2018 (9) TMI 525 - AT - Income Tax

Reopening of assessment - addition u/s 68 - assessee charged share premium of ₹ 154.72 per shares for 28,66,500 shares issued during the year - income from other sources - Held that - As per the provisions of section 56(2)(viib), where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration receive for such share as exceed the fair market value of such share was inserted by the Finance Act, 2012, w.e.f. 01/04/2013 and the present assessment year before us is 2009-10, therefore, the amendment made in section 68 is prospective in nature As decided in CIT vs Gangadeep Infrastructure Pvt. Ltd. (2017 (3) TMI 1263 - BOMBAY HIGH COURT) three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the preamended section 68 has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Incometax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee s income as unexplained cash credit. - decided against revenue

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Deletion of addition made on account of alleged investment of shareholders as income from undisclosed sources under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The Revenue challenged the setting aside of the reopening of assessment, arguing that the information was already available with the Assessing Officer during the original assessment under Section 143(3). The Revenue contended that the reopening was done within four years following the procedure prescribed in Section 147, based on information from the ROC about higher share premium value. The Revenue relied on the Supreme Court decisions in Rajesh Jhaveri and Raymond Woollen Mills Ltd.

The Tribunal analyzed Section 147, which allows reassessment if the Assessing Officer has "reason to believe" that income has escaped assessment. The Tribunal emphasized that for reopening an assessment under Section 143(3), the Assessing Officer must form a tentative opinion based on material indicating underassessment or escapement of income, record this opinion in writing, and ensure the reasons are not mere suspicion but show a nexus to the subjective opinion formed.

The Tribunal discussed the concept of "change of opinion," which implies that the Assessing Officer had formed an opinion in the original proceedings and now proposes a different view. The Tribunal referred to various judicial precedents, including the Delhi High Court in Consolidated Photo and Finvest Ltd. and the Supreme Court in CIT v. P.V.S. Beedies P. Ltd., to conclude that reassessment based on a mere change of opinion is not permissible.

The Tribunal noted that in the present case, the necessary evidence was made available by the assessee during the original assessment, and no new material came to the Assessing Officer's possession. The reopening was based on the same set of facts already considered, thus constituting a mere change of opinion. Consequently, the Tribunal held that the reopening of assessment was unjustified and bad in law, dismissing the Revenue's ground.

2. Deletion of Addition Made on Account of Alleged Investment of Shareholders as Income from Undisclosed Sources under Section 68:

The Revenue argued that the assessee did not satisfactorily explain the excess share premium charged, leading to the addition under Section 68. The Tribunal examined Section 68, which allows charging unexplained credits to income tax if the assessee fails to satisfactorily explain the nature and source of the sum credited.

The Tribunal noted that the assessee provided the share subscription and shareholder agreement, which included details of investors and the proposed share premium. The assessee is a joint venture between NTC and PRIL, established to revive a sick textile mill, with the scheme approved by BIFR. The Tribunal emphasized that the valuation of shares is subjective and the assessee had established the identity, genuineness, and capacity of the shareholders.

The Tribunal referred to the Bombay High Court decision in CIT v. Gangadeep Infrastructure Pvt. Ltd., which held that the three essential tests for Section 68—genuineness of the transaction, identity, and capacity of the investor—were satisfied. The Tribunal also cited the Supreme Court in Lovely Exports (P.) Ltd., which held that if the amounts were subscribed by bogus shareholders, the Revenue should proceed against such shareholders, not the assessee.

The Tribunal concluded that the amendment to Section 68 by the Finance Act, 2012, effective from April 1, 2013, was prospective and not applicable to the assessment year 2009-10. The Tribunal found no infirmity in the CIT(A)'s order deleting the addition, as the assessee had satisfactorily explained the share premium received. Thus, the Tribunal dismissed the Revenue's ground on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order setting aside the reopening of assessment and deleting the addition made under Section 68. The Tribunal emphasized that the reopening was based on a mere change of opinion without new tangible material, and the assessee had satisfactorily explained the share premium received, meeting the requirements of Section 68.

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