2022 (5) TMI 1575 - HC - Income Tax

Validity of reopening of assessment u/s 147 - excess premium charged by assessee - notice issued after the expiry of four years - assessee has followed Discounted Cash Flow method (DCF) and valued the shares at Rs. 1,015/- per share as per valuation report relied upon to justify the share premium. AO feels that the assessee could have charged premium of only Rs. 249.70 per share - HELD THAT - The reason for reopening is nothing but a change of opinion. Admittedly scrutiny assessment u/s 143(3) was completed on 26th November 2016 after accepting loss shown in the returns. During the assessment proceedings, by a notice issued u/s 142(1) petitioner was called upon by respondent no. 1 to provide valuation report, bank statements and ITR of M/s. Kesar Motels Pvt. Ltd. for share premium received. This was provided by petitioner vide its Chartered Accountant s letter dated 8th November 2016. Petitioner had also provided copy of ITR, valuation certificate and other details. After considering all these points, an assessment order dated 29th November 2016 came to be passed. This is a case of reopening after expiry of four years from the end of the relevant assessment year. Respondent had to show that there was failure to truly and fully disclose material facts. Not only petitioner has disclosed but respondent has also raised queries during the course of assessment proceedings and has passed an assessment order u/s 143(3) of the Act. On the issue of the assessment order being silent, it is settled law that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised Aroni Commercials Ltd. V/s. Deputy Commissioner of Income Tax 2 (1) 2014 (2) TMI 659 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues involved:
Impugning a notice under Section 148 of the Income Tax Act for Assessment Year 2014-2015 and order on objections dated 18th November 2021.

Analysis:
1. The notice dated 30th March 2021 under Section 148 of the Income Tax Act for Assessment Year 2014-2015 and the subsequent order on objections dated 18th November 2021 were challenged by the petitioner.
2. The respondent alleged that the assessee had charged excess premium on shares issued to related parties, resulting in an alleged escapement of income amounting to Rs. 4,77,39,414.
3. The notice was issued after the expiry of four years from the relevant assessment year, triggering the proviso to Section 147 of the Act, which required the respondents to demonstrate non-disclosure of material facts by the assessee.
4. The court found that the reason for reopening the assessment was merely a change of opinion, as the scrutiny assessment had been completed earlier, and the issue of share premium had been discussed during those proceedings.
5. The respondent's argument that the share premium calculation was not based on fair market value as per Rule 11UA of the Income Tax Rules was dismissed, as the valuation report provided by the petitioner's Chartered Accountant had not been disputed.
6. It was emphasized that the petitioner had disclosed all necessary facts, and the respondent had raised queries during the assessment proceedings, leading to the passing of an assessment order under Section 143(3) of the Act.
7. The court cited settled law that the absence of explicit reference in the assessment order to a specific query does not negate the fact that the query was considered by the Assessing Officer during the assessment process.
8. Since the respondent failed to establish non-disclosure of material facts as required by the proviso to Section 147 of the Act, the court did not delve into the applicability of Rule 11UA of the Income Tax Rules, as the valuation report submitted had not been challenged.
9. Consequently, the petition was allowed, quashing the notice dated 30th March 2021 for Assessment Year 2014-2015 and the proceedings initiated thereafter.
10. The petition was disposed of in accordance with the prayer clause, bringing the legal proceedings to a close.