2015 (4) TMI 831 - HC - Income Tax

Reopening of assessment - nature of share application money received (the intrinsic value of the share in comparison to the excess premium received) is not substantiated by any cogent evidence as could be noticed from records - Held that - The transaction seems to be entirely an Arms-length transaction. The subscribers are limited companies who are reportedly stated to be public limited companies. The Petitioner is a company in the hospitality sector and we do not see how the amount of premium that has been charged from the subscribers can be questioned without the revenue provided valid reasons. We have not entered into the merits of the controversy. Suffice it to say that apart from being public limited companies, the subscribers include other infrastructure hospitality companies. Having come to this conclusion, we are constrained to hold that there is no justification in issuing of notice under section 148 of the Act in the given facts of the case. There is no lack of disclosure or suppression of any material facts. All queries of Respondent No.2 have been answered by the assessee or the subscribers in question especially when all questionnaires addressed to subscribers were duly answered by the subscribers. We may add a word of caution here. Although the Petitioner has relied upon the decision of this Court in the case of Vodafone 2014 (10) TMI 278 - BOMBAY HIGH COURT and the department has accepted the said decision and decided against challenging it by issuing a circular, we would not equate all cases of share premium as being covered by the said judgment and circular. In a given case and the given fact situation, assessees may be required to be probed for valid reasons. Thus no justification for reopening of the assessment - Decided in favour of assessee.

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961.
2. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
3. Whether share premium can be considered as income chargeable to tax.
4. Alleged failure to disclose material facts by the petitioner.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148:
The challenge in the petitions is to the notices dated 24th March, 2015 and 29th March, 2014 issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961. The court observed that the notices were issued beyond the period of four years and did not disclose any material which the assessee had failed to disclose. The court relied on the decision in Hindustan Lever Ltd. V/s. R.K. Wadkar, where it was held that a notice under Section 148 after four years should clearly specify the materials that were not disclosed earlier. The court concluded that the notices were invalid as they did not provide tangible reasons for reopening the assessment.

2. Reopening of Assessment Under Section 147:
The court examined whether the reopening of the assessment was justified. The petitioner argued that the reasons cited for reopening were not valid and amounted to a change of opinion. The court agreed, noting that the Assessing Officer had completed the assessment and issued an order on 22nd March, 2014, yet proceeded to issue a notice under Section 148 just seven days later. The court found this to be unjustified and held that there was no new tangible material to support the reopening of the assessment.

3. Whether Share Premium Can Be Considered as Income Chargeable to Tax:
The petitioner contended that the share premium received should not be included in the income and taxed. The court referred to the case of Vodafone India Services Pvt. Ltd. V/s. Union of India, where it was held that the premium on share issue was on account of capital account transaction and does not give rise to income. The court noted that the Central Board of Direct Taxes had accepted this judgment and issued a circular directing field officers to adhere to the ratio decidendi of the judgment. The court concluded that the share premium could not be considered as income chargeable to tax.

4. Alleged Failure to Disclose Material Facts by the Petitioner:
The court examined whether the petitioner had failed to disclose material facts necessary for the assessment. The petitioner had provided all necessary details during the assessment proceedings, including details of share application money, share premium, and the names and addresses of all directors and shareholders. The court found that there was no lack of disclosure or suppression of any material facts by the petitioner. All queries of the Assessing Officer had been answered by the petitioner or the subscribers.

Conclusion:
The court concluded that there was no justification for reopening the assessment and set aside the impugned notices and orders in both writ petitions. The court emphasized that while the decision in Vodafone India Services Pvt. Ltd. should not be equated with all cases of share premium, in the present case, the reopening of the assessment was not justified. The court allowed both writ petitions and set aside the impugned notices and orders, with no order as to costs.

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