2021 (11) TMI 55 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - consideration received from the issue of shares that exceeds the face value of such shares requires to be assessed to tax u/s 56(2)(viib) - HELD THAT - Single Bench after noting the facts found that no tangible material or fresh material has come to the notice of the Assessing Officer as could be seen from the reasons for reopening. After referring to Section 147 of the Act the learned Single Bench rightly held that if such type of reopening is permitted there would be no end to the number of times when successive officers might apply and re-apply their mind to the same set of materials and come to different conclusions every time. On facts the Court found that the financials annexed to the return of income disclose two lot of shares one numbering 1, 00, 000 and the second numbering 2, 17, 870 and the valuation thereof has also been clearly stated. After noting the said fact the learned Single Bench rightly observed that this has not escaped the attention of the Assessing Officer at the original instance and he has in fact made a modification to the valuation of the first lot of the shares and for the reasons best known to the Assessing Officer the second lot has been left untouched. Thus the Court rightly held that there is no material that has come to the notice of the Assessing Officer in the year 2018 warranting re-assessment. Hon ble Supreme Court in the case of Commissioner of Income Tax v. Kelvinator India Limited 2010 (1) TMI 11 - SUPREME COURT and observed that the existence of new tangible material is a jurisdictional fact and this fact must necessarily exist in order to validate the assumption of jurisdiction in law. We are of the clear view that the learned Single Bench had rightly allowed the writ petition and quashed the impugned proceedings and the Revenue has not made any ground to interfere with the said order.

Summary

Issues:
Challenge to reopening of assessment based on change of opinion.

Analysis:
The Writ Appeal was filed by the Revenue against the order in a writ petition challenging the reopening of assessment on the grounds of a change of opinion. The Revenue argued that the reassessment was necessary as the market value of shares issued by the assessee exceeded the consideration received, thus requiring assessment under Section 56(2)(viib) of the Income Tax Act. The Assessing Officer had reopened the assessment within four years from the end of the Assessment Year, making the first proviso to Section 147 of the Act inapplicable. The Court noted that no new material came to the notice of the Assessing Officer warranting reassessment, as the financials disclosing the shares valuation were already considered in the original assessment.

The Court agreed with the learned Single Bench's findings that no tangible or fresh material justifying the reassessment was presented. The Court emphasized that allowing such re-openings without new material would lead to repeated reconsideration of the same facts, potentially resulting in different conclusions each time. It was observed that the Assessing Officer had already made modifications to the valuation of one lot of shares during the original assessment, indicating that the issue had not escaped attention. Citing relevant case law, the Court highlighted the necessity of new tangible material to validate the assumption of jurisdiction for reassessment. The judgment emphasized the importance of jurisdictional facts for reassessment to be legally valid.

In conclusion, the Court upheld the decision of the learned Single Bench, quashing the impugned proceedings. The Writ Appeal was dismissed, with no costs imposed. The judgment reaffirmed that the Revenue failed to provide grounds to challenge the writ petition's allowance, thereby affirming the decision to close the connected Miscellaneous Petition.