Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: This appeal of Revenue is arising out of the order of CIT(A)-13 Mumbai in Appeal No. CIT(A)-13/DCIT-7(2)(2)/825/2015-16 vide order dated 2.1.2017 for the A.Y. 2009-10. Original assessment was confirmed by the Additional CIT-Range 7(1), Mumbai under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 19.12.2011. The reassessment was framed by the DCIT Circle- 7(2)(2) Mumbai vide order under section 143(3) read with section 147 of the Act dated 30.3.2015.
At the outset, learned Counsel for the assessee filed application under rule 27 of the Income Tax (Appellate Tribunal) Rule, 1963 raising the issue of reopening. Learned Counsel for the assessee drew our attention towards revised application filed under rule 27 of the Income Tax (Appellate Tribunal) Rules dated 30.1.2019 and by virtue of which the assessee raised the following two grounds: - “i. The learned CIT(A) erred in upholding reopening of assessment without appreciating that learned Assessing Officer had no reason to believe that income had escaped assessment and the reopening constitutes change of opinion since application money was enquired into at the time of original assessment proceedings and hence reopening is bad in law. ii. The learned CIT(A) erred in upholding reopening of assessment without appreciating that reopening is bad in law as same was not accordance with the mandatory procedure prescribed by the Supreme Court in GKN Driveshaft (India) Ltd. vs. ITO (2003) 259 ITR 19 (SC) since notice under section 142 was issued before the recorded reasons were issued and hence reopening is bad in law.”
The learned Counsel for the stated that this issue has been raised before CIT(A) and CIT(A) has dismissed this issue of reopening vide para 5.7 as under: - “5.7 Coming to the grounds of appeal, ground nos. 1, 2 and 3 have challenged the reassessment proceedings in this case. I find that the AO had followed due procedure, communicated the reasons for the reopening and had dealt with the objections raised by the appellant. I find no infirmity in his approach. Further, no tangible proof-testifying to this case being one of mere change of opinion- has been placed before me. These three grounds are accordingly dismissed. Ground nos. 4 to 10 have agitated against the addition of ₹ 2.95 crores as made by the Assessing Officer. As the said addition has already been set aside, all these six grounds are allowed.”
The learned Counsel for the assessee stated that as per Rule 27 of the ITAT Rules, this issue of reopening has been adjudicated and decided against the assessee by CIT(A) and being a legal issue Tribunal has to adjudicate now. On the other hand, learned Sr. Departmental Representative opposed the raising of new grounds under Rule 27 of the ITAT Rules but he could not controvert that this issue has been adjudicated against the assessee by the CIT(A).
In view of the factual position that the issue of reopening has been raised before the CIT(A) and he has adjudicated the issue against assessee on jurisdiction but the appeal was allowed in favour of assessee on merits. In terms of the above, we admit this issue and adjudicate now.
Brief facts are that the assessee filed its return of income on 30.9.2009 for the relevant A.Y. 2009-10. The assessee’s case was taken up for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. Consequently, the assessment was framed under section 143(3) of the Act by the AO vide order dated 19.12.2011. Subsequently the AO issued notice under section 148 of the Act dated 28.3.2014 and for this he recorded the reasons and supplied to the assessee vide letter dated 15.12.2014. In the reasons recorded, the AO pointed out that the assessee has shown the receipt of share premium amounting to ₹1.92 crores and the issue of share premium was not the subject matter of verification by the AO during the course of original assessment proceedings under section 143(3) of the Act and therefore no opinion has been formed on this issue. According to the AO, the assessee filed no details with regard to the justification for share premium over and above the intrinsic value of shares. Hence, according to AO, the income to the extent of an amount of share premium receipt over and above, the intrinsic value of the share has escaped assessment. The AO completed the reassessment and made addition of share premium as unexplained and unsubstantiated as the genuineness and nature thereof. The AO invoked the provisions of section 68 of the Act for making this addition of the sum of ₹ 2,95,10,000/-. Aggrieved assessee preferred appeal before the CIT(A).
The CIT(A) confirmed the assumption of jurisdiction by the AO on reopening under section 147 read with section 148 of the Act but deleted the additions on merits.
Now the assessee has raised this issue under Rule 27 i.e. the issue decided by the CIT(A) against the assessee on reopening of assessment. Learned Counsel for the assessee before us stated that the reopening is bad in law for the reason that the AO had no reason to believe that income had escaped the assessment and the reopening constitutes change of opinion since original assessment was completed under section 143(3) of the Act and the issue of share application money was specifically enquired into by the AO at the time of original assessment proceedings. Learned Counsel for the assessee stated that the AO has recorded the reasons which are part of the assessee’s paper book and the relevant reasons are enclosed at page 288, which reads as under:
“The assessee M/s Nityanand Infrastructure Ltd is an assessee of this circle. The assessee for the A.Y. 2009-10 has filed its return of income on 30.09.2009 declaring income of ₹ 2,28,70,850/- which was processed under section 143(1) on 13.07.2010. In this case, assessment under section 143(3) of the I.T.Act was completed on 19.12.2011, assessing the income at ₹ 2,32,38,390/-. From the records, it is seen that during the F.Y. 2008-09 relevant to A.Y. 2009-10 assessee has shown receipt of share premium amounting to ₹ 1.92 crores. The issue of share premium was not a subject matter of verification by the AO and therefore, no opinion has been formed on this issue in original assessment under section 143(3). No details with regard to justification for share premium over and above the intrinsic value of the share have also been called for in the course of original scrutiny assessment.
To ascertain the “nature” and the “justification” for charging share premium over and above the intrinsic value of the shares, a notice under section 133(6) of the I.T. Act was issued to the assessee on 19.03.2014. However, no compliance to this notice was made by the assessee on the specified date.
I have reason to believe that income to the extent of amount of share premium received over and above the intrinsic value of the share has escaped assessment. Since in the original assessment this issue of share premium being charged over and above the intrinsic value of the share was not examined and there was no application of mind on this issue this reopening of the assessment is being done in light of ration of decision of CIT vs. Usha International [348 ITR 485 (Del.)] & Export Credit guarantee Corporation of India Ltd. Vs. Addl. CIT [350 ITR 651 (Bom.)].
In view of the above facts discussed above and in the light of the ration of decision cited above, I have reason to believe that income charged as share premium over and above the intrinsic value of the share has escaped assessment.”
In view of the above reasons, learned Counsel for the assessee argued that reopening is only on going through the case records and no new tangible materials has been brought on record for reopening of the assessment by the Assessing Officer. Learned Counsel for the assessee took us through the reasons recorded and argued that the AO’s entire premises is regarding justification of share premium over and above the intrinsic value of the shares and the genuineness of share premium, creditworthiness of the parties and capacity of the party is not in doubt. According to learned Counsel, the AO wanted, as is clear from the reasons recorded, that the addition is to be made under section 56(2)(viib) of the Act. But according to learned Counsel, the provisions of Section 56(2) is brought on statute book with effect from 1.4.2013 i.e. for and from assessment year 2013-14 and not for the relevant assessment year 2009-10, which is the assessment year in the present appeal. Learned Counsel for the assessee also drew our attention to the details filed before AO during the course of original assessment proceedings and he specifically drew our attention to page 28 of the assessee’s paper book wherein vide letter dated 17.12.2011 (the assessment was completed under section 143(3) originally on 19.12.2011) the details of share premium account including the valuation report dated 20.2.2007 was enclosed. The relevant portion of the letter whereby information was given to the AO during the original reassessment proceedings reads as under: - “2. Share Premium Account: a. We are enclosing herewith Ledger Account of ‘Share Premium A/c’. showing details of additions made during the year on account of 4540 shares issued during the year. b. We are also enclosing a copy of the I.T. Acknowledgment, Bank Statement and confirmations from the investor companies. All the investments are reflected in Balance Sheet. c. Valuation Report dated 20.02.2007 is enclosed.”
In view of the above, learned Counsel stated that the entire information regarding share application money was made available before the AO during the original assessment proceedings and even now before us the assessee filed complete details in assessee’s paper book at pages 1 to 282, which is part of assessment record originally. Learned Counsel for the assessee stated that the reopening is merely on change of opinion as the same set of facts were available before the AO during the course of original proceedings and revisiting to the same set of fact in the reassessment is merely a change of opinion. Even otherwise learned Counsel for the assessee stated that while reopening the assessment the AO has gone through the case records i.e. information submitted by the assessee on the issue of reopening of assessment and there was no tangible material came to his notice after original assessment.
On the other hand, learned Senior Departmental Representative heavily relied on the assessment order, the reasons recorded by the Assessing Officer. Learned Sr. Departmental Representative argued that reopening has rightly been affirmed by the learned CIT(A) for the reason that the AO not gone into details filed by the assessee during the course of original assessment proceedings in regard to the share premium money received by the assessee company. In the absence of any opinion formed on the details filed by the assessee before the AO during the original proceedings, which cannot be said that the AO has formed any opinion on the same.
We have heard rival contentions and gone through the facts and circumstances of the case. We have gone through the original assessment order and the details filed before the AO during the course of original assessment proceedings and noted that the assessee vide letter dated 17.12.2011 has filed complete details of share premium account and also the valuation report of the assessee company valuing the share premium at ₹ 6400/- per share. We noted that the AO during the course of original assessment proceedings has gone into the following.
i. Valuation report as per Rule 11UA. ii. Share Premium Ledger account, Bank Statement of Assessee showing transaction of Share Premium. iii. IT Acknowledgments and Confirmations from parties. iv. Audit Reports, Balance Sheets and P & L A/c of parties from whom such Share Premium is received.
13. We further noted that the original assessment was passed under section 143(3) of the Act after perusal of the documents as required by the AO with respect to issue of share subscription money received after proper application of mind. We noted that the AO had called for assessee’s explanation on issue, which is in his opinion needed consideration and only after verification of details passed the original assessment order. In view of the above, once an assessment is completed under section 143(3) of the Act after raising a query on a particular issue and accepting assessee’s reply to the query, the AO had no jurisdiction to reopen the assessment unless and until there is additional information/tangible material before the AO to come to the conclusion that there is an escapement of income. This issue has been dealt in by Hon’ble Bombay High Court in the case of Godrej Agrovet Ltd. Vs DCIT [2010] 323 ITR 97 (Bom), wherein it is held that the Assessing Officer cannot act in excess of the restrains on his jurisdiction to reopen an assessment in exercise of the powers under section 147 read with section 148 of the Act. Hon’ble High Court noted that the reasons which have been recorded by the AO are ex facie extraneous to the question as to whether assessee would be allowed to a deduction under section 80M of the Act. Hon’ble Bombay High Court has considered this issue by relying on the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561. Hon’ble Bombay High Court held as under: - “11. The provisions of section 147 of the Act empower the Assessing Officer to reopen an assessment or issue a notice for reassessment provided that he has reason to believe that income has escaped assessment. In a judgment of a Division Bench of this Court in German Remedies Ltd. vs. Dy. CIT [2006] 285 ITR 26 delivered by one us, Shri. J.P. Devadhar, this Court held that though the power to reopen a concluded assessment under section 147 is wide, the power cannot be exercised mechanically or arbitrarily. This Court held that even after the introduction of the concept of deemed escapement of income by Explanation 2 to section 147 with effect from 1.4.1989 the belief that income had escaped assessment must be a prudent decision and not a mere change of opinion. This Court held that an assessment order passed after detailed discussion cannot be reopened within a period of four years from the end of the relevant assessment year unless the Assessing Officer has reason to believe that due to some inherent defect in the assessment the income chargeable to tax has been under assessed or assessed to a lower rate or excessive relief is granted or excessive loss or depreciation allowance or any other allowance under the Act has been computed. In the subsequent judgment of the Supreme Court in CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 the Supreme Court has held that the wide as the power under section 147 is after 1.4.1989 a mere change of opinion cannot justify the reopening of an assessment and there must be tangible material before the AO before he proceeds to exercise his powers under section 147. In the judgment of this Court in German Remedies this Court, while setting aside the exercise of the power, adverted to the circumstance that the very same issue which was sought to be agitated by the AO had been concluded by a judgment of the Tribunal for an earlier assessment year. This Court deplored the conduct of the Assessing Officer in refusing to follow a binding decision of the Tribunal. The same view has been reiterated in the judgment of a Division Bench of this Court in Asteroids Trading & Investments (P).) Ltd. vs. Dy. CIT [2009] 308 ITR 190.
12. The Assessing Officer, in his reasons for reopening the assessment adverts to the circumstance that the assessee paid dividend tax after 1.4.2003 under section 115-O. It is on this basis that the inference is drawn that the assessee has forfeited the right to claim a deduction under section 80M. The reasons which have been recorded by the Assessing Officer are ex facie extraneous to the question as to whether the assessee would be entitled to a deduction under section 80M. Section 80M, it may be noted, forms a part of the provisions of Chapter VIA of the Income Tax Act, 1961.
Chapter VIA is distributed in several parts. Part A deals with the provisions and consists of sections 80A and 80B. Part B deals with deductions with respect to certain payments and comprises of sections 80C to 80GGC. Part C of Chapter VIA provides for deductions in respect of certain incomes. Section 80M as it then stood during the course of assessment year 2003-04 formed a part of Part C of Chapter VIA. Under section 80M the deduction is not in respect of the amount declared or distributed by way of dividend. The deduction that was stipulated under section 80M was in respect of dividend received by a domestic company from another domestic company. The extent of the deduction was, however, subject to a monetary ceiling, the ceiling being that the deduction should not be exceed the amount distributed by way of dividend on or before the due date for the filing of a return. The Assessing Officer by adverting to the provisions of section 115-O has proceeded to reopen the assessment on a plainly extraneous ground.
For the aforesaid reasons, the Assessing Officer has clearly acted in excess of the restraints on his jurisdiction to reopen an assessment in exercise of the power under section 147 read with section 148. The assessee would be entitled to succeed in these proceedings. Rule is accordingly made absolute by setting aside the notice dated 28.3.2008. In the circumstances of the case, there shall be no order as to costs.”
In another judgment Hon’ble Bombay High Court in the case of Siemens Information System Ltd., vs. Assistant Commissioner of Income tax [2007] 295 ITR 333 (Bombay) held as under: - “24. In the instant case, the second Assessing Officer for the assessment year 2003-04 on the same set of facts has taken a view which is different from the view taken by the previous Assessing Officer for the assessment year 2001-02, on the interpretation of the same provisions of law. It is possible in the absence of finality to a question of law, that an Assessing Officer on the same set of facts could take a different view. Would that attract the provisions of section 148 of the Income tax Act because the second Assessing Officer holds a different view on the interpretation of the provisions. The accounting system is the same. The returns have been filed in the manner prescribed by the form. On these facts because the second Assessing Officer differs with the opinion of the earlier Assessing Officer on the interpretation of the provision without any other additional material, is he entitled to assume jurisdiction to issue a notice under section 148. In our opinion, such a belief would amount to a mere change of opinion. The remedy in case like this would to invoke or resort to the other applicable provisions of the Act. If the Income tax Officer does not possess the power of review, he cannot achieve that object by initiating a proceeding for reassessment or by way of rectification of mistake. A mere change of opinion on an interpretation of a provision by itself without anything more, cannot give rise to “reason to believe”. The power of reopening an assessment has been conferred by the Legislature not with the object of enabling the Income tax Officer to reopen the full declaration made against the Revenue in respect of questions raised that arose directly for consideration in the earlier proceedings. If that were not the legal position, it would result in placing unrestricted powers of review in the hands of the assessing authorities depending on their changing moods.”
In view of the above facts, decisions of jurisdictional High Court and discussion carried out, we are of the view that the assessment reopened by the AO is bad in law and hence quashed.