ITO 6(3)(3), MUMBAI vs. J.B. TECHNOLOGIES P.LTD, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

CO No. 68/Mum/2018 A.Y.2009-10 2. The revenue has filed the present against the order dated 22.08.2016 passed by the CIT(A)-12, Mumbai relevant to the A.Y. 2009-10.

"1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the facts that assessee company had received a sum of Rs.4,95, 00,000/- (including premium of Rs. 4,86,00,000/-) on account of share application money/share capital and share premium during the FY 2008-09 relevant to A.Y2009-10 and as there was no assessment done for this period earlier, the A.O. for the reasons stated-in para 4.4 of the order had reasonable cause to believe that the sum so introduced by way of credit in the books of accounts of the assessee was not explained and hence income chargeable to tax had escaped assessment and he considered it fit to reopen the assessment u/s 147 of the I.T. Act."

3. The Appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the A0 be restored.

CO No. 68/Mum/2018 A.Y.2009-10 4. The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary.”

“From the record, it is seen that the assessee is in receipt of huge share premium amounting to Rs.3,75,54,840/- during the FY 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 nature of the share application received (the intrinsic value of the share in comparison to the excess premium received) is not substantiated.”

S. No. Name of the companies No. of shares Share capital Share premium total 1 M/s. Karad chemicals 11,364 1,13,640 61,36,560 62,50,200 & Allied Products Pvt. Ltd.

CO No. 68/Mum/2018 A.Y.2009-10 2 M/s. ManMaya 7,818 78,180 42,21,720 42,99,900 Developers Pvt. Ltd. 3 M/s. Nisha Capital 67,182 6,71,820 3,62,78,280 3,69,50,100 Services Pvt. Ltd. 4 M/s. Suraksha 3,636 36,360 19,63,440 19,99,800 Developers Ltd. Total 90,000 9,00,000 4,86,00,000 4,95,00,000

“From the record, it is seen that the assessee is in receipt of huge share premium amounting to Rs.3,75,54,840/- during the FY 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 nature of the share application received (the intrinsic value of the share in comparison to the excess premium received) is not substantiated.”

Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-

CO No. 68/Mum/2018 A.Y.2009-10 6.2 I have carefully perused the assessment order and the submission of the appellant. The appellant is contesting the reopening u/s 147 on the ground that the assessment was reopened on the pretext of proper examination and case cannot be reopened for examination of the facts. The appellant forcefully_ argued that the assessment was reopened to examine the genuineness and nature of transaction only. There was no information available with the A.0 about non-genuineness of those hands or genuineness of the assessees who have subscribed-to-the share capital. The appellant further stated that the shares are subscribed by holding company and associate Companies whose identities cannot be doubted and within such group concerns valuation cannot be suspected. The appellant relied on the decision of Hon’ble jurisdictional High Court in the case of Navi Trading Limited reported in 278 CTR 219 wherein it is held that when more details are sought or some verification is proposed, that cannot be a substitute for the reason and which leads the AO to believe that an income chargeable to tax has escaped assessment.

I have carefully perused the reason recorded by the AO in the assessment order and the submission of the appellant. It is found that the AO does not have any tangible material either from the assessment records or from other source. The AO has not recorded his opinion as to how he has reason to believe that the income has escaped assessment. Hence, it can be concluded that the assessment was reopened only to verify the share application / share premium monies in the absence of as to how he formed the belief that income chargeable to tax has escaped assessment. The basic requirement for reopening the assessment is "reason to believe" and it is seen that it is not fulfilled and at the time of recording the reason for reopening, the AO has to record as to how he has a reason to believe that income chargeable to tax has escaped assessment. The reason recorded merely indicates that the AO wants to verify the share application / Share premium money received and nothing more. Hence, I

CO No. 68/Mum/2018 A.Y.2009-10 find force in the argument of the appellant. The words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds but not on mere suspicion, gossip or rumour. The Hon'ble Supreme Court in the case of Sheo Nath Singh reported in 82 ITR 147 held as under :- "The reasons recorded for the ITO's belief were (1) The assessee who Was at the relevant time a managing director in about a dozen limited companies along with 'Obetois was believed to have made some secret profits which were not offered for assessment, and (2) the assessee was believed to have received a sum of Rs. 22 lakhs from 'Oberois' and this sum or at least part of which represented income which had escaped assessment. It was abundantly clear that the two reasons which had been given for the belief which was formed by the ITO hopelessly failed to satisfy the requirements of the statute. The words reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and the ITO may Act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.

There was no material or fact which I had been stated in the reasons for starting proceedings in the instant case on which any belief could be founded of the nature contemplated by section 34(1A). The so-called reasons were stated to be beliefs thus leading to an obvious self- contradiction. Hence, the requirements of section 34(M) were not satisfied and, therefore, the notices which had been issued were wholly illegal and invalid.

CO No. 68/Mum/2018 A.Y.2009-10 In the result, the appeal was allowed." Reliance is placed by the undersigned on the above mentioned Hon’ble Supreme Court order to allow this ground of appeal since it is identical to the case here. Further, the Jurisdictional High Court in the case of Khuchandndani Healthparks (P) Ltd reported in 68 taxmann.com 91 held that in the absence of reason to believe that income had escaped assessment even in the case where assessment has been completed earlier by intimation u/s 143(1), the assessment in not valid. Hence, ground no 1 of the appeal is allowed on the basis of discussion above.”

8. It is apparent on record that the AO was not having tangible material either from the assessment records or from any other sources. The AO recorded his opinion but as to how he has reason to believe that the income has escaped assessment is not apparent on record. The assessment was reopened only to verify the share application/share premium money. The basic requirement for reopening assessment i.e. reason to believe for the escapement of income is missing. The reason mentioned above speaks about this fact that the AO should verify the share application/share premium money receipt and nothing more. The CIT(A) has also relied upon the decision of Hon’ble Supreme Court Sheo Nath Singh Vs. AAC of I. T. (1971) 82 ITR 147 (SC) and in the case of Khuchandani Healthparks (P) Ltd. reported in 68 taxmann.com

91. Furthermore, we find also support of the decision of Hon’ble ITAT in the case of Balbir Ispat Pvt. Ltd. Vs. ITO in for the A.Y.2009-10 dated 28.01.2019. The relevant finding is hereby reproduced as under.:-

CO No. 68/Mum/2018 A.Y.2009-10 “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 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 CO No. 68/Mum/2018 A.Y.2009-10 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.

12. Similar are the facts in the present case as was before Hon’ble Bombay High Court in the case of Khubchandani Healthparks Pvt. Ltd. (supra). Respectfully following Hon’ble Bombay High Court, we are of the view that the AO has absolutely no material to even suspect, forget believe that income has escaped assessment. Hence, we quash the reopening and accordingly, the issue of assessee’s appeal on jurisdiction is allowed.” 9. The facts of the present case is quite similar to the facts of the case i.e. Balbir Ispat Pvt. Ltd. (supra). The facts are not distinguishable at this stage also. We nowhere found any ground to interfere with the finding of the CIT(A) in question. Taking into account all the facts and circumstances and by relying upon the decision of the Balbir Ispat Pvt. Ltd. (supra), we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfere with at this appellate stage.

C.O. NO.68/Mum/2018

CO No. 68/Mum/2018 A.Y.2009-10 10. The facts of the present case are quite same as discussed above while deciding in therefore, there is no need to repeat the same. The assessee has raised the following grounds:-

“ 1. The ld. CIT(A) has erred in law and on facts in not adjudicating the appeal on merits. 2. On facts and circumstances of the case and in law, the Ld. CIT(A) ought to have held that the addition of Rs.4,95,00,000/- made by the AO u/s 68 of the Act was untenable.” 11. Since the assessment has been held in valid, therefore, deciding the above said issue would only be academic in nature, hence, need not to require to be adjudicated.