2024 (6) TMI 1235 - HC - Income Tax

Reopening of assessment u/s 148A - difference between the allotment price of Rs. 13/- and the market price of Rs. 659/-, necessitating re-assessment of the returns filed for that year - HELD THAT - In the matter in hand, it being clear that no sale of such shares had been effected in the Financial Year 2015-16, there is no question of incidence of income on account of any sale of KFCL shares, justifying a view that income in that year had escaped assessment. Besides, there is no other ground in the notice for proposing reassessment. Consequently, the very basis on which the Impugned Order passed u/s 148A (d) of the Act, stands undermined. Since the very basis of proposing re-assessment does not exist, as a matter of fact, nothing survives in the proposal to conduct reassessment. Writ Petition deserves to be allowed. There has been no application of mind to the facts of the case and the explicit and specific reply of the Petitioner and the documentary record that showed that no sale had been effected in that year, leading to no income that could have arisen in that year. There is no merit in the request of the Revenue to remand the matter for a fresh consideration of the facts (instead of simply quashing the Impugned Order).

Summary

Issues:
Challenge to order under Section 148A (d) of the Income Tax Act, 1961 alleging notional profit escaping assessment for Financial Year 2015-16 based on preferential allotment of shares by a listed company.

Comprehensive Analysis:

1. The challenge in the petition was against an order alleging that a notional profit of Rs. 12.88 crores had escaped assessment for the Financial Year 2015-16 under Section 148A (d) of the Income Tax Act, 1961. The Revenue's position was based on a report from the Indian Audit & Account Department regarding a preferential allotment of shares by a listed company. The petitioner was allotted shares at a lower price, and the market price subsequently increased significantly.

2. The petitioner contended that the shares allotted were not sold during the relevant financial year, thus no taxable income in the form of capital gain arose. However, the Impugned Order held that a notional profit of Rs. 12.88 crores was gained based on the market price appreciation of the shares. The Revenue's basis for proposing reassessment was solely on this notional profit, despite no actual sale of shares during that year.

3. The Court noted that the shares were not sold in the financial year, negating the possibility of any taxable event from capital gains. The report from the Indian Audit & Account Department, which formed the basis for proposing reassessment, was related to an ex parte order by SEBI regarding preferential allotment and manipulation of share prices. As the shares were not sold, there was no income from the sale of shares to justify reassessment.

4. Consequently, the Court found that since no sale of shares occurred during the financial year and there was no other ground for reassessment, the basis for the Impugned Order was unfounded. The Court emphasized that there was no income arising from the shares in that year, as evidenced by the petitioner's reply and demat account statement showing the shares were not sold.

5. The Court allowed the Writ Petition, stating that there was a lack of application of mind to the facts of the case, and the proposal for reassessment had no valid basis. The Impugned Order was quashed and set aside, with no costs imposed. The Court rejected the Revenue's request for remand, as there was no merit in reconsidering the facts due to the absence of any grounds for reassessment beyond the notional profit contention.