2021 (9) TMI 6 - AT - Income Tax

Reopening of assessment u/s 147 or assessment u/s 153C - assessment initiated on the basis of third party incriminating material u/s 147/148 - meaning of word belongs to - transaction of sweat equity shares allotted to the assessee at NIL consideration recorded in the books and observed during the post search investigation - HELD THAT - Undisputedly, 3,50,000 sweat equity shares of ₹ 10 each with premium of ₹ 190 per share were issued to the assessee by M/s. Rockland Hospital Ltd. in accordance with the agreement dated 28.01.2008 - during search operation conducted u/s 132 of the Act in M/s. Rockland Hospital Ltd. group of cases, no incriminating material was seized rather AO initiated the reopening on the basis of information and copy of sweat equity share agreement dated 28.01.2008 - assessee is neither an employee nor a Director of M/s. Rockland Hospital Ltd. and his wife is only a housewife - as per sweat equity share agreement, there is a lock-in period of three years and these shares would vest in the assessee only after lock-in period. It is also not in dispute that in case of Rajat Shubra Chatterjee who was also allottee of 1000 shares of ₹ 10 each at the premium of ₹ 190 each by M/s. Rockland Hospital Ltd., the coordinate Bench of the Tribunal in RAJAT SHUBRA CHATTERJI 2016 (7) TMI 258 - ITAT DELHI quashed the reassessment initiated on the basis of incriminating material found during search in the case of third party, namely, M/s. Rockland Hospital Ltd. in which provisions contained u/s 153C were applicable and not the provisions contained under section 147/148. When undisputedly the reopening has been initiated u/s 147/148 of the Act on the basis of same third party document belonging to M/s. Rockland Hospital Ltd., the same is void ab initio because in any case the reopening was to be initiated it could have been initiated u/s 153C of the Act. Ld. CIT (A) has rightly quashed the assessment - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening of assessment under section 148 of the Income Tax Act.
2. Applicability of provisions under section 153C of the Act in the case of sweat equity shares.
3. Assessment of income derived from sweat equity shares without consideration.
4. Quashing of reassessment by the Commissioner of Income-tax (Appeals).
5. Tribunal's decision on the appeal filed by the Revenue.

Issue 1: Validity of reopening of assessment under section 148:
The case involved the reassessment proceedings initiated by the Assessing Officer (AO) based on information regarding the issuance of sweat equity shares to the assessee without consideration. The AO contended that the shares should have been part of the assessee's taxable income. However, the Commissioner of Income-tax (Appeals) annulled the reopening, stating that the action should have been taken under section 153C of the Act, not section 147/148. The Tribunal upheld this decision, emphasizing that the reassessment was based on the same third-party document belonging to M/s. Rockland Hospital Ltd., making the reopening void ab initio.

Issue 2: Applicability of provisions under section 153C of the Act:
The Tribunal highlighted a similar case involving Rajat Shubra Chatterjee, where the reassessment was quashed as it was based on incriminating material found during a search in a third party's case. The Tribunal ruled that provisions of section 153C, not 147/148, were applicable. This decision influenced the Tribunal's judgment in the present case, supporting the annulment of the assessment order by the Commissioner of Income-tax (Appeals).

Issue 3: Assessment of income derived from sweat equity shares without consideration:
The AO argued that the assessee derived a benefit of ?7,00,00,000 from the equity shares without consideration due to his relation with a director of M/s. Rockland Hospital Ltd. The Tribunal noted that the shares were issued to the assessee without any consideration, but there was a lock-in period before they vested in the assessee. The Tribunal also considered the surrender of shares ordered by the High Court and the Board of Directors' resolution accepting the surrender, supporting the assessee's position.

Issue 4: Quashing of reassessment by the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) annulled the assessment order, citing the decision in the Rajat Shubra Chatterjee case and the application of section 153C instead of 147/148. The Tribunal agreed with this decision, further emphasizing that the reopening based on the same third-party document was void ab initio, leading to the dismissal of the Revenue's appeal.

Issue 5: Tribunal's decision on the appeal filed by the Revenue:
After considering all arguments and relevant documents, the Tribunal found no illegality or perversity in the Commissioner of Income-tax (Appeals)'s decision to quash the assessment. Therefore, the Tribunal dismissed the appeal filed by the Revenue, upholding the annulment of the assessment order.

This detailed analysis of the judgment covers the issues related to the validity of the reassessment, applicability of specific provisions, assessment of income from sweat equity shares, the decision to quash the reassessment, and the Tribunal's final ruling on the appeal filed by the Revenue.