2021 (7) TMI 67 - HC - Income Tax

Reopening of assessment u/s 147 - excess of share value over the market value - notice issued before expiry of 4 years - Addition u/s 56(2)(viib) on the ground that the petitioner-Company has issued 6,00,000 equity shares of face value of ₹ 10 at a premium of ₹ 90/-. - As per AO petitioner-Company failed to obtain achievement targets as per the forecast the value of share should be recomputed and the excess share value received by the petitioner-Company over the market value has to be disallowed as per Section 56(2) - HELD THAT - In the present case, the appeal filed by the petitioner before the Commissioner of Income Tax (Appeals) reveals that the Assessing Officer erred in adding the excess of share value over the market value of 6,00,000 fresh issue of equity shares invoking Section 56(2)(viib) of the Act. Reasons for reopening of the assessment furnished in proceedings states that during the year, the Company has converted 50,01,514 preference shares into equity shares in the ratio of 10 1 i.e., 500151 equity shares and ₹ 5,00,00,000/- worth debentures into equity shares of ₹ 10/- each at the premium of ₹ 90 per share i.e., 5,00,000 equity shares. The Total of preference shares and debentures converted into equity shares totals to 10,00,151 Nos. In the assessment order passed under Section 143(3) of the Income Tax Act dated 31.03.2016, the difference between the market value and share value in respect of 1000151 equity shares to the tune of ₹ 2,09,33,160/- (1000151 20.93) was not brought to tax under Section 56(2)(viib) of the Income Tax Act, 1961. Therefore grounds of appeal filed by the petitioner before the Commissioner of Income Tax (Appeals) cannot be a ground for the purpose of quashing the reopening of assessment proceedings issued on certain specific grounds. As far as the ground of change of opinion raised by the petitioner is concerned, this Court is of the considered opinion that reading of Explanation 1 and Explanation 2 (c)(i) of Section 147 is unambiguous that even in case of production of Books of Account or other evidence and also in the cases of underassessment, reopening of assessment is permissible. - Decided against assessee.

Summary

Issues Involved:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of assessment constitutes a change of opinion.
3. The relevance of tangible material for reopening the assessment.
4. The connection between the reasons for reopening and the pending appeal before the Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, and the consequential proceedings dated 06.08.2018. The petitioner filed the Return of Income for the assessment year 2013-2014, which was processed under Section 143(1) of the Act. The case was selected for scrutiny, and the assessment order was passed on 31.03.2016. The petitioner received a notice under Section 148 on 10.08.2017, proposing to reopen the concluded assessment on the premise that income liable to be taxed had escaped assessment within the meaning of Section 147 of the Act.

2. Whether the reopening of assessment constitutes a change of opinion:

The petitioner argued that the reopening of the assessment is based on a change of opinion by the Assessing Officer. The petitioner contended that all relevant documents, including the Return of Income, Balance Sheet, and Auditor's Report, were furnished during the original scrutiny, and the final assessment order was passed after considering these records. Therefore, the reopening is nothing but a change of opinion without any tangible material to substantiate the reasons to believe as required under Section 147 of the Act.

3. The relevance of tangible material for reopening the assessment:

The petitioner argued that there was no fresh material available to satisfy the requirement of Section 147 of the Act. The respondents, however, contended that the reason for reopening the assessment was clearly stated in the proceedings dated 05.09.2017. The respondents argued that the submission of Account Books or other evidence alone is not sufficient, and even a discovery of new material empowers the Assessing Officer to reopen the assessment. Explanation 1 to Section 147 clarifies that production of Account Books or other evidence does not necessarily amount to disclosure within the meaning of the Proviso.

4. The connection between the reasons for reopening and the pending appeal before the Commissioner of Income Tax (Appeals):

The petitioner contended that the reasons furnished for reopening the assessment were the subject matter of the appeal pending before the Commissioner of Income Tax (Appeals). The respondents, however, argued that the issues pending before the Commissioner of Income Tax (Appeals) were entirely different and unconnected with the reasons furnished for reopening the assessment. The court observed that the grounds of appeal before the Commissioner of Income Tax (Appeals) cannot be a ground for quashing the reopening of assessment proceedings issued on specific grounds.

Conclusion:

The court held that the reasons furnished for reopening the assessment under Section 147 of the Act were valid and that the reopening did not constitute a mere change of opinion. The court also held that the production of Account Books or other evidence alone does not preclude the reopening of assessment if there is underassessment. Accordingly, the writ petition was dismissed, and the reopening of the assessment was upheld.