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TMI Blog2024 (9) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Department, M/s. Mind Tree Trading Company Ltd has sold its investment in shares of M/s. Bharat Biotech International Ltd @ Rs. 1 per share to Mr. Krishna Murthy Ella during the financial year 2013-14 relevant to A.Y 2014-15. The Assessing Officer further noted that as per the financial statement of M/s. Bharat Biotech International Ltd for the year ending 31.3.2014, the number of shares held by Shri Krishna Murthy Ella increased from 41,77,560 to 45,95,095. On verification, it is noticed that the assessee has purchased 4,17,535 shares from M/s. Mind Tree Trading Co. Pvt Ltd @ Rs. 1 per share, whereas the book value or fair market value was at Rs. 124.92 per share. Since the appellant has received shares for a consideration which is less than the fair market value/book value, the same needs to be treated as income in terms of section 56(2)(vii)(c) of the I.T. Act, 1961. Therefore, opined that the income chargeable to tax had been escaped the assessment to the tune of Rs. 5,17,40,937/- and thus, issued notice u/s 148 of the I.T. Act, 1961 on 12.3.2019 and served on the assessee. In response, the assessee filed return of income on 27.04.2019 admitting total income of Rs. 1,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee preferred an appeal before the learned CIT (A). Before the learned CIT (A), the assessee challenged the reopening of the assessment on the ground that the assessment has been reopened on the basis of borrowed satisfaction without there being any independent application of mind by the Assessing Officer which is evident from the reasons recorded for reopening of the assessment, where the Assessing Officer has formed reasonable belief of escapement of income on the ground that the appellant has purchased 4,17,535 shares, whereas while concluding the assessment, the Assessing Officer has observed that the appellant has purchased 2,22,222 shares. Therefore, submitted that the reopening of the assessment is bad in law and liable to be quashed. The assessee also challenged the addition made by the Assessing Officer towards consideration received for purchase of shares u/s 56(2)(vii)(c) on the ground that it is not a case of purchase of shares for consideration which is less than the fair market value of the shares as on the date of said purchase, but it is a case of cancellation of share purchase agreement and retention of shares. Therefore, provisions of section 56(2)(vii)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening of the assessment and the assessment order passed by the Assessing Officer making addition u/s 56(2)(vii)(c) of the Act submitted that, the Assessing Officer have referred to the financial statement of M/s. Bharat Biotech International Ltd and presumed that the appellant has purchased 4,17,535 shares from Mindtree Trading Co. Ltd @ Rs. 1/- per shares whereas the fact remains that the appellant had received back 2,22,222 shares on cancellation of share purchase agreement dated 30.09.2005 vide cancellation agreement dated 29.4.2013. The Assessing Officer has not verified or carried out any investigation but borrowed the satisfaction of the Assessing Officer who completed the assessment of M/s Bharat Biotech International Ltd and simply issued notice u/s 148 of the I.T. Act, 1961. Therefore, he submitted that there is no live nexus between formation of belief of escapement of income and material considered by the Assessing Officer and thus in absence of satisfaction, the reopening of the assessment on the basis of borrowed satisfaction is invalid and liable to be quashed. In this regard, he relied upon the following judicial precedents: 1) Hon'ble Guwahati High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ech International Ltd where it was noticed that the number of shares held by the appellant in M/s Bharat Biotech International Ltd has increased and on further verification, it was ascertained that the appellant has purchased 2,22,222 shares @ Rs. 1 per share whereas the fair market value/book value of the said share was at Rs. 124.92 per share. Therefore, the argument taken by the learned Counsel for the assessee on reopening of the assessment is devoid of merit and should be rejected. 11. So far as the addition made u/s 56(2)(vii)(c) of the Act, the law is very clear, where an assessee receives any property other than the immovable property for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs. 50,000, the aggregate fair market value of such property as exceeded such consideration should be treated as income of the assessee. The reference of share purchase agreement dated 30.09.2005 and subsequent cancellation agreement dated 29.04.2013 does not in any way help the case of the assessee because the said agreement only talks about the first right of refusal of the assessee while buying back the shares, but it does not spea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 x Rs. 123.92). From the above, it is undisputedly clear that the Assessing Officer has issued notice u/s 148 of the I.T. Act, 1961 on the basis of information available in the assessment folder of M/s. Bharat Biotech International Ltd or information received from the Assessing Officer of the said company without any independent verification of the fact to ascertain the fact with regard to the escapement of income, if any. Further, the Assessing Officer has simply issued notice on the ground that income chargeable to tax had escaped the assessment to the tune of Rs. 1,57,40,937/- which shows non-application of mind to the relevant facts by the Assessing Officer and simply issued notice on the basis of borrowed satisfaction without any independent application of mind. Further, there is no live nexus between the tangible material and formation of belief of escapement of income which is evident from the reasons recorded by the Assessing Officer and the assessment order passed u/s 147 of the I.T. Act, 1961. In absence of any material on record relating to transaction which had taken place between the assessee and other parties and the Assessing Officer had not made any independent inq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had received accommodation entry and there was no independent application of mind by the Assessing Officer to tangible material and formation of reasons to believe that income had escaped assessment, the re-assessment was not justified. The hon Supreme Court in the case of Income Tax Officer vs. Lakhmani Mewal Das reported in (1976) 103 ITR 437 (S.C) held that live link or close nexus which should be there between the material before the Income Tax Officer and the belief which he was to form regarding escapement of income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts necessary for assessment. 15. In this case on perusal of the facts on record, we find that there is no live link or close nexus between fresh tangible material and formation of belief of escapement by the Assessing Officer which is discernible from the reasons recorded by the Assessing Officer where the Assessing Officer stated that income chargeable to tax had escaped the assessment to the tune of Rs. 5,17,40,937/- on account of purchase of 4,17,535 shares, whereas in the assessment order passed u/s 147 of the Act, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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