2019 (10) TMI 1079 - HC - Income Tax

Reopening of assessment u/s 147 - validity of the notice issued by the respondent u/s 148 - reopening the assessment beyond the period of 4 years - HELD THAT - Indisputably, the impugned notice issued by the AO itself is beyond the period of four years from the end of the relevant assessment year and did not comply with the requirements of the proviso to Section 147. AO had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of the assessment u/s 143(3) and therefore, on this short count alone, the impugned notice is liable to be quashed and set-aside. We have reached to the conclusion that there is no basis to proceed on the premise that the allocation of shares was at an artificially high premium. Merely because a sizeable sum was received in the nature of share premium during the year under consideration, would not automatically mean that the same was artificially increased. The duty on the part of the assessee to explain the nature of credits and genuineness and justification of the share premium would arise when called upon during the assessment or validly reopened assessment. At any rate, the reopening of assessment which was framed after the scrutiny would not be permissible for a fishing or roving inquiry. As observed by this Court in Pushpak Bullion (P.) Ltd. 2016 (7) TMI 176 - GUJARAT HIGH COURT this is not to suggest that after the original assessment was completed, if the Assessing Officer has tangible material to form a belief that the allocation of shares at a premium was a mere device to route some unaccounted money of the company or that the genuineness and creditworthiness of the investors was doubtful, the reopening could not have been resorted to. In the case on hand, we find the vital link missing from the reasons recorded, such link being the material at the command of the Assessing Officer to form such a belief. - Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether there was a failure on the part of the writ-applicant to disclose truly and fully all material facts necessary for assessment.
3. Whether the reopening of assessment beyond four years is justified.
4. Examination of the principles governing the reopening of assessment under Section 147 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality and Validity of the Notice Issued Under Section 148:
The writ-applicant, a private limited company, challenged the notice issued by the respondent under Section 148 of the Income Tax Act, 1961, dated 30th March 2018. The notice was issued on the basis that the company had received share premium/share application money amounting to ?10,11,94,866/- during the Assessment Year 2011-12, which was not examined during the original assessment proceedings. The respondent believed that the share premium was unjustified and represented the company's undisclosed income, thus fitting the criteria for initiating proceedings under Section 147 of the Act.

2. Failure to Disclose Material Facts:
The writ-applicant contended that there was no failure on their part to disclose truly and fully all material facts necessary for assessment. They argued that all details related to the share premium were furnished during the original assessment, and the notice for reopening the assessment was based on the same materials, which does not justify a different view. The respondent, however, argued that the details of the high premium were not furnished during the original assessment, and the receipt of such high premium was unjustified compared to the book value of the company.

3. Reopening of Assessment Beyond Four Years:
The court examined whether the reopening of assessment beyond four years was justified. The writ-applicant argued that the reopening was not tenable as there was no failure on their part to disclose all material facts. The court noted that the principles of law governing the reopening of assessment under Section 147 require that the reasons for reopening must be based on tangible material and must demonstrate a link between the information available and the formation of the belief that income has escaped assessment.

4. Principles Governing Reopening of Assessment:
The court summarized the principles governing the reopening of assessment under Section 147 of the Act, including:
- The validity of the assumption of jurisdiction under Section 147 can only be tested by reference to the reasons recorded under Section 148(2).
- The sufficiency or correctness of the material is not to be considered at the stage of commencement of reassessment proceedings.
- The basic requirement of law for reopening an assessment is the application of mind by the Assessing Officer to the materials produced prior to reopening.
- The reasons recorded must be self-evident and demonstrate a link between the information and the formation of the belief.
- Reopening of assessment should not be exercised casually or mechanically and must be based on tangible material.

The court highlighted several precedents, including the case of Kothi Steel Ltd. v. Assistant Commissioner of Income-tax, where it was observed that merely issuing shares at a high premium does not automatically mean that the amount represents unaccounted income. The court also referred to the case of Pushpak Bullion (P) Ltd. v. Deputy Commissioner of Income-tax, where it was held that reopening an assessment without additional or undisclosed information would be merely a change of opinion, which is not permissible.

Conclusion:
The court concluded that the impugned notice issued by the Assessing Officer was beyond the period of four years from the end of the relevant assessment year and did not comply with the requirements of the proviso to Section 147 of the Act. The court found no basis to proceed on the premise that the allocation of shares was at an artificially high premium, and the reopening of the assessment for a fishing or roving inquiry was not permissible. Therefore, the impugned notice was quashed and set aside, and the petition was allowed.

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