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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Neelkanth Khandelwal Revenue by: Shri Vijay Kumar G. Subramanyam (Sr. AR) सुनवाईकीतारीख / Date of Hearing: 03/11/2020 घोषणाकीतारीख /Date of Pronouncement: 01/12/2020 आदेश / O R D E R & 6908/M/2018 A.Y.2010-11 PER AMARJIT SINGH, JM: The revenue as well as assessee have filed the above mentioned appeal against the order dated 07.09.2018 passed by the Commissioner of Income Tax (Appeals)-17, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2010-11. ITA. NO. 7097/Mum/2018 2. The assessee has filed the present appeal against the order dated 07.09.2018 passed by the Commissioner of Income Tax (Appeals)-17, Mumbai (hereinafter referred to as the “CIT(A)”) relevant to the assessment year 2010-11.
The assessee has raised the following grounds: - “
1. The Ld. CIT(A) and erred in law and in facts in not appreciating that the reopening of assessment u/s 147 of the Act was bad in law and invalid.
2. The Ld. CIT(A) has erred in law and in facts in confirming the addition u/s 68 of the Act on account of share application money received during the year from Florence Multimedia Pvt. Ltd. amounting to Rs.28,00,000/-.
3. The appellant craves leave of your honours to add to alter, amend and/ or delete all or any of the foregoing grounds of appeal.”
4. The brief facts of the case are that the assessee filed his return of income on 29.09.2010 declaring total income to the tune of Rs.9,22,160/- for the A.Y. 2009-10. The return was processed u/s 143(1) of the I.T. Act, 1961 accepting the income returned. Thereafter, the case of the assessee was reopened by issuance of notice u/s 148 of the Act on 31.03.2015 and ITA. Nos. 7097/M/2018 & 6908/M/2018 A.Y.2010-11 was concluded u/s 143(3) r.w.s. 147 of the Act on 28.03.2016 by determining the total income of the appellant under normal provisions of Rs.2,62,26,960/-. Aggrieved by the order, assessee filed an appeal before the CIT(A) who deleted the addition to the extent of 2,53,04,800/- and retained the addition to the tune of Rs.28,00,000/- in connection with the investment made by the Florence Multimedia Pvt. Ltd. The assessee is aggrieved by the addition of Rs.28,00,000/- whereas the revenue is aggrieved by the deletion of addition of Rs.2,53,04,800/-. Accordingly, both the parties are under appeal. ISSUE NO. 1 5. Under this issue the assessee has challenged the reopening of the assessment u/s 147 of the Act. The Ld. Representative of the assessee has argued that the reasons recorded by the AO nowhere permitted him to reopen the case u/s 147 of the Act because there is no tangible material on record on the basis of which he forms reason to belief that the income has escaped assessment. It is also argued that the assessment was reopened on the basis of the analysis of the financial statement that the Assessee company could not fetch the certain premium which is no reason to believe that the income has escaped assessment. It is also argued that it is nowhere mentioned in the reasons that the shares were overvalued or what amount the premium exceeds the value of the shares which leads to escape assessments, therefore, the notices u/s 147 is not liable to be sustainable in the eyes of law. In support of these contentions, the Ld. Representative of & 6908/M/2018 A.Y.2010-11 the assessee has placed reliance upon the decision of the Hon’ble Bombay High Court in the case of Khubchandani Healthparks (P.) Ltd. Vs. Income Tax Officer – 6(3)(4), Mumbai (2016) 68 taxmann.com 91 (Bom) and Balbir Ispat Pvt. Ltd. Vs. ITO in ITA. No. 6953/Mum/2016 dated 28.01.2019. However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. Before going further, we deem it necessary to advert the reasons for reopening u/s 147/148 of the Act on record.:-
“1. The assessee company filed electronically its return of income for A. Y. 2010-11 on 29.09.2010 declaring total income at Rs. 9,22,160. The return was processed u/s. 143(1) accepting the income returned.
From the perusal of balance sheet filed, it is observed that the assessee company has shown the share premium of Rs.2,12,66,700/-. it is gathered that during the year under consideration, the assessee company has issued 4,03,810/-shares having face value of Rs.10 / and at a premium of Rs. 70/- per share Total share premium received during the year is Rs.2,12,66,700/- 3. At this backdrop, financials of the assessee company have been analyzed. From the perusal or computation of income, the assessee company has shown taxable income of Ps. 9,22,160/-. Fixed assets have been shown at Rs. Nill. Cash and bank balances are shown at Rs. 2004/-. Business activity also does justify charging of such premium.
Thus, after analysis of the financials of the assessee company, it can be seen that the shares of the assessee company do not quality to fetch a premium and hence, the nature of such capital income is not justified. S.68 of the I. T. Act requires the assessee to explain the nature and source of the credit entry & 6908/M/2018 A.Y.2010-11 5. The Bombay High Court in the case of M/s. Major Metal Ltd. VS UOI (2012) 19 taxmann.com 176 (Bom) upheld the addition u/s. 68 made by the Settlement Commission on account of share premium holding that the assessee failed to establish the justification for issuing shares at such premium.
The Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. has hold that section 147 authorizes and permits the Assessing Officer to assess or re-assess income chargeable to tax, if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase „reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it be said to have reason to believe that on income had escaped assessment. The expression cannot be and to mean that the Assessing Officer should have finally ascertained the (acts by legal evidence or conclusion. This judgment was rendered by the Hon'ble Supreme Court in the above case, a view of the fact that the case was only processed u/s. 143(1) and no scrutiny assessment was made u/s 143(3) of the Income-tax Act, 1961 and the re-opening was held to be valid.
Moreover, the Hon‟ble Bombay High Court in the case of ECGC Vs. ADDl. CIT Writ Petition No. 502 of 2012 dated 10-11 January, 2013, their Lordships have held that when the assessment is sought to be reopened within a period of four years. Then what is required is reason to believe but not established fact that escapement of income. At this stage of issue of notice, the only question is where there is relevant material on which the reasonable person can form a requisite belief. When an assessment is sought o be reopened within a period of four years, the test to be applied is whether there is tangible material to do so. Something which is tangible need not be something which is new.
In the circumstances, It can be seen that the nature of share premium of Rs.2,12,66,700/- is not justifiable. Hence, I have reason to believe that in the case of the assessee, an income in excess of Rs.1 lac liable for taxation had escaped assessment and therefore it is a fit case for issue of notice u/s 148 of the I. T. Act, 1961.”
ITA. Nos. 7097/M/2018 & 6908/M/2018 A.Y.2010-11 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 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 hasescaped 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 & 6908/M/2018 A.Y.2010-11 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.”
7. In the basis of similar facts and circumstances, the Hon’ble Bombay High Court has held in case titled as Khubchandani Healthparks (P.) Ltd. Vs. Income Tax Officer – 6(3)(4), Mumbai (2016) 68 taxmann.com 91 (Bom). :-
“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 & 6908/M/2018 A.Y.2010-11 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. However, the Hon’ble ITAT in the case Balbir Ispat Pvt. Ltd. (supra) has discussed the decision of Khubchandani Healthparks (P.) Ltd. Vs. Income Tax Officer – 6(3)(4), Mumbai (2016) 68 taxmann.com 91 (Bom). Respectfully following the decision of Hon’ble ITAT as well as 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 quashed the reopening and accordingly, the issue of assessee’s appeal on jurisdiction is hereby allowed. Since, we have already quashed the reassessment proceedings, we need not to go into the merit of the case. In the result, the appeal filed by the assessee is allowed.
8. Since the assessment proceedings has been quashed while deciding the issue in the appeal of the assessee bearing therefore, the challenge by revenue on merits of deletion by Ld. CIT(A) is infructuous, hence, revenue appeal is treated as infructuous and dismissed as such. & 6908/M/2018 A.Y.2010-11 9. In result, appeal filed by the assessee is hereby allowed and appeal filed by the revenue is hereby dismissed.