Reopening of assessment beyond four years without failure to disclose material facts is invalid; share premium treated as capital receipt not taxable under Section 68 prior to 2013 amendment.

ORDER

PER R.K. PANDA, VP :

This appeal filed by the Revenue is directed against the order dated 15.09.2023 of the CIT(A), Pune – 12, relating to assessment year 2011-12. The assessee has filed the Cross Objections against the appeal filed by the Revenue. For the sake of convenience, the appeal filed by the Revenue and the Cross Objections filed by the assessee were heard together and are being disposed of by this common order.

2. There is a delay of 30 days in filing of the CO before the Tribunal by the assessee, for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay which is due to spinal problem of the Director. After considering the contents of the condonation application filed along with affidavit and after hearing the Ld. DR, the delay in filing of the CO is condoned and the CO is admitted for adjudication.

3. Facts of the case, in brief, are that the assessee is a private company, engaged in the business of trading in shares and securities. It filed its return of income on 23.12.2011 declaring total loss of Rs.26,873/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 21.03.2014 by the ITO, Ward-1(1), Kolkata assessing the total loss at Rs.2,753/-.

4. Subsequently, the assessment was reopened by recording the following reasons:

“Credible information was received wherein it was reported that a search & seizure operation u/s 132 and survey operation u/s 133A of the Income Tax Act, 1961 was conducted at the various premises of Mittal Group on 31.10.2017. During the search and survey it was found that M/s VISTA NIRMAN PRIVATE LIMITED has received share premium from various Kolkata based companies, the creditworthiness of whom remained unexplained, amounting to Rs.24,11,50,000/-, during the FY 2010-11 i.e. A.Y. 2011-12.

According to inputs received, information from credible sources revealed that various bank accounts were opened during the FY 2010-11, wherein certain bank account transactions appeared which were circular in nature and the account appeared to have been part of a chain of accounts used for routing large fund transfers. These types of transactions were wangled to obtain fictitious entries in the form of share capital / premium which included sale of investments and for obtaining unsecured loans. As part of this methodology, investments in unquoted equities were sometimes reduced and loans and advances were increased proportionately. In this process, investments of the company were sold out gradually and the unaccounted cash was brought back in the books in the form of loans / advances without paying any tax. The cash deposits were made in the Jamakharchi accounts of individuals as well as shell companies having no business activities / fixed assets. M/S. VISTA NIRMAN PRIVATE LIMITED is one such entity where such routed transaction took place.

An inquiry was made in terms of running data analysis from e-records available in the ITBA database. As the financial analysis of the 360 degree profile of the assessee in question shows, the final accounts of the company indeed did undergo a change in terms of share capital / share premium reserve / investments vis-à-vis loans and advances without any perceptible reason and corroborates with auxiliary information received as above.

In view of the such information, lending credence to the financial data, mentioned herein, which are self-explanatory, the AO had reason to believe that income of the assessee to the extent of Rs.24,11,50,000/- has escaped assessment for the AY 2011-12 in terms of sec. 147 of the Ac