Re-opening of assessee’s case merely on basis of information from Director (Investigation) pertaining to receipt of huge amount of share premium by assessee and the opinion that the amount of share premium was not justifiable considering its lesser income during the year was unjustified

FACTS
The assessee-company filed its return of income on 20th September, 2010 declaring an income of Rs. 2,55,860 which was accepted and an assessment order was passed.

Subsequently, the A.O. received information from the Director (Intelligence & Criminal Investigation) that the assessee had received share premium of a huge amount during the year. Notice u/s 148 was issued. The assessee’s objections to the same were disposed of by the A.O. and assessment order was passed after making additions of Rs. 1,17,00,000 in respect of share premium by invoking provisions of section 68. On appeal before the CIT(A), the assessee argued that the A.O. did not mount a valid base for the reasons to come to a rational belief that the income of the appellant has escaped assessment and that there was lack of material to prove that the transaction of receipt of share application money was not genuine. The A.O. acted only on the borrowed satisfaction.

The CIT(A) observed that the A.O. noticed that the book value of the share of the company was Rs. 10 and the company had nothing in its balance sheet to attract such huge share premium. He also observed that the A.O. initiated the proceedings on the basis of specific information, so it could not be said that his action was on the basis of certain surmises and conjectures only and it could also not be said that the material in his possession could just give him reason to suspect and not reason to believe that the income had escaped assessment. Another observation made by him was that the A.O. applied his mind to the information by verifying from the assessment record that the assessee had very low income as against which it received huge share premium and hence his action is valid.

Aggrieved, the assessee preferred an appeal before the ITAT.

HELD
The assessee argued before the ITAT that the A.O. while issuing the notice u/s 148 doubted the share premium only and accepted the share capital received by the assessee, therefore, the initiation of the proceedings u/s 147 were based on suspicion. It was also submitted that the investor company explained the source and the assessee furnished relevant documents to the A.O. The documents furnished by the assessee proved the source of credit for share application money. Thus, according to the assessee, it had proved the identity, genuineness and the credit-worthiness of the shareholders.

The ITAT observed that an identical issue was decided by the ITAT in ITA No. 1616/Chd/2018 for the A.Y. 2010-11 vide order dated 15th June, 2020 in the case of Indo Global Techno Trade Ltd. vs. ITO. Relevant findings of the said case that were considered by the ITAT in the instant case were that mere information (without recording of any details) of the assesse receiving a high premium could not be said to be a reason to form the belief that the income of the assessee had escaped assessment. There is no dispute to the well-settled proposition that reason to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. There could be no doubt that the words ‘reason to believe’ suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour.

The other decision relied on by the assessee and considered by the ITAT was of the Chandigarh Bench of the Tribunal in the case of D.D. Agro Industries Ltd. vs. ACIT ITA Nos. 349 & 350/Chd/2017 order dated 7th September, 2017, wherein, on identical facts and circumstances, the A.O. recorded identical reasons to form belief for re-opening of the assessment. The Tribunal held that the A.O. assumed jurisdiction relying upon the non-specific routine information blindly without caring to first independently consider the specific facts and circumstances of the case and that the assumption of jurisdiction by the A.O. under the circumstances was wrong.

Thus, the ITAT followed the decision in Indo Global Techno Trade Ltd. vs. ITO (Supra).

The ITAT also considered the following other rulings on the issue:

• Rajshikha Enterprises (P) Ltd. vs. ITO for A.Y. 2005-06 vide order dated 23rd February, 2018 (Del ITAT);
• Pr.CIT vs. G&G Pharma India Ltd. (2016) 384 ITR 147 (Del HC);
• Pr.CIT vs. Meenakshi Overseas (P) Ltd. (2017) 395 ITR 677 (Del HC);
• Pr.CIT vs. Laxman Industrial Resources Ltd. (2017) 397 ITR 106 (Del HC); and
• Signature Hotels (P) Ltd. vs. ITO (2011) 338 ITR 51 (Del HC).

The ITAT applied the rationale of the above decisions to the facts of the instant case to conclude that the re-opening initiated by the A.O. was invalid. Thus, the ITAT allowed the appeal of the assessee.