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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
Per Rajesh Kumar, Accountant Member:
The above titled appeals have been preferred by two different assessees against separate orders dated 21.09.2020 and 20.02.2020 of the Commissioner of Income Tax (Appeals)
First we will take up A.Y. 2008-09.
3. The first issue raised by the assessee is a jurisdictional issue challenging the upholding of assessment by Ld. CIT(A) as framed by the AO under section 148 of the Act.
4. The facts in brief are that the assessee filed the return of income on 21.01.2010 declaring nil income. Thereafter, the case of the assessee was reopened under section 147 by issuing notice under section 148 dated 30.03.2015 which was duly served upon the assessee. The assessee complied with the said notice by submitting that the return filed originally on 21.01.2010 may kindly be treated as return filed in compliance to notice under section 148. The reason recorded under section 148(2) of the Act are extracted below: “The assessee, M/s. Torrent Real Estate Pvt. Ltd. is assessed under PAN: AACCT3832A with this charge and has filed its Return of Income for A.Y. 2008-09.
2 The DGIT (l&CI), New Delhi has supplied the information of companies which have issued share at high premium during F.Y. 2008-09. It has come to notice that the assessee has shown share premium of Rs. 12,920,000/- received during the F.Y. 2007-08 (A.Y. 2008-09). The assessee has received premium of Rs.40 on every shares of face value of Rs.10/-.The Company has no income which can justify such large premium. Further, there is nothing on record to calculate Equity Ratio. The company on one hand receives large amount though share premium and invest the same money into another company. The assessee company is a shell company doing no business activity.
In this regard, the notice issued u/s. 133(6) of the Act was issued on 06.02.2015 to the assessee. The assessee has not submitted the valuation report of the assessee company to justify the high premium charged. Since, the premium charged in much more than the intrinsic value of share, the nature of transaction is not proved and section 68 is attracted. I am satisfied that the income has escaped assessment by the reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment coming within the meaning of sec 147 of the Income tax Act 1961.
I have, therefore, reason to believe that income of Rs. 12,92,000/- chargeable to tax has escaped assessment by the reasons of failure on the part of the Assessee to disclose fully and truly and notice u/s 148 of the Income- Tax Act is to be issued in the aforesaid case for A.Y. 2008-09 accordingly.”
The assessee also filed objections to reopening of assessment which was disposed of vide order dated 10.12.2015. Thereafter, the AO during the course of assessment proceedings called for various information and detail from the assessee. As regards the issue of share capital to various parties of 3,23,000 equity shares of face value Rs.10 each at a premium of Rs.40 each thereby raising a total capital of Rs.1,61,50,000/-. The AO observed from the balance sheet that authorised capital of the assessee has increased from Rs.30 lakh to Rs.55 lakh and issued subscription and paid up capital has increased from 1,95,000 equity shares to 5,18,000 equity shares. The AO noted that these transactions are unnatural and suspicious and required detail and deeper analysis and verification of facts. The AO required the assessee to file various detailed information during the course of assessment proceedings such as name, address of the share subscribers, mode of payment etc. and also issued notice under section 133(6) of the Act to the various parties which were duly responded by the investors. The AO finally rejected the contentions and submissions of the assessee as made during the course of assessment and added this entire amount to the income of the assessee as unexplained cash credit under section 68 by framing assessment under section 143(3) read with section 147 of the Act.
Aggrieved by the order of AO the assessee challenged the order of AO before the Ld. CIT(A) raising the issue on merit.
4 M/s. Torrent Real Estate Pvt. Ltd. However, this jurisdictional issue is not raised before the Ld. CIT(A) and being raised before us for the first time. The Ld. A.R. vehemently submitted before us that AO has reopened the case of the assessee only on the ground that shares were issued at a premium which is more than the intrinsic value of the shares and therefore these facts are required to be verified and thus case is required to be reopened. The Ld. A.R. while referring to the reasons recorded submitted that year under consideration is A.Y. 2008-09 and the issue of shares at fair market value has only been introduced on the statutory books in section 56(2)(viib) in the Finance Act, 2012 w.e.f. 01.04.2013 and is accordingly applicable from A.Y. 2013-14 and is accordingly applicable from A.Y. 2013-14. The Ld. A.R. therefore submitted that the case of the assessee can not be reopened on the ground that shares were issued at a premium which is more than the intrinsic value of the shares. In defence of his argument, the Ld. A.R. relied on the following decisions: “1. Malchand Dindayal Salts Pvt. Ltd. (ITA No 6908/Mum/2018 and 7097/Mum/2018) 2. Balbir Ispat Pvt. Ltd. (ITA No 6953/Mum/2016) 3. Khubchandani Healthparks (P.) Ltd reported in 384 ITR 322 (Bom)”
The Ld. A.R. therefore submitted that the reopening as made by the AO is without jurisdiction and may be quashed.
The Ld. D.R. on the other hand, strongly opposed to the argument of the Ld. A.R. by submitting that the case has rightly been reopened in order to verify the issue of premium which is apparently on a price which is more than the intrinsic value of the shares and therefore the appeal of the assessee on this issue may be dismissed.
5 M/s. Torrent Real Estate Pvt. Ltd.
We have heard the rival submissions of both the parties and perused the material on record. Undisputedly, the reasons under section 148(2) have been recorded only to verify the issue of share premium at more than intrinsic value. We note that the provisions of issue of share of share market value has been introduced on the statute books under section 56(2)(viib) of the Act in the Finance Act, 2012 w.e.f. 01.04.2013 and is applicable from A.Y. 2013-14. We, therefore, find merit in the contention of the Ld. A.R. that the reopening of the assessment of the assessee on this basis is not valid. The case of the assessee is supported by the decision of the coordinate bench in the case of ITO Vs M/S Malchand Dindayal Salts Pvt. Ltd. ITA No. 6908/Mum/2018 & others which has been passed by the coordinate bench after following Balbir Ispat Pvt Ltd. Vs ITO ITA No. 6953/Mum/2016 of Mumbai tribunal and Khubchandani Healthparks Pvt. Ltd. 384 ITR 322 (Bom.). The operative part is as under:- “6. On appraisal of the above mentioned reasons, we are of the view that the AO was not justified to reopen the case of the assessee in view of the provisions u/s 147/148 of the Act. No tangible material is on record for reopening the case on the basis of which the AO formed reason to belief that the income has escaped assessment. Mere mentioning the facts as shown by the assessee about the shares premium of Rs.2,12,66,700/- nowhere gives the plausible reason to the AO to reopen the case u/s 147/148 of the Act. Nothing is on record to which it can be assumed that under which circumstances the income of the assessee has become escaped assessment. The other important thing which came into notice that on the basis of similar facts and circumstances the Hon’ble ITAT has decided the issue in case titled as Balbir Ispat Pvt. Ltd. Vs. ITO in ITA. No. 6953/Mum/2016 dated 28.01.2019 in which the notice u/s 147 of the Act nowhere justified. In the said case the relevant finding has been given in para no. 11 which is reproduced as under:-
“11. We have heard rival contentions and gone through the facts and circumstances of the case. We find from the reasons recorded reproduced above that the AO failed to appreciate that the law does not permit him to reopen assessment unless he has tangible material on the basis of which he forms reason to belief that income has escaped assessment. The mere fact that the assessee has issued shares at a certain premium itself cannot be a reason to belief that income has escaped assessment. The AO has neither
6 M/s. Torrent Real Estate Pvt. Ltd. mentioned by how much the shares are overvalued i.e. by what amount the premium exceeds the instinct value of the shares nor the amount, which according to him, has escaped assessment. The reasons are reproduced above but for the sake of brevity the relevant part of reasons are that, “from the records, it is seen that the assessee is in receipt of huge share premium amounting to ₹ 4,56,00,000 during the F.Y. 2008-09 relevant to AY 2009-10. As there was no scrutiny assessment done for this year, the so-called share premium having been received by the assessee was not examined. The assessee is an unlisted company and the source of the share premium so received as well as the nature of the share application received (the intrinsic value of the share in comparison to the excess premium received) is not substantiated.” We also find from the above that the AO stated that income in the grab of share application money received in this case has escaped assessment but he could not point out on what basis / material does he belief that the share capital is not genuine. In the similar circumstances, Hon’ble Bombay High Court in the case of Khubchandani Healthparks Pvt. Ltd. (supra) held that regular Return of income was assessed by Intimation under Section 143(1) of the Act and no scrutiny assessment was done. In the above view, to ascertain the nature and the justification for charging share premium, the Assessing Officer has reason to believe that charging of share premium over and above the intrinsic value of the share is income which has escaped assessment. The Notice itself does not indicate the approximate amount of income, which the Assessing Officer has reason to believe has escaped assessment nor does it quantify the extent to which the share premium received was in excess of intrinsic value, which has escaped assessment. It gives no reasons to indicate the basis of coming to the conclusion that share premium is excessive and, therefore, income. Moreover, the Notice also does not dispute that this is a share premium but seek justification for charging the share premium over and above intrinsic value of the share premium.”
We, therefore, respectfully following the above decisions quash the reopening of the AO. Accordingly, the jurisdictional ground of the assessee is allowed.
Even on merits the assessee has a very strong case. We note that the assessee filed all the documents before the authorities below i.e. AO as well as CIT(A) to prove the identity, creditworthiness of the shareholders and genuineness of the transactions. We also note that the shares issued at a premium were repurchased by family members/relatives at a price less than face value of shares. The money received by the 7 M/s. Torrent Real Estate Pvt. Ltd. assessee/appellant had been invested in the shares of associate concern M/s. Premium Paper and Board Industries Ltd. business whereof had failed miserably to the extent that said associate concern went into liquidation and thus the whole investment was jeopardized. It is only because of this, the shares were bought back by the investors at a distress price determined by both the investors and assessee appellant. Therefore, we are inclined to hold that the order of Ld. CIT(A) is not correct and is reversed. Even the issue in third ground of appeal has wrongly been decided by Ld. CIT(A) despite the facts having raised before the Ld. CIT(A) that expenses were incurred to maintain the office of the company such as accounts, writing charges, audit fee, bank charges and to give a corporate office intact and therefore this has to be allowed to the assessee.
ITA No.176/M/2021 12. The issue involved in the present appeal is identical to the one as stated above in for A.Y. 2008-09. Therefore, our finding in ITA No.1675/M/2020 for A.Y. 2008-09, would mutatis mutandis apply to this appeal as well. Accordingly the appeal of the assessee is allowed.
In the result, both the appeals of the assessees are allowed.
Order pronounced in the open court on 08.06.2021.