2015 (3) TMI 499 - HC - Income Tax

Reopening of assessment - notice dated 31st March, 2014 challenged seeks to re-open the assessment for the Assessment Year 2009-10 - bring to tax the share premium received by the Petitioner on issue of shares to its non-resident holding company - Held that - Issue arising in the present Petition namely seeking to bring to tax the share premium received by the Petitioner on issue of shares to its non-resident holding company stands covered by the decision of this Court in Vodafone India Services (P.) Ltd. (2014 (10) TMI 278 - BOMBAY HIGH COURT) in favour of the Petitioner wherein held there can be no reason to believe that income chargeable to tax has escaped assessment. Submission of Revenue that powers of re-opening within a period of four years from the end of assessment year is very wide ignores the fact that even in cases of less than four years, there must be reason to believe that income chargeable to tax has escaped assessment. In the absence of condition precedent under Section 147 of the Act being satisfied, no notice for re-opening of an assessment can be sustained. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for re-opening assessment for the Assessment Year 2009-10 based on share transactions with non-resident holding company without filing Form 3-CEB.

Analysis:
The petitioner challenged a notice dated 31st March, 2014, under Section 148 of the Income Tax Act, 1961, seeking to re-open the assessment for the Assessment Year 2009-10 due to share transactions with a non-resident holding company. The petitioner contended that the notice was issued on a mere change of opinion and was not valid. The Assessing Officer rejected the objections, stating that the petitioner's failure to file Form 3 CEB for international transactions led to the re-opening. The petitioner argued that the issue was settled in Vodafone India Services (P.) Ltd. v. Union of India, where it was held that issuing shares at premium to a holding company does not result in taxable income under Chapter X of the Act.

The court noted that the issue was already settled in favor of the petitioner by the Vodafone case, where it was established that no income chargeable to tax arises from share premium transactions with a holding company. The Revenue insisted on opposing the petition, citing reasons such as the failure to file Form 3 CEB, re-opening before the Vodafone decision, and the wide power of the Assessing Officer to re-open assessments within four years. However, the court found no merit in the Revenue's arguments, emphasizing that the Vodafone case's decision was binding and no income had escaped assessment.

Despite the Revenue's persistence, the court reiterated that not filing Form 3 CEB does not automatically imply income escapement. The court emphasized that the Vodafone case upheld the petitioner's understanding that share transactions with the holding company do not lead to taxable income. The court dismissed the Revenue's argument that the re-opening notice was issued before the Vodafone decision, stating that the decision merely clarified existing law. Additionally, the court highlighted that re-opening assessments within four years still require a valid reason to believe income escapement, which was lacking in this case. Consequently, the court allowed the petition, quashing the re-opening notice dated 31st March, 2014.