Facts of the Case

  • The assessee company received ₹87 crores as share application money from its promoter Shri Analjit Singh during FY 2009–10.
  • The return for AY 2010-11 was filed declaring minimal income.
  • Later, the right to allot shares was transferred to a family trust (Neeman Family Foundation) through a gift.
  • The Assessing Officer (AO) questioned the genuineness of the transaction and added the amount under Section 68.
  • CIT(A) deleted the addition stating that the amount was not received in the relevant AY.
  • Subsequently, the AO issued a reassessment notice under Section 148 alleging income had escaped assessment due to doubtful transaction and contradictions in evidence.

Issues Involved

  1. Whether reassessment proceedings under Sections 147/148 were valid in absence of new tangible material.
  2. Whether share application money of ₹87 crores could be treated as unexplained income under Section 68.
  3. Whether contradictions and doubtful evidence justify reopening of assessment.

Petitioner’s Arguments

  • Reopening was based on change of opinion, not new material.
  • Identity and creditworthiness of investor (promoter) were undisputed.
  • Full disclosure of transaction was already made before authorities including SEBI.
  • Reassessment was initiated merely for roving and fishing inquiry, which is impermissible.
  • Relied on judicial precedents like:
    • Sheo Nath Singh v. ACIT
    • ITO v. Lakhmani Mewal Das
    • Ganga Saran & Sons (P) Ltd. v. ITO

Respondent’s Arguments (Revenue)

  • There were serious inconsistencies and contradictions in documents submitted.
  • Share application money was disproportionate to authorized capital (₹20 lakhs vs ₹87 crores).
  • Unjustified high premium (457 times face value) raised suspicion.
  • No proper evidence of actual receipt or genuineness of transaction.
  • Documents appeared fabricated or created later.
  • Hence, reason to believe income escaped assessment was valid.

Court’s Findings / Judgment

  • The Court upheld validity of reassessment notice.
  • Held that:
    • “Reason to believe” existed based on material suggesting non-genuine transaction.
    • Mere disclosure does not prevent reassessment if transaction later appears dubious.
    • Reliance placed on:
      • CIT v. Kelvinator of India Ltd.
      • Phool Chand Bajrang Lal v. ITO
  • Observed that:
    • Share application money was disproportionate and unexplained.
    • No proper justification for delay in share allotment.
    • Genuineness and creditworthiness under Section 68 were not established.
  • Therefore, reassessment proceedings were legally justified.

Important Clarifications by Court

  • Reassessment is valid if new material or information raises doubt on earlier findings.
  • “Reason to believe” must be based on rational connection with evidence, not mere suspicion.
  • Section 147 cannot be used for review, but can be invoked when transactions appear bogus later.
  • Even if identity is known, genuineness and creditworthiness must still be proved under Section 68.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:1780-DB/SRB27032019CW115722017.pdf

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