2024 (2) TMI 166 - HC - Income Tax

Reopening of assessment u/s 147 - excessive share premium - HELD THAT - The reasons recorded for reopening does not dispute that during the year assessee had issued 16730 shares of face value of Rs. 10/- at premium of Rs. 12842/- per share. The AO is only questioning the excessive share premium but not doubting the transaction itself whereby the share premium had been received. On this ground alone, the impugned notice and order on objections have to be quashed and set aside. The amendments incorporated in the definition of income u/s 2(24)(xvi) and Section 56(2)(viib) of the Act were amendments which were to apply only from 1st April, 2013, i.e., assessment year 2013-14. The amendment to Section 68 by incorporation of the first proviso also came into effect by virtue of the Finance Act, 2012 w.e.f. 1st April, 2019 and was to apply for the assessment year 2013-14 and onwards. Therefore, since the amendments were not applicable to the assessment year in question, i.e., 2009-10, there would be no basis for the AO to form a reason to believe that income had escaped assessment for the said assessment year. Moreover, if one considers the reasons recorded, the AO simply says how a company with no proven track record incorporated on 15th March 2007 command such a huge share premium. AO has not bothered to read the balance sheet or the valuation report. AO s reason to believe, therefore, is purely hypothetical and a matter of conjecture. That cannot be a tangible material for arriving at reason to believe escapement of income. Jurisdictional requirement of Section 147 of the Act also is not fulfilled and hence, the proposed reopening is without jurisdiction. As held in Shodiman Investments (P) Ltd. 2018 (4) TMI 1287 - BOMBAY HIGH COURT there is clear breach to the settled position in the law that reopening notice has to be issued by the AO on his own satisfaction and not on borrowed satisfaction. Admittedly, notice has been issued in view of a communication received from his superior officer. It is rather obvious that the AO has not applied his mind and arrived at his own satisfaction but on borrowed satisfaction. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act.
2. Whether reopening constitutes a mere change of opinion.
3. Jurisdictional validity of reopening based on superior officer's directives.
4. Taxability of share premium as income.

Summary:

1. Validity of Reopening Assessment under Section 148:
The petitioner, engaged in real estate development, had its income tax return for AY 2009-10 scrutinized and assessed under Section 143(3) of the Income Tax Act, 1961. The assessment order dated 21st December 2011 did not address the issue of share premium. On 29th March 2014, a notice under Section 148 was issued to reopen the assessment, citing reasons including the receipt of share premium amounting to Rs. 21,48,44,338/- which was not substantiated during the original assessment.

2. Whether Reopening Constitutes a Mere Change of Opinion:
The petitioner argued that the reopening was based on the same set of facts scrutinized during the original assessment, thereby constituting a mere change of opinion. The court held that once a query is raised and replied to during the assessment proceedings, it implies the issue was considered by the AO. Hence, reopening on the same issue without new material is not permissible.

3. Jurisdictional Validity of Reopening Based on Superior Officer's Directives:
The petitioner contended that the reopening was initiated based on the directives from superior officers, not on the AO's independent belief. The court found that the AO's reasons for reopening were based on borrowed satisfaction, not on his own satisfaction, which is a breach of the settled law that reopening must be based on the AO's own satisfaction.

4. Taxability of Share Premium as Income:
The petitioner argued that the share premium received on issuing fresh shares is a capital receipt and not chargeable to tax. The court agreed, referencing the Vodafone India Services Pvt. Ltd. case and noting that amendments to tax share premiums were applicable only from AY 2013-14 onwards. Therefore, for AY 2009-10, there was no basis to treat the share premium as income that escaped assessment.

Findings:
- The court held that the reopening of the assessment was based on a change of opinion, which is not permissible.
- The AO did not form an independent belief but acted on superior directives, invalidating the reopening.
- The share premium received is a capital receipt and not taxable as income for the relevant assessment year.

Conclusion:
The court quashed the notice under Section 148 and the order rejecting the objections, emphasizing that the reopening was without jurisdiction and based on a change of opinion. The Rule was made absolute in favor of the petitioner, with no order as to costs.