recorded under section 147 of the Act which were supplied to the assessee on 08/05/2015. The assessee raised some objections against those reasons vide letter dt. 22/07/2015 which were disposed off by the A.O. vide letter dt. 24/07/2015 by mentioning that the A.O. had sufficient reasons to form the belief that the income of the assessee had escaped assessment by reasons of omission of failure on part of the assessee to disclose fully and truly all material facts necessary for this assessment. The reliance was placed on the following judgments of the Hon’ble Apex Court:
