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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI PRASHANT MAHARISHI, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-49, Mumbai dated 02.03.2017 for the assessment year 2009-10.
2. Ground no. 1 is general in nature so does not require any adjudication.
By raising ground no. 2, assessee has challenged the action of the AO to have reopened the original assessment [framed u/s 153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter “the Act”) dated 30.12.2011], by issuing notice dated 29.03.2014 u/s 148 of the Act.
2 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd.
Brief facts relating to the legal issue is that the AO noted that the assessee had filed its return of income for AY. 2009-10 on 26.09.2009 declaring total income at Rs.5,45,372/-. Thereafter, the AO framed assessment u/s 153A/143(3) of the Act on 30.12.2011 and determined the total income at Rs.16,34,85,660/- (hereinafter “the original assessment order”). In the original assessment order, the AO notes that the department had carried out search operation in Madhu Kodah Group of cases, and assessee’s premises were also covered in the search action; and based on that event, assessee’s case was centralized before the ACIT, Central Circle-40, Mumbai; who thereafter, issued notice u/s 153A of the Act dated 01.08.2011 as well as notices u/s 143(2)/142(1) of the Act, and after considering the reply of the assessee, framed original assessment order on 30.12.2011 by determining income at Rs.16,34,85,660/- as under: - Description Amount (Rs.) Amount (Rs.) Income from business 5,45,372/- Add: Expenses disallowed as discussed above 48,028/- Add: Unexplained investments u/s 69B of the Act as 13,65,92,256/- discussed above Add: Undisclosed investments u/s 69B of the Act as 2,63,00,000/- 16,34,85,656/- discussed above Gross Total Income 16,34,85,656/- Less: Chapter VIA Deductions --- Net Total Income 16,34,85,656/- Rounded off u/s 288A 16,34,85,660/-
5. Thereafter, the AO issued impugned notice u/s 148 of the Act dated 29.03.2014 conveying his desire to reopen the assessment u/s 147 of the Act, alleging escapement of income by recording reasons as under: - 3 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. 1. The assessee had filed return of income for A.Y. 2009-10 on declaring total income at Rs.5,45.372/-.
During the year under consideration, the assessee issued shares at a premium unreasonably higher rate than its intrinsic value of shares in the year under consideration.
3.1. It is observed from the Balance sheet as on 31.03.2009 that the assessee had issued 348700 Equity Shares of Rs.10/each and the value of Share Capital aggregated to Rs.34,87,000/-. Equity Per Share worked out at Rs.10/- per share.
3.2. During the year under consideration, i.e. ending 31.03.2009, the assessee issued 138700 equity shares of Rs.10/each aggregating Rs.13,87,000/- and the securities premium collected thereon was Rs.6,79,63,000/-. The value of new shares issued by the assessee worked out to Rs.500/- share (Rs.10/- equity shares issued at a premium of Rs.490/- per share).
4. The EPS of the company during the A.Y.2009-10 was at Rs. 1.56 per share, Further, the reserve and surplus of the company from the accumulated profit as on 31.03.2009 is only Rs.3,03,542/-, In this backdrop, the share of the assessee company could not have commanded such a high share premium per share. Therefore, acceptance of substantial amount of share premium gives rise to the logical conclusion that the share premium shown by the assessee is not commensurate with the net worth of the assessee company and casts a serious doubt in respect of genuineness of the transactions.
Further, it is noticed that the assessee company has shown the share application money received of Rs.7,70,00,000/- as on 31.03.2009. Considering the fact that the authorized share capital of the company is only Rs.50,00,000/- the assessee has received the share application money against the shares which were yet to be allotted as on 31.03.2009 at huge premium.
From the above, it is clear that during the year consideration the assessee issued 138700 share at a premium, unreasonably higher than the intrinsic value of shares in the preceding year.
4 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. 7. The jurisdictional High Court in the case of Major Metal Ltd. V/s. Union of India held that if, the past performance of the assessee company did not justify such huge premium then the purported transaction were not genuine.
In view of the above, the transaction relating to share premium is not a genuine transaction, amount received by the assessee in form of share capital, securities premium/share application money amounting to Rs.14,63,50,000/- is nothing but unaccounted income of the assessee company introduced into the business in the form of share Capital, Securities Premium & share application, which is otherwise chargeable to tax u/s.68 of the I. T. Act.
Hence, I have a reason to believe that in the case of the assessee, income of Rs.14,63,50,000/- chargeable to tax escaped assessment for A.Y.2009-10 within the meaning of section 147 of the I. T. Act,1961, and therefore, it is a fit case for issue of notice u/s.148 of the |. T. Act,1961.
10. Issue notice u/s 148 of the I. T. Act, 1961. (Bhopal Singh Bist) Dy. Commissioner of Income Tax, Central Circle-40, Mumbai. 6. On the strength of the aforesaid reasons, the AO reopened the assessment and after verification of material facts made an addition of Rs.2,85,50,000/- in his re-assessment order dated 26.03.2015, by taking note of the fact that the assessee company in the relevant year had allotted its shares of face value of Rs.10/- on 03.10.2008 at a premium of Rs.490/- to M/s. Balaji Universal Tradelink Pvt. Ltd, which shares were in turn sold by it [M/s. Balaji Universal Tradelink Pvt. Ltd.] to M/s. Bonafide Exports Pvt. Ltd. on 26.03.2009 for a sum of Rs.80 per share and thus booked a loss of Rs.2,39,82,000/-, which transaction according to him cannot be accepted, since there was no justification in valuing the assessee’s shares at a premium at Rs.490/- when the Earning Per Share (EPS) was only Rs.1.56 per share during 5 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. the year under consideration. Thus, the AO concluded that the aforesaid transaction, represented the introduction of the assessee’s unaccounted funds in the guise of share capital/premium and such a transaction was to launder its own unaccounted fund. And after citing the decision of the Hon’ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC), and the Hon’ble Bombay High Court decision in the case of Major Metal Vs. Union of India (2012) 19 taxmann.com 176 (Bom), and the Hon’ble Apex Court in the case of Mcdowel & Co Vs. CTO 154 ITR 148 and Banyan & Berry Vs. CIT 222 ITR 831 held that Rs.2,85,50,000/- brought in the books of account of assessee on share capital/premium needs to be brought to tax as per the provisions u/s 68 of the Act. And accordingly, he added Rs. 2,85,50,000/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein assessee raised the legal issue against reopening of the assessment which was dismissed by Ld. CIT(A). Aggrieved, the assessee is before us.
The Ld AR mainly assailed the action of the Ld. CIT(A) dismissing the legal issue on two counts. Firstly, according to Ld AR, the action of AO to have reopened the completed assessment is bad, since there was no tangible material in his hands to reopen the already completed assessment, which fact is discernable from perusal of the reason recorded (at para 3.1) wherein, AO has admitted in his own words ‘It is observed from the Balance-sheet as on 31.03.2009, that assessee had issued equity shares………..’, and there is no whisper (in the reasons recorded) about receiving information about shares allotted 6 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. on premium from outside agency. So, according to Ld AR, it can be seen that there was no tangible material in AO’s possession to reopen the completed assessment, therefore, his action to reopen the assessment was not permissible in law. Secondly, according to Ld AR, in the original assessment itself AO had inquired about the shares allotted on premium, therefore, the action of AO (to reassess the shares allotted on premium) tantamount to change of opinion, which is not permissible because AO does not have power to review his own order by invoking jurisdiction u/s 147 of the Act. The Ld AR, explained the relevant facts relating to the legal issue by pointing out that pursuant to search operation u/s 132 of the Act on 31.10.2009 (AY. 2010-11), the original assessment for AY 2009-10 was framed in December 2011 u/s 153A/143(3) of the Act. And for purpose of assessment u/s 153A of the Act, assessment proceedings of AY 2009-10 was abated [as per second proviso to section 153A of the Act]; and it is trite law that in an abated proceedings, the AO had power to assess the income of assessee without any restriction, in other words, there was no requirement that addition/disallowance can be made only on the basis of incriminating materials un-earthed during search. Consequently, according to Ld AR, the AO during original assessment proceedings had asked the assessee, about the details of the share capital/premium allotted/received by it vide notice dated 07.09.2011; and pursuant to which, the assessee had replied on 15.09.2011 and drew our attention to the page no. 92 & 93 of the PB, wherein the assessee brought to the notice of the AO that in the year under consideration (AY. 2009-10)
7 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. the assessee company allotted 57,100 equity-shares of face value of Rs.10/- to M/s. Balaji Universal Tradelink Pvt. Ltd at a premium of Rs.490/- per share [as well as details of 40,000 shares allotted in (AY. 2008-09) to M/s Terry Towel Industries Ltd. as well as to 51,600 shares to M/s Vishal Information Technologies Ltd. both on 31.03.2008 in the previous year i.e, AY 2008-09]. Thus, according to the Ld. AR, during the original/abated assessment proceedings for AY 2009-10 [albeit u/s 153A/143(3) of the Act], the assessee pursuant to the notice of AO, had brought to his notice the fact of allotment of 57,100 shares at premium of Rs.490 to M/s. Balaji Universal Tradelink Pvt. Ltd, and thereafter only the AO framed the original assessment order dated 30.12.2011 by making inter-alia addition approx of Rs 16 crores (supra) and did not made any adverse finding in respect of the allotment of shares on premium to M/s. Balaji Universal Tradelink. According to Ld. AR, since the AO had already made inquiry regarding the share allotted by assessee on premium, on the very same fact, the AO could not have again reopened the completed assessment, which is nothing but ‘change of opinion’. Further, according to Ld. AR, after assessee had allotted its shares to M/s. Balaji Universal Tradelink Pvt Ltd, and which fact has been brought to the notice of AO, their subsequent action (i.e, M/s Balaji Universal action) of sale of these shares on 26.03.2009 to M/s. Bonafide Exports at a lower price, ought to be inquired by AO from M/s. Balaji Universal Tradelink Pvt. Ltd, rather than reopening the assessment of assessee. According to Ld AR, the loss has been booked by M/s. Balaji 8 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. Universal Tradelink Pvt. Ltd, (regarding sale of shares of assessee at low cost) which is a different legal entity, and for such an action, assessee’s assessment ought not to have been reopened. Further, according to Ld. AR, AO has not mentioned anything about receiving any tangible material to facilitate reopening of the assessment since AO in the original assessment after inquiry has passed the assessment order u/s 153A/143(3) of the Act dated 30.12.2011, wherein he has not made any adverse view against the assessee. Moreover, according to Ld. AR, from the discussion of facts supra, it can be seen that all the relevant facts related to allotment of shares at premium was in the knowledge of AO in the original assessment proceedings, therefore, the impugned action of the AO to again rack-up the issue (i.e. about equity shares (57,100) allotted to M/s. Balaji Universal Tradelink Pvt. Ltd for a premium of Rs.490/-) tantamount to “change of opinion”. According to the Ld. AR, the action of the AO to have resorted to reopening is bad in law. And the Ld. CIT(A) rejecting the legal issue on the specious plea that since the AO had framed the assessment u/s 153A of the Act, he could not have made the addition for absence of incriminating material is fallacious and legally flawed.
8. Per contra, the Ld. DR appearing for the department supported the action of the Ld. CIT(A) and submitted that this issue was not looked into in the original assessment framed by the AO u/s 153A/143(3) of the Act vide order dated 30.12.2011. And therefore, according to him, the AO had the power to reopen the assessment and make addition of Rs.2,85,50,000/-. According to Ld. DR, the action of 9 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. the AO in making addition of the premium of Rs.490/- per share cannot be faulted because there was no justification for such a high premium when the EPS of share was less than Rs.2 per share. And therefore, the action of AO to reopen and thereafter make addition was justified and does not need any interference from our side.
9. We have heard both the parties and perused the records. In this case, it is noted that assessee had filed return of income on 26.03.2009 declaring total income of Rs.5,45,372/-. The case of the assessee was centralized before the ACIT, Central Circle-40, Mumbai and the AO framed assessment u/s 153A/143(3) of the Act dated 30.12.2011 wherein AO made an addition of Rs.16,29,40,288/- and determined the total income at Rs.16,34,85,660/- as noted (supra). Thereafter, the AO issued impugned notice u/s 148 of the Act dated 29.03.2014 proposing reopening of the assessment and pursuant to it, assessee requested for reasons for reopening and the same was given to the assessee (supra). The assessee’s objection for reopening was rejected by the AO vide letter dated 03.11.2014. Thereafter, the AO framed the re-assessment order on 26.03.2015 u/s 143(3)/147 of the Act by making an addition of Rs.2,85,50,000/-. On appeal, the Ld. CIT(A) confirmed the action of the AO on merits as well as he rejected the legal issue raised against the jurisdiction of the AO to reopen the assessment.
Regarding the legal issue against the action of the AO to have reopened the original assessment, it is necessary to examine the “reasons recorded” by AO before reopening the assessment. It has to 10 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. be borne in mine that the concept of assessment is governed by the time-barring rule; and an assessee acquires a right as to the finality of proceedings. Quietus of the completed assessment can be disturbed only when there is information or evidence regarding undisclosed income or AO had information in his possession showing escapement of income as stipulated u/s 147 of the Act. As per Section 147 of the Act, if the AO had to reopen the assessment, then AO has to record the reason to reopen the assessment, wherein he should record the “reason to believe, escapement of income”. It is settled position of law that “reason to believe” postulates a foundation based on information and belief based on reason. After a foundation based on information is there, still, there must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. In other words, before the AO issues notice u/s 148 of the Act, he must have recorded the reason to believe escapement of income. It is no doubt true that this Tribunal cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the AO on the point as to whether action should be initiated for re-opening the assessment. At the same time, we have to bear in mind that it is not, any and every material, howsoever vague and indefinite or distant or remote and far-fetched, which would warrant the formation of belief relating to escapement of income. Further, it is trite law that AO does not have power to review his own action/assessment. So if an AO during scrutiny assessment has enquired about certain issue/relevant facts pertaining to the income of 11 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. assessee for the relevant assessment year, and thereafter in the assessment order he has taken a position, then on that issue, he is precluded from reviewing the same and cannot use his jurisdiction to reopen the assessment for doing so. And it is trite law that there should be tangible material in the possession of AO to reopen the completed assessment. Keeping the aforesaid legal requirement in mind, let us examine the reasons recorded by AO for reopening the assessment. From a perusal of the reasons recorded (supra), it is noted that the AO didn’t had any tangible material to reopen the assessment which fact is discernable from a perusal of reasons recorded at para no. 3.1 AO records “it is observed from the balance-sheet as on 31.03.2009 that the assessee had issued 138700 equity shares……..”, (this admission of AO shows that reopening is not based on external tangible material). The issue on which AO reopens assessment is regarding the shares allotted by assessee on premium of Rs 490/- for a share of face value of Rs 10/-, when the EPS of the company during the year under consideration was of Rs.1.56 per share. And therefore, according to him, the share premium was abnormally high. And further noted that assessee had shown share application money received by it to the tune of Rs.7,70,00,000/- as on 31.03.2009 when the authorized share capital of the company was only to Rs.50,00,000/- and that the assessee had not yet allotted balances shares as on 31.03.2009. Thus, the AO while recording the reasons for reopening was of the opinion that share premium raised by assessee is not genuine to the tune of Rs.14,63,50,000/- which is nothing but the unaccounted income of the 12 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. assessee company which has been introduced into its business in the form of share capital/share premium/share application which is chargeable u/s 68 of the Act and which amount has escaped assessment. On the aforesaid reasons, he reopened the assessment of the assessee. And in the re-assessment order dated 26.03.2015, he observed that in the year under consideration assessee had allotted 57,100 share to M/s. Balaji Universal Tradelink Pvt. Ltd on 03.10.2008 @ of Rs.10/- per share on a premium of Rs.490 per share which aggregates to Rs.2,85,50,000/-. And that M/s. Balaji Universal Tradelink Pvt. Ltd had sold the shares of assessee company on 26.03.2009 for a sum of Rs. 80/- per share and booked a loss of Rs.2,39,82,000/- which according to AO clearly shows that there was no justification in valuing the shares at a high premium of Rs.490/- per shares when EPS was only Rs.1.56 per shares. According to the AO, the premium on shares could have been fixed having regard to the net asset value of the company, or the past record of earnings. According to the AO, it cannot be based on hypothetical presumptions as to the potential growth of earnings that may be achieved at some unspecified date in the future. Therefore, according to the AO, the valuation of the share capital at a premium of Rs.490/- per share cannot be accepted. And thereafter, he was pleased to make an addition of Rs.2,85,50,000/- u/s 68 of the Act.
From a perusal of the aforesaid reasons recorded by the AO to reopen as well as frame the reassessment, it is noted that he reopened the assessment alleging escapement of income to the tune of 13 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. Rs.14,63,50,000/-. And ultimately had made an addition of only Rs.2,85,50,000/-. According to the Ld. AR, in the original assessment u/s 143(3)/153A of the Act dated 30.12.2011, the AO had conducted inquiry in respect of share capital/premium raised by assessee during the year under consideration by issuance of notice u/s 142(1) of the Act dated 07.09.2011 and drew our attention to the copy of the same wherein he directed the assessee to furnish (relevant portion of notice) as under: - “4. To furnish in writing and verified in prescribed manner, the information called for as per annexure and on the points or matters specified herein.
The date and time fixed for your compliance with the requirements of this notice is 12.09.2011 at 11.00 AM.
(a) Share holding pattern along with the name, address and PAN of other shareholders.
(b) Details of share application money/premium received and allotment of shares along with the name, address and PAN. Also if any shares have been issued then furnish the working of the premium for allotment of shares.”
And pursuant to it, assessee had replied to it vide letter dated 15.09.2011 wherein assessee had brought to the notice of the AO that inter-alia assessee had issued 57,100 equity shares to M/s. Balaji Universal Tradelink Pvt. Ltd at a face value of Rs.10/- at premium of Rs.490/- per share and received Rs.2,85,50,000/-. And also gave the details of the share subscriber M/s. Balaji Universal Tradelink Pvt. Ltd 14 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. and brought to the notice of the AO that share subscriber (M/s. Balaji Universal Tradelink Pvt. Ltd) was a regular income tax assessee and the transaction have taken place through regular banking channel and the same has been recorded in their books of accounts. Assessee also asserted before AO that on this issue no addition u/s 68 of the Act can be made in the hands of the assessee because the share capital/share premium was capital in nature. And the AO after considering the reply of assessee on this issue has framed the assessment dated 30.12.2011 without making any adverse finding on this transaction. However, the AO has racked up the receipt of share capital/premium to the tune of Rs.14 crores after perusal of the balance-sheet of the assessee and issued the notice u/s 148 of the Act on 29.03.2014 alleging escapement of income of Rs.14.63 crores. And thereafter, made an addition of only Rs.2,85,50,000/- on account of AO levying high premium of Rs.490/- per share (AO noted that assessee had allotted 57,100 shares as on 03.10.2008 @ 500 per share to M/s. Balaji Universal Tradelink Pvt. Ltd sold the shares to M/s. Bonafide Exports Pvt. Ltd on 26.03.2009 @ Rs.80 per share and booked a loss of Rs.2,39,82,000/-). On the aforesaid facts, the AO made an addition of Rs.2,85,50,000/- us/ 68 of the Act in the hands of the assessee.
As noted (supra), in the original assessment framed u/s 143(3)/153A of the Act dated 30.12.2011, the AO had inquired about 57,100 shares allotted to M/s. Balaji Universal Tradelink Pvt. Ltd and the assessee had disclosed the details of share-subscriber as well as the premium of Rs.490/- per share and assessment of before AO that no 15 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. addition u/s 68 of the Act can be made in respect of Rs.2,85,50,000/- received from M/s. Balaji Universal Tradelink Pvt. Ltd because it was a regular income tax assessee and payments were made through banking channel and it was capital receipt. And the AO had not made any adverse finding in the original assessment. In this factual background, even though the AO has not made any discussion on this issue in the assessment order it is implied that AO has accepted the transaction since no adverse view was recorded by him in the assessment order. In this factual context, it is gainful to refer to the decision of Hon’ble Bombay High Court in Aroni Commercials Ltd. Vs. DCIT (2014) 44 taxmann.com 304 (Bom) wherein it was observed by Hon’ble High Court that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the assessing officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. And further their Lordship observed that if an assessing officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceedings even where he is satisfied, it would be impossible for the assessing officer to complete all the assessments which are required to be scrutinized u/s 143(3) of the Act. In the light of the inquiry made by AO regarding the share capital/premium allotted/received by assessee during the original/abated/scrutiny assessment, the impugned action of AO again to examine the same 16 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. alleging escapement of income tantamount to review of his own action which is not permissible; and therefore, the action of the AO to reopen the assessment by issuance of notice u/s 148 of the Act dated 29.03.2014 merely on the basis of “change of opinion”, cannot satisfy requirement of law u/s 147 of the Act to validily reopen the assessment. Moreover, we find that AO in the reasons recorded had no tangible material in his possession to reopen the assessment, and he has resorted to reopening only after perusal of balance-sheet of the assessee regarding shares allotted on premium, which action itself vitiates the impugned reopening of assessment.
In the light of the discussions, we find that the issue regarding share capital/premium allotted to M/s. Balaji Universal Tradelink Pvt. Ltd from whom assessee collected Rs.2,85,50,000/- in the year under consideration was subjected to inquiry by AO during the original assessment and thereafter, he framed the assessment order on 30.12.2011 after consideration assessee’s reply placed at page nos. 90 to 93 of PB, and the AO’s action of not making any adverse finding on this issue, implies that AO has accepted the explanation of assessee on this issue. Right or Wrong the action of AO could not have been reviewed by AO himself after reopening the assessment u/s 147 of the Act. May be the Ld. PCIT could have initiated revisional proceeding u/s 263 of the Act. And moreover, we note that year under consideration is AY 2009-10 and share /premium could not have been brought to tax because share premium was brought to tax only w.e.f. 01.04.2013 as held by Hon’ble Bombay High Court in the case of CIT 17 A.Y. 2009-10 M/s. Balaji Lifestyle Realtors Pvt. Ltd. Vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 0680 (Bom) wherein the Hon’ble Bombay High Court held that share premium can be brought to tax only w.e.f. 1st April, 2013. Therefore, the action of AO to reopen the assessment of assessee cannot be sustained.
Therefore, assessee succeeds on the legal issue.
Other grounds raised by assessee are not adjudicated being academic.