2021 (7) TMI 2 - AT - Income Tax

Reopening of assessment u/s 148 - issue of share premium at more than intrinsic value - HELD THAT - We note that the provisions of issue of share of share market value has been introduced on the statute books under section 56(2)(viib) of the Act in the Finance Act, 2012 w.e.f. 01.04.2013 and is applicable from A.Y. 2013-14. We, therefore, find merit in the contention of the Ld. A.R. that the reopening of the assessment of the assessee on this basis is not valid. See M/S. MALCHAND DINDAYAL SALTS PVT. LTD. AND (VICE-VERSA) 2020 (12) TMI 1033 - ITAT MUMBAI and BALBIR ISPAT PVT. LTD. VERSUS THE INCOME TAX OFFICER, WARD 6 (1) (2) , MUMBAI 2019 (1) TMI 1840 - ITAT MUMBAI Even on merits the assessee has a very strong case. We note that the assessee filed all the documents before the authorities below i.e. AO as well as CIT (A) to prove the identity, creditworthiness of the shareholders and genuineness of the transactions. We also note that the shares issued at a premium were repurchased by family members/relatives at a price less than face value of shares. The money received by the assessee/appellant had been invested in the shares of associate concern M/s. Premium Paper and Board Industries Ltd. business whereof had failed miserably to the extent that said associate concern went into liquidation and thus the whole investment was jeopardized. It is only because of this, the shares were bought back by the investors at a distress price determined by both the investors and assessee appellant. Therefore, we are inclined to hold that the order of Ld. CIT (A) is not correct and is reversed. Even the issue in third ground of appeal has wrongly been decided by Ld. CIT (A) despite the facts having raised before the Ld. CIT (A) that expenses were incurred to maintain the office of the company such as accounts, writing charges, audit fee, bank charges and to give a corporate office intact and therefore this has to be allowed to the assessee.

Summary

Issues involved:
Challenging jurisdictional issue of assessment under section 148 of the Act for A.Y. 2008-09.

Detailed Analysis:
The appeals were filed by two assessees against orders of the Commissioner of Income Tax (Appeals) relevant to assessment years 2007-08 & 2008-09. The first issue raised was regarding the jurisdictional challenge against the assessment framed by the AO under section 148 of the Act. The case was reopened under section 147 by issuing a notice under section 148, as the assessee had shown a high share premium without justifying it with income. The AO required detailed information and verification, ultimately adding the amount to the assessee's income as unexplained cash credit under section 68. The assessee contended that the case could not be reopened based on share premium issues, citing relevant case laws. The reopening was challenged on jurisdictional grounds, and the AO's actions were deemed invalid as the issue of share premium valuation was introduced in the Finance Act, 2012, applicable from A.Y. 2013-14 onwards. The tribunal quashed the reopening based on lack of tangible material and cited precedents supporting the assessee's position.

The tribunal found that the assessee had a strong case on merits as well, having provided all necessary documents to prove the legitimacy of transactions. The shares issued at a premium were repurchased at a lower price, leading to losses due to the failure of the associated concern. The tribunal held that the order of the CIT (A) was incorrect and reversed it. Additionally, expenses incurred for maintaining the company's office were to be allowed to the assessee. The tribunal allowed both appeals of the assessees based on the findings in the first appeal for A.Y. 2008-09.

In summary, the tribunal addressed the jurisdictional challenge regarding the assessment under section 148 of the Act for A.Y. 2008-09. The case was reopened based on share premium valuation issues, which the tribunal deemed invalid as the relevant provision was introduced in the Finance Act, 2012, applicable from A.Y. 2013-14 onwards. The tribunal quashed the reopening, citing lack of tangible material and supporting precedents. Additionally, the tribunal found the assessee had a strong case on merits, providing all necessary documents and reversing the CIT (A)'s order. The appeals of both assessees were allowed based on the findings in the first appeal for A.Y. 2008-09.