2019 (1) TMI 1840 - AT - Income Tax

Reopening of assessment u/s 147 - share application received (the intrinsic value of the share in comparison to the excess premium received) - HELD THAT - We find from the reasons recorded reproduced above that the AO failed to appreciate that the law does not permit him to reopen assessment unless he has tangible material on the basis of which he forms reason to belief that income has escaped assessment. The mere fact that the assessee has issued shares at a certain premium itself cannot be a reason to belief that income has escaped assessment. AO has neither mentioned by how much the shares are overvalued i.e. by what amount the premium exceeds the instinct value of the shares nor the amount which according to him has escaped assessment. AO stated that income in the grab of share application money received in this case has escaped assessment but he could not point out on what basis / material does he belief that the share capital is not genuine. In the similar circumstances in the case of Khubchandani Healthparks Pvt. Ltd 2016 (2) TMI 710 - BOMBAY HIGH COURT held that regular Return of income was assessed by Intimation under Section 143(1) of the Act and no scrutiny assessment was done. In the above view to ascertain the nature and the justification for charging share premium the Assessing Officer has reason to believe that charging of share premium over and above the intrinsic value of the share is income which has escaped assessment. Notice itself does not indicate the approximate amount of income which the Assessing Officer has reason to believe has escaped assessment nor does it quantify the extent to which the share premium received was in excess of intrinsic value which has escaped assessment. It gives no reasons to indicate the basis of coming to the conclusion that share premium is excessive and therefore income. Moreover the Notice also does not dispute that this is a share premium but seek justification for charging the share premium over and above intrinsic value of the share premium. AO has absolutely no material to even suspect forget believe that income has escaped assessment. Hence we quash the reopening and accordingly the issue of assessee s appeal on jurisdiction is allowed.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of reasons to believe for reopening assessment.
3. Treatment of share premium as capital or income.

Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961:
The primary issue in this appeal is the reopening of the assessment by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. The assessee filed its return of income for AY 2009-10 on 31.08.2009, which was processed under Section 143(1). The AO issued a notice under Section 148 on 20.03.2014 to reopen the assessment, citing that the assessee received a significant share premium of ?4,56,00,000 during the FY 2008-09, which was not scrutinized earlier.

2. Validity of Reasons to Believe for Reopening Assessment:
The assessee challenged the reopening, arguing that the AO did not have tangible material to justify the belief that income had escaped assessment. The AO's reasons for reopening were based on the observation that no scrutiny assessment had been done, and the share premium received was not examined. The AO referenced judicial decisions, including Rajesh Jhaveri Stock Brokers Pvt. Ltd and E.C.G.C. v/s. Addl. CIT, to support the reopening within four years based on "reason to believe" rather than established facts of income escapement.

The Tribunal noted that the AO's reasons failed to specify the extent to which the share premium was excessive or quantify the escaped income. The AO's belief that the share premium was not genuine lacked concrete evidence. The Tribunal referenced the Bombay High Court’s decision in Khubchandani Healthparks Pvt. Ltd. vs. ITO, which held that mere receipt of share premium without scrutiny does not justify reopening unless specific reasons indicate excessive premium as income.

3. Treatment of Share Premium as Capital or Income:
The assessee argued that the share premium is a capital receipt and cannot be taxed unless specified under the Act. They cited the Bombay High Court’s decision in PCIT vs. Apeak Infotech, which held that share premium is a capital receipt and not taxable as income. The Tribunal also referenced the CBDT Instruction No. 02/2015, which accepted the Bombay High Court’s ruling in Vodafone India Services Pvt. Ltd. that share premium is a capital account transaction and not subject to tax as income.

Conclusion:
The Tribunal concluded that the AO did not have tangible material to justify the reopening of the assessment. The mere fact that the assessee received a significant share premium does not constitute a valid reason to believe that income had escaped assessment. The Tribunal quashed the reopening of the assessment, following the precedent set by the Bombay High Court in Khubchandani Healthparks Pvt. Ltd. and other relevant judicial decisions. Consequently, the Tribunal allowed the appeal of the assessee, rendering the reassessment proceedings invalid and unnecessary to delve into the merits of the case.