NG REALITY PRIVATE LIMITED THROUGH NARSINHBHAI GANPATBHAI PATEL vs. DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1)

Facts

The petitioner, NG Reality Private Limited, challenged a notice dated March 30, 2018, issued under Section 148 of the Income Tax Act, 1961, to reopen the assessment for Assessment Year (AY) 2011-12. The original assessment under Section 143(3) was completed on March 14, 2014. The notice for reopening was issued more than four years after the completion of the original assessment. The reasons for reopening cited an alleged escapement of income due to share premium received from an NRI, Ebrahimbhai Umraji Dalal, and the treatment of pre-operative expenses. The petitioner filed its return under protest and sought reasons for reopening, which were provided by the respondent, the Dy. Commissioner of Income Tax.

Held

The High Court held that the impugned notice for reopening the assessment under Section 148 of the Income Tax Act, 1961, could not be sustained. The Court found that the reasons recorded by the Assessing Officer for reopening were not based on any further material that came to his knowledge after the original assessment order was passed. Specifically, regarding the share premium, the Court noted from Form-5 filed before the Registrar of Companies that 52,50,000 shares were issued at par to 16 persons, and Shri Dalal's name did not appear among them. Only 15,75,000 shares were issued at a premium to Shri Dalal. This indicated that the AO's reasons were recorded without application of mind and were not germane to the material on record. Furthermore, the issue of pre-operative expenses had already been considered by the AO during the original assessment proceedings, making the reopening on this ground a mere change of opinion. The Court concluded that there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. Consequently, the proviso to Section 147 of the Act was applicable, as the notice was issued after the expiry of four years from the end of the relevant assessment year. The petition was allowed, and the impugned notice and consequential actions were quashed.

Key Issues

1. Whether the notice for reopening the assessment under Section 148 of the Income Tax Act, 1961, for AY 2011-12, issued beyond four years from the end of the relevant assessment year, is valid, considering the proviso to Section 147, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment? (Question of law) Assessee's Contentions: - The Assessing Officer (AO) issued the notice without application of mind, as the details regarding share allotment were available in Form-2 filed with the Registrar of Companies. - The AO erred in calculating the number of shares issued at premium and the total amount of share premium. - The issue of pre-operative expenses was already considered during the original scrutiny assessment, and reopening on this ground amounts to a change of opinion. - The CIT (Appeals) had not issued sanction under Section 151 of the Act on the date of the notice. Revenue's Contentions: - The AO rightly issued the notice for reopening as the assessee issued shares only to Shri Dalal at a premium, and there were no details on record for not charging premium on shares issued at par to other persons on the same day. - The revenue's advocate could not confirm the basis for the AO's recording that Shri Dalal was also issued shares at par on the same day.