DCIT - CC- 6(4), MUMBAI vs. WESTEND PROPMART PVT. LTD., MUMBAI

The Revenue has raised following grounds of appeal:

Assessment Year: 2014-15 “1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in quashing the order us. 143(3) rw.s. 147 of the Income tax Act, 1961, holding the same as invalid and illegal, without considering the pre- amended provisions of Explanation 1 to the Second Proviso to Section 147 of the Income tax Act, 1961, wherein it has been explained that production of books of account or other evidence before the Assessing Officer from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure." (2) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the assessee company got incorporated on 26.09.2012 and had low financials, and it failed to justify during the assessment proceedings receipt of such huge share premium, which was received in August' 2013,"

In addition, the Revenue has, vide letter dated 30/11/2022, raised the following additional ground of appeal

Being aggrieved, the Assessee preferred appeal before CIT(A). Accepting the contention of the Assessee that the 4 Assessment Year: 2014-15 reassessment proceedings have been initiated on account of mere change of opinion as there was no fresh tangible material available with the Assessing Officer for reopening the assessment, the CIT(A), vide order dated 17/12/2021, quashed the reassessment proceedings holding that the Assessing Officer was not justified in issuing notice under Section 148 of the Act.

Being aggrieved, the Revenue has preferred the present appeal against the above order passed by the CIT(A).

Learned Departmental Representative appearing before us submitted that CIT(A) erred in quashing the Assessment Order. He submitted that during the survey proceedings relating to Ananthraj Group statement of Mr. Amit Sarin, a director of Ananthraj Group, was recorded. He was a shareholder in the Assessee company till 05.08.20013 when he sold his shareholding in the Assessee-company at face value of INR 10/- per share. During the survey proceedings as well as during the post-survey proceedings he was unable to provide any satisfactory explanation as to why cumulative redeemable preference shares of the Assessee–company were issued to the Albasta Infrastructure Ltd and Rapid Estate Private Limited at premium of INR 90/- per share. Learned Departmental Representative submitted that the Assessee–company was incorporated on 26/09/2012 and did not have any track record to justify huge premium. The Assessee-company belonged to Indiabulls Group. The appraisal report prepared pursuant to search action carried out on Indiabulls group suggested that this group had carried out many accommodation related activities and the premium charged was nothing but merely Assessment Year: 2014-15 adjustment/accommodation entries. The Assessee–company did not have financial strength to justify premium of INR 90/- per share. The valuation carried out under Section 56(2)(viib) of the Act was based upon unrealistic projections. Referring to the reasons recorded he submitted that the Assessing Officer had fresh tangible material to form a belief that entire amount of INR 43,65,00,000/-, being premium received on issue of equity/preference shares, was income liable to tax under the head income from other sources in terms of Section 56(2)(viib) of the Act had escaped assessment.

In response, the Learned Authorised Representative for the Assessee submitted that regular scrutiny assessment was framed on the Assessee under Section 143(3) of the Act wherein the issue relating to allotment of equity/preference shares at a premium was examined in detail. All the relevant facts about share premium were placed before the Assessing Officer during assessment proceedings. The Assessing Officer after examining the relevant details and documents concluded that no addition in this regard was warranted. There was no new tangible material before the Assessing Officer for reopening assessment. At the relevant time when the statement of Mr. Amit Sarin was recorded, he was neither director nor shareholder of the Assessee-company and therefore, could not have provided explanation regarding issuance of equity/preference shares at a premium. He further submitted that the copy of statement of Mr. Amit Sarin was never furnished to the Assessee. Further, he submitted that the Assessee-company did not belong to Indiabulls Group. The transaction of sale of equity shares by Mr. Amit Sarin had no correlation with allotment of equity/preference shares after Assessment Year: 2014-15 change shareholding and management. He submitted that the reassessment proceedings were initiated merely on account of change of opinion as there was no fresh tangible material. Supporting the order passed by the CIT(A), he submitted that the CIT(A) was justified in quashing the reassessment proceedings.

We have considered the rival submissions perused the material on record. During the regular scrutiny assessment notice under section 142(1) of the Act was issued to the Assessee on 12/04/2016 wherein the Assessee was directed to submit (a) complete name and address of the applicants for shares along with their permanent account number, (b) file a copy of ledger account along with documents filed with the registrar of companies and (c) justify the large share premium received during the year. In response, the Assessee filed reply dated, 05/08/2016, giving complete details of Applicant of shares along with documents filed with the Registrar of Companies. Thereafter, vide notice dated 20/10/2016, the Assessee was asked to provide further the clarification and documents. The Assessee was asked to explain whether the provisions of section 56(2)(vii) of the Act were applicable to the issue shares. Further, the Assessee was asked to provide Share Valuation Report and the computation of value of shares as per Rule 11UA of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules’). In relation to share capital, the Assessee was expressed specifically asked to provide the source of credit in the books of accounts of the Assessee and also the source of credit in the books of accounts of the lender/investor, established genuineness of the transaction and creditworthiness of the parties involved. Vide reply letter dated 7 Assessment Year: 2014-15 21/11/2016, the Assessee provided justification on large share premium received during the year when was stated that the Assessee had plans to invest in high yield real estate projects and to meet the requirement of funds the Assessee company opted makes of debt and equity to get better returns. The shares were issued on the basis of independent valuation done by a chartered accountant as per the provisions of the Act. A copy of the valuation report was also furnished by the Assessee along with the aforesaid reply. Being satisfied with the details, documents and explanation furnished by the Assessee, the Assessing Officer completed the assessment under Section 143(3) of the Act vide assessment order, dated 21/11/2016. Thus, we find merit in the contention of the Assessee that based upon the material/information placed before the Assessing Officer during assessment proceedings, the Assessing Officer had formed an opinion that no additions were warranted in the hands of the Assessee despite the fact high premium of INR 90/- per share was charged on issuance of equity/preference shares, and while forming the aforesaid opinion Assessing Officer had taken into account the provisions contained in Section 56(2)(vii) of the Act and Rule 11UA of the Rules. Since the notice under Section 148 of the Act was issued on 31/03/2019 which fell within a period of 4 years from the end of Assessment Year 2014–15, the Assessing Officer could have initiated reassessment proceedings even if there was no default on the part of the Assessee in making full and to disclosure. However, since the regular assessment was framed under Section 143(3) of the Act, the existence of fresh tangible material having nexus with escaped of income was prerequisite for initiating reassessment proceedings. We have perused of the reasons recorded in writing for initiating reassessment 8 Assessment Year: 2014-15 proceedings [placed at page 47-50 of the paper-book] which read as under:

We concur with the CIT(A) that from the reasons recorded in writing, it can be seen that that the Assessing Officer did not have any information or details to initiate the reassessment proceedings. The same set of facts, being financial position of the Assessee – company as reflected in the audited financials, factum of issuance of equity/preference shares at a premium of INR 90/- per share, and the basis of valuation as captured in the valuation report, were all in existence during the regular course of assessment proceedings and were considered by the Assessing Officer. Thus, the reassessment proceedings are initiated on account of mere change of opinion on reconsideration of same set of facts though, this time, placed before the Assessing Officer as a consequence of search/survey proceedings. During the course of hearing, the Learned Departmental Representative had tried to impress upon the fact that Mr. Amit Sarin had during the survey proceedings failed to provide satisfaction explanation regarding the high premium of INR 90/- per share and that the Assessee-company did not have any financial strength to support the aforesaid premium. However, this very aspect was examined by the Assessing Officer during the regular assessment proceedings. It was explained by the Assessee that the shares were issued on value determined through independent valuation using discounted cash flow technique. A copy of valuation report was also furnished. Further, the only additional fact that the Mr. Amit Sarin had sold his shareholding to Rapid Estates Private Limited at par value of INR 10/- was not mentioned in the reasons recorded. Therefore, the same could be taken as the Assessment Year: 2014-15 basis for reopening the assessment. The CIT(A) was justified in concluding that the reassessment proceedings have been initiated only on account of mere change of opinion and in absence of any fresh tangible material. Accordingly we decline to interfere with the order, dated 17.02.2021, passed by CIT(A) quashing the reassessment proceedings. Ground No. 1 and 2 raised by the Revenue are dismissed.