ITAT quashes Reassessment proceedings as it was initiated upon Report of Investigation Wing [Read Order]

The Income Tax Appellate Tribunal (ITAT) quashed the reassessment proceedings as it was initiated upon report of the Investigation Wing.

The assessee, M/s Fortune Tech IT Systems Pvt. Ltd. derived its income from IT services and filed its return of income declaring income. 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 AO 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.

he 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.

The A.O. held that since no assessment was completed in the case of the assessee, the notice issued under section 148 of the Act was very much within the provisions of the Act, and that in the case of the assessee there were sufficient reasons to form the belief that the income had escaped the assessment within the meaning of Section 147/148 of the Act.

The A.O. also observed that to confer the jurisdiction under section 147(a) of the Act two conditions are required to be satisfied, firstly, the A.O. must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly, he must also have reason to believe that such escapement have occurred by reason of either omission or failure on part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the A.O. could have jurisdiction to issue notice under section 148 of the Act read with Section 147(a) of the Act. But under the substituted Section 147, existence of only the first condition suffices i.e; if the Assessing Officer for whatever reason has reason to believe that income had escaped the assessment, it confers the jurisdiction to reopen the assessment and that in the assessee’s case the A.O. has formed his own belief for the issue of notice under section 148 of the Act after applying his mind independently which was evident from the reasons recorded for issuance of notice, therefore, the notice issued under section 148 of the Act, in the case of the assessee was neither illegal, arbitrary or bad in law, rather the jurisdiction had rightly been conferred by the A.O. within the provisions of the Act.

The coram headed by the Vice President, N.K.Saini and R.L.Negi held that since the AO 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 of the Act therefore reassessment proceedings were not valid. In that view of the matter also the reassessment framed by the AO deserves to be quashed.

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