2023 (7) TMI 88 - HC - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - allotment of shares at premium - reopening within a period of four years - as per AO no justification for the assessee to have issued shares at such a huge premium during the year under consideration and further that the very nature of transaction of the so called share premium had not been established - HELD THAT - In the present case neither the reasons recorded nor the order disposing of the objections in any manner reflects that there was any doubt with regard to existence of the entities in whose favour the allotment of shares had been made upon receipt of share money as also the amount of premium paid on the said shares. By virtue of the impugned notice AO seeks to reopen the assessment for the assessment year 2010-11, which is within a period of four years. Admittedly, no scrutiny assessment u/s 143(3) of the Act has taken place in the present case. Even in a case where no scrutiny assessment has taken place, reassessment can be ordered only if the assessing officer has reason to believe that income chargeable to tax had escaped assessment. The Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. 2007 (5) TMI 197 - SUPREME COURT has clearly held that notice for reopening an assessment under Section 148 of the Act could only be justified if the AO has reason to believe that income chargeable to tax has escaped assessment. Reason for the assessing officer to reopen the assessment is his belief that the share premium charged by the Petitioner was excessive and further that the transaction of the so called share premium was not established. AO apart from questioning the excessive share premium also is doubting the transaction, whereby the share premium had been received. Whether in the aforementioned facts the assessing officer could be said to have his reason to believe that income had escaped assessment and whether the material with the said assessing officer could be said to have any tangible material justifying the reopening is the issue that falls for our consideration.. Thus there was neither any basis for the assessing officer for his reason to believe that income had escaped assessment nor was there any tangible material which would have otherwise given jurisdiction to reopen the assessment even when the reopening was sought to be made within a period of four years. Decided in favour of assessee.

Issues Involved:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Validity of the reasons provided for reopening the assessment.
3. Application of amendments under Sections 2(24)(xvi), 56(2)(viib), and 68 of the Income Tax Act.
4. Jurisdiction of the Assessing Officer to reopen the assessment based on the material available.

Summary:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment:

The Petitioner challenged the notices dated 23 March 2015 issued under Section 148 of the Income Tax Act, 1961, for the assessment years 2010-11 and 2011-12. The Assessing Officer proposed to reassess the income on the ground that the income had escaped assessment within the meaning of Section 147 of the Act.

2. Validity of the reasons provided for reopening the assessment:

The reasons for reopening were based on the analysis of the balance sheet, which showed that the share premium charged was excessive and not justified on the basis of "intrinsic valuation of shares" and "Net Asset Value Method." The Petitioner argued that the receipt of premium on issuance of shares was not 'receipt of income' but a 'capital receipt,' and therefore, could not be the basis for reopening on the ground that income had escaped assessment. Reliance was placed on the case of Vodafone India Services (P.) Ltd. Vs. Union of India (2014) ITR 1 (Bombay).

3. Application of amendments under Sections 2(24)(xvi), 56(2)(viib), and 68 of the Income Tax Act:

The Petitioner contended that the amendments brought by the Finance Act, 2012, including Section 2(24)(xvi) and Section 56(2)(viib), were prospective and applicable only from 1 April 2013, i.e., Assessment Year 2013-14. Similarly, the amendment to Section 68 by the introduction of the first proviso was also prospective and applicable from 1 April 2013. Therefore, the Assessing Officer could not question the receipt of share premium for the Assessment Years 2010-11 and 2011-12.

4. Jurisdiction of the Assessing Officer to reopen the assessment based on the material available:

The Court held that there was no tangible material with the Assessing Officer to justify the reopening of the assessment. The Assessing Officer's belief that the share premium charged was excessive and the transaction was not established was not sufficient to reopen the assessment. The Court relied on the judgment in CIT Vs. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC), which held that if the share application money is received from alleged bogus shareholders, the Department is free to proceed to reopen their individual assessments.

Conclusion:

The Court quashed the notices dated 23 March 2015 and the Orders dated 20 January 2016, holding that there was neither any basis for the Assessing Officer to believe that income had escaped assessment nor any tangible material to justify the reopening of the assessment. The Petitions were allowed, and no costs were imposed.

← Previous Next →