2018 (5) TMI 1492 - HC - Income Tax

Scope of the scrutiny assessment - Jurisdiction to assess the income u/s 143(3) as per the CBDT circular - Whether the funds received in the form of share premium are from disclosed sources - additions u/s 56(2)(viib) - the issue whether the funds received by a company in the form of share premium have been correctly offered for tax has to be determined and assessed in accordance with the said provision. - Held that - the assessee cannot be heard to contend that the AO has exceeded its jurisdiction in the matter of passing the order merely for the reason that the funds received by them in the form of share premium have been assessed u/s 56(2)(viib) The circulars relied on by the petitioner have no application to the facts of this case and the same would apply only in cases where the assessing officer needs to take the case of the assessee for a comprehensive scrutiny on a finding that there is potential escapement of income on other issues. - thus the writ petition is without merits and the same is dismissed - Decided against the assessee.

Issues:
1. Jurisdiction of assessing officer to assess share premium as income from other sources under Section 56(2)(viib) of the Income Tax Act.
2. Compliance with circulars issued by the Central Board of Direct Taxes.
3. Scope of assessment beyond the issue identified in the notice under Section 143(2) of the Act.

Issue 1: Jurisdiction of assessing officer
The petitioner, a company, received share premium during the assessment year and filed a return disclosing nil income. The assessing officer issued a notice under Section 143(2) to scrutinize whether the share premium was from disclosed sources and correctly offered for tax. Later, the assessing officer issued a notice stating that the fair market value of shares is only the face value, hence the share premium should be assessed as income from other sources under Section 56(2)(viib) of the Act. The petitioner challenged this assessment, claiming it was beyond the scope of the issue identified in the notice. The court held that the assessing officer did not exceed jurisdiction as the assessment was in accordance with Section 56(2)(viib) of the Act, which mandates assessing share premium exceeding fair market value as income from other sources.

Issue 2: Compliance with circulars
The petitioner argued that the assessing officer's assessment was against circulars issued by the Central Board of Direct Taxes, which restricts assessing officers from examining issues beyond those identified in the notice. The respondent contended that the assessment was in line with the circulars, and only the issue mentioned in the notice was considered. The court found that the circulars cited by the petitioner were not applicable in this case, as they pertain to cases where potential income escapement on other issues is suspected. Therefore, the court held that the assessment was compliant with the circulars issued by the Central Board of Direct Taxes.

Issue 3: Scope of assessment
The court emphasized that the issue identified in the notice was whether the share premium was from disclosed sources and correctly offered for tax. Assessing the share premium as income from other sources under Section 56(2)(viib) of the Act falls within the scope of this issue. The court clarified that if the share premium was not correctly offered for tax, it should be assessed as provided in the Act. Therefore, the court concluded that the assessing officer did not exceed jurisdiction by assessing the share premium as income from other sources under Section 56(2)(viib) of the Act.

In conclusion, the court dismissed the writ petition, stating it was without merits, and allowed the petitioner to challenge the assessment order in appeal under the statute.

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