Reassessment proceedings could not be declared as null and void where AO was prompted by correct information

Brief of the case:

In the case of ITO Vs. M/S JAGDAMBA OPTICS PVT. LTD. Delhi Bench of ITAT have held that there was existence of correct information which prompted to the AO to proceed to issue notice u/s. 148 of and hence, the reassessment proceedings could not be declared as null and void. After conducting the detailed investigation to prove that the income has escaped assessment in the hands of the assessee, the reassessment proceedings have been initiated by the AO. In an another issue ITAT have held that Once the identity of the shareholders was established it also stands established that the shareholders have invested money in the purchase of shares and hence the onus, on the part of the assessee company, is discharged and there cannot be any addition in the hands of the assessee company on account of share application money.

Facts of the case:

• Assessee filed the return of income declaring loss of Rs. 5,78,075/- on 07.10.2004.
• Subsequently case was reopened u/s 148 on the basis of information gathered from Investigation Wing of the Income Tax Department that the assessee has indulged in receiving accommodation entry in the garb of Share Application money during the year.
• During the year under consideration assessee has received share capital of Rs. 13,70,000/- from 6 companies.
• Assessee was asked to file the details of share applicant and submit copies of their IT returns, confirmations and bank statements in order to prove the identity and creditworthiness of the share applicant and genuineness of the transaction.
• In response to the questionnaire, assessee filed the copy of ITR of the above mentioned parties to verify the same.
• For 3 firms the AO also issued notice to the concerned Bank which also received back from the post authorities with the remarks that “no such Bank at Nai Sarak”.
• Finally AO has held that assessee has given its unaccounted cash to the entry provider and the same had been received by the assessee and made addition of Rs. 13,70,000/-

Contention of the assessee:

• The reopening is bad in law because the reasons recorded do not lead to any reasonable person to conclude that any income has escaped assessment.
• All the requisite documents were filed before AO.

Contention of the revenue:

• The case of the assessee was reopened upon on specific information that the share application money received by the assessee from Teerath Impex & Traders (P) Ltd. are accommodation entries as the information received from the Investigation Wing of the Department.
• These facts are also confirmed from the bank statement of Teerath Impex & Traders (P) Ltd. which shows that the cash of high amount is deposited regularly and cheque of same amount is issued on same day or on the very next day.

Held by CIT (A):

• During the course of assessment as well as appellate proceedings, all the particulars / details such as share application form, the copies of PAN Card, income-tax details, bank particulars and bank statements, the complete addresses of the share applicant were furnished.
• Once the identity of the shareholders was established it also stands established that the shareholders have invested money in the purchase of shares and hence the onus, on the part of the assessee company, is discharged and there cannot be any addition in the hands of the assessee company on account of share application money.
• AO could not point out any discrepancy in the evidences relied upon by the assessee. He has neither brought out any direct or inferential evidence to contradict the contention of the assessee.
• It is further observed that even though AO has vast powers u/s 131 and 133(6) of the Act, he has not used any of his powers to verify the genuineness of the claim of the assessee by verifying the documents furnished by it.
• If AO had doubted the impugned transaction after receiving the evidences which had been produced by the assessee in support of its claim it was very much open to the AO to do his independent enquiry and verification.
• Share applicants were existed in the income-tax records as assessee filed copy of ITR.

Held by ITAT:

• During the appellate proceedings CIT (A) sought remand report and AO duly submitted his remand report.
• CIT (A) has taken the Remand Report from the AO and also examined all particulars/ details of the share application form, copies of PAN cards, income tax returns, bank particulars and bank statements, the complete address of the share applicants and deleted the addition in dispute.
• CIT (A) has also examined various decision rendered by the Hon’ble Jurisdictional High Court as well as the Hon’ble Supreme Court of India which includes CIT vs. Lovely Exports Pvt. Ltd. [2008] 216 CTR (SC) 195; CIT vs. Divine Leasing & Finance Ltd. (2007) 299 ITR 268 (Del) and CIT vs. Value Capital Services Ltd. (2008) 307 ITR 334 (Del).
• CIT (A) has rightly deleted the impugned addition in light of his findings and various judgments.
• The material in possession of the AO is a fresh material which has been examined by the AO, came to be valid reasonable believe that the income of the assessee has escaped assessment.
• There was existence of correct information which prompted to the AO to proceed to issue notice u/s. 148 of the I.T. Act and hence, this reassessment proceedings could not be declared as null and void.