2024 (2) TMI 164 - HC - Income Tax

Reopening of assessment u/s 147 - issue of shares at excessive share premium - change of opinion - as per assessee this is a clear case of change of opinion because the issue of excessive share premium was the subject matter of consideration during the assessment proceedings - HELD THAT - The subject matter of large share premium received during the year was under active consideration of the AO during the assessment proceedings. As held by Division Bench of this Court in Aroni Commercials 2014 (2) TMI 659 - BOMBAY HIGH COURT 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. Therefore, there can be no doubt that the very issue of share premium was subject matter of consideration by the AO during the original assessment proceedings, which would mean that reopening of assessment is merely on the basis of change of opinion of the AO from that held earlier during the course of the assessment proceedings. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Thus the reopening of the assessment for AY 2014-15 is not justified. In view of this finding of ours, we do not consider it necessary to go into the other issues on determination of fair market value, etc. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the issues of excessive share premium, reopening of assessment under Section 148 of the Income Tax Act, 1961, and the justification for the same.

Excessive Share Premium Issue:
The petitioner acquired equity shares at a premium based on a valuation report using the Discounted Cash Flow method. The assessment order for the relevant year was passed after scrutiny, with one reason being the large share premium. The respondent alleged that the valuation projections were inflated to justify the premium and avoid taxation under Section 56(2)(viib) of the Act.

Reopening of Assessment:
The petitioner received a notice under Section 148 for the assessment year in question, alleging income escapement. The petitioner's objections to the reopening were initially rejected without reasons, leading to a writ petition. The court quashed the initial objection disposal order and remanded for reconsideration. Subsequently, a fresh order on objections was issued, which the petitioner challenged. During this process, an assessment order and notices for demand and penalty were also issued, all of which were challenged in the petition.

Change of Opinion Argument:
The primary argument raised was that the reopening of assessment was a clear case of change of opinion, as the issue of excessive share premium was already considered during the initial assessment proceedings. The respondent contended that the valuation projections were arbitrary and inflated to avoid tax liability, with no basis in actual performance data.

Legal Analysis:
The court held that the issue of excessive share premium was actively considered during the original assessment proceedings, as evidenced by queries raised and responses provided by the petitioner. Citing previous case law, the court emphasized that a change of opinion by the Assessing Officer does not justify reopening an assessment. The court found the reopening of the assessment unjustified, leading to the disposal of the petition in favor of the petitioner.

Conclusion:
The court made the rule absolute and disposed of the petition by quashing the notice of reopening, the subsequent order, the assessment order, the notice of demand, and the show cause notice for penalty. The court found that the reopening of the assessment for the relevant year was not justified based on the facts and legal analysis presented.