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2023 (11) TMI 1103 - AT - Income TaxValidity of reopening of assessment - ‘reason to believe’ v/s 'reason to suspect' - allegation of issue of shares on premium to paper companies - HELD THAT:- Adverse information may trigger “reason to suspect”, which is not sufficient to re-open an assessment because the requirement of law is “reasons to believe escapement of income’ and not “reason to suspect”. This fine distinction should be borne in mind and when an AO receives an adverse information against an assessee, then he must make reasonable inquiry and collect material which would make him believe that there is in fact escapement of income. It is also settled position of law that when the validity of the “reasons recorded” is tested, then it should be examined on a standalone basis. Nothing can be added or subtracted. The AO should speak through the “reasons recorded” and the assessee should not be guessing as to what was the reasons for which the AO has reopened the assessment. Issue of shares at premium - allegation of accomodation transactions - From an analysis of the “reasons recorded” by AO, it is discerned that in the relevant year under consideration the assessee company had issued shares for a premium of Rs. 40 per share and in that process assessee has collected share- premium of Rs. 52 Lakhs which have escaped assessment. In this factual context it is noted that the settled position of law is that adverse information against an assessee would trigger only “reason to suspect”. Once the AO found that the assessee had issued 1,30,000 shares of face value of Rs. 10/- for share premium of Rs. 40 per share, then, he ought to have conducted a preliminary inquiry from which he should have found as a matter of fact who were the investors of these 1,30,000 shares; and whether those investors were paper companies providing only accommodation entry etc. And thereafter, he should have recorded the reasons as to whether the assessee had engaged in taking accommodation entry from the entry operators as reveled from search operation conducted at RK Kedia Group/Entry Operators as stated in para 2 & 3 of reason recorded. Since AO has not carried out even the preliminary enquiry after taking note of assessee collecting share capital with premium, the AO cannot be said to be possessing the requisite reason to believe, escapement of income. AO in the recorded reasons failed to provide the name of the investors which AO suspects to be entry operators [which names of investors we find from the re-assessment order that there were four (4) companies]. Thus, the AO failed to even mention the name of the investor/accommodation entry operators/paper companies, in his recorded “reasons to believe escapement of income” and bring out the nexus of these investors with the entry operators. AO had only information which can raise “reasons to suspect” and not “reasons to believe” which is not sufficient for usurping the reopening jurisdiction u/s 147 - Decided in favour of assessee.
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