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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
M/s Kargwal Construction CO No. 75/Mum/2018 ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the revenue. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-12 [in short ‘CIT(A)’], Mumbai and arises out of the assessment order u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the revenue read as under:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the reopening of the assessment proceedings was invalid.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.1,31,50,000/- received by the assessee on account of Share Premium/Share Capital, under section 68 of the Act, as the onus to prove the identity, capacity and credit worthiness of the persons who subscribed to the Share Capital was primarily on the assessee company only which it failed to discharge.
3. On the facts and circumstances of the case and in law, the order passed by the Ld. CIT(A) is contradictory as while allowing the appeal of the assessee against re-opening of the assessment CIT(A) has also partly allowed the appeal of the assessee in ground of appeal No. 4 by directing the AO to verify the claim of the assessee regarding quantum of addition of Rs.33,000/-.
4. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
3. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2009-10 on 26.09.2009 M/s Kargwal Construction CO No. 75/Mum/2018 declaring total income of Rs.1,38,90,200/-. It is engaged in civil works. The said return was processed u/s 143(1) on 27.11.2010. Subsequently, the case was reopened u/s 147 and assessment was completed on 29.10.2013 u/s 143(3) r.w.s. 147 at a total income of Rs.1,60,64,860/-. Thereafter, the case was reopened by issuing notice u/s 148 on 20.03.2014. In response to the said notice, the assessee vide letter dated 02.04.2014 requested the AO to treat the return of income filed on 26.09.2009 as filed in response to the notice u/s 148 of the Act. Also the assessee requested the AO to furnish a copy of the reasons for reopening. The same was provided by the AO to the assessee. Also the assessee vide letter dated 02.09.2014 filed an objection to the reopening the assessment.
4. In appeal, before the Ld. CIT(A), the assessee challenged the validity of the notice issued u/s 148 and the order passed u/s 143(3) r.w.s. 147 of the Act and submitted that the reopening of the assessment was invalid as it amounted to change of opinion without any tangible material available with the AO. The Ld. CIT(A) observed that there was no information received by the AO. In the first assessment proceedings, the AO after verifying the details of purchases completed the assessment. The Ld. CIT(A) found that notice u/s 133(6) was issued on 24.03.2014 and the assessment was reopened by issuing notice u/s 148 dated 20.03.2014. This clearly indicates that before recording the reason, no notice u/s 133(6) was issued by the AO to verify the share application/share premium and no M/s Kargwal Construction CO No. 75/Mum/2018 opportunity was given to the assessee to explain anything on the issue of share premium. The Ld. CIT(A) followed the decision in CIT v. Usha International 348 ITR 485 (Delhi), Export Credit Guarantee Corporation of India v. Addl CIT 350 ITR 651, Kelvinator of India Ltd. 320 ITR 561 and Sheo Nath Singh 82 ITR 147 and held that the reopening the assessment done by the AO was only on the basis of guess-work and mere change in opinion. The Ld. CIT(A) thus concluded that there was no merit in reopening of the assessment by the AO.
Before us, the Ld. DR submits that during the financial year (FY) 2008-09 relevant to the AY 2009-10, the assessee has shown receipt of share premium amounting to Rs.1,31,50,000/-. The issue of share premium was not a subject matter of verification by the AO and therefore, no opinion has been formed on this basis in the original of assessment u/s 143(3) of the Act. No details with regard to justification for share premium over and above the intrinsic value of the share has also been called for in the course of original scrutiny assessment. Therefore, the Ld. DR submits that the reopening, being within four years, has been validly done by the AO.
On the other hand, the Ld. counsel of the assessee files a Paper Book (P/B) the decision in (i) CIT v. Kelvinator of India Ltd. [320 ITR 561] (SC), (ii) IOT Infrastructure And Energy Services Ltd. v. ACIT [322 ITR 587] (Bom.), (iii) CIT v. Orient Craft Ltd. [263 CTR 335] (Del.), (iv) Inductotherm (India) Pvt. Ltd. v. DCIT [356 ITR 381] (Guj.), (v) Gas & Power Investments Co. Ltd. v. ITO [ITA No. 1118/Mum/2014] dated M/s Kargwal Construction CO No. 75/Mum/2018 05.02.2016 (Mum-Trib), (vi) German Remedies Ltd. v. DCIT [285 ITR 26] (Bom.), (vii) C.M. Mahadeva v. CIT [404 ITR 747] (Karn.), (viii) CIT v. Maniben Valji Shah [283 ITR 453] (Bom.), (ix) CIT v. Batra Bhatta Company [220 CTR 531] (Del.), (x) Krupesh Ghanshyambhai Thakkar v. DCIT [77 taxmann.com 293] (Guj.), (xi) Khubchandani Healthparks Pvt. Ltd. v. ITO & Ors [384 ITR 322] (Bom.), (xii) Vodafone India Services Ltd. v. Union of India & Ors [368 ITR 1] (Bom.). Reliance is also placed on CBDT’s Instruction No. 2/2015 [F. No. 500/15/2014-APA-I] dated 29.01.2015. 6.1 The Ld. counsel submits that reopening of the assessment cannot be done without presence of tangible external source of information obtained subsequent to the passing of the earlier assessment order. It is stated that in the present case, as can be seen from the reasons recorded, no external source of information was available to the AO. Merely because certain receipts remain to be examined by the then AO, it is believed that the said receipts represent unexplained income of the assessee. It is further submitted that the nature of reasons recorded also shows that the intention of the AO was to undertake a roving inquiry as regards the claim of the assessee about the receipts of the share premium. The Ld. counsel relied on the decision rendered by the Hon’ble Delhi High Court in Batra Bhatta Co. (supra), wherein it has been observed that the reopening of the assessment would not be valid if it is done with a view to carrying out fishing inquiry. The Ld. counsel submits that the assessee received notice u/s 133(6) dated 24.03.2014 which was served upon the assessee on M/s Kargwal Construction CO No. 75/Mum/2018 01.04.2014 i.e. after recording the reasons, wherein the AO has called for the details about the share premium charged by the assessee. Hence, reliance on the said notice u/s 133(6) for reopening the assessment is incorrect and unjustified.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. To recapitulate, the assessee filed its return of income for the assessment year (AY) 2009-10 on 26.09.2009 declaring total income of Rs.1,38,90,200/-. The said return was processed u/s 143(1) on 27.11.2010. Subsequently, the case was reopened u/s 147 and assessment was completed on 29.10.2013 u/s 143(3) r.w.s. 147 at a total income of Rs.1,60,64,860/-. Thereafter, the case was reopened by issuing notice u/s 148 on 20.03.2014. The reasons recorded by the AO for the reopening are as under: “(Reasons for Re-opening) Date: 20/03/2014 M/s Kargwal Construction P. Ltd. AY. 2009-10 The assessee M/s Kargal Construction P. Ltd. having PAN AADCK1853D is an assessee of this circle. The assessee for the AY 2009-10 has filed its return of income of 26/09/2009 declaring income of Rs.1,38,90,200/-. In this case, assessment u/s 143(3) r.w.s. 147 of the I.T. Act was completed on 29/10/2013, assessing the income at Rs.1,60,64,860/-. From the records, it is seen that during the FY 2008-09 relevant to AY 2009-10 assessee has shown receipt of share premium amounting to Rs.1,31,50,000/-. The issue of share premium was not a subject matter of M/s Kargwal Construction CO No. 75/Mum/2018 verification by the AO and therefore no opinion has been formed on this issue in original assessment u/s 143(3). No details with regard to justification for share premium over and above the intrinsic value of the share has 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 share, a notice u/s 133(6) of the I.T. Act was issued to the assessee. In response, the assessee did not file any details with a result that “nature” and “justification” for charging share premium over and above the intrinsic value of the share remains unexplained. In other words, the amount received in form of share premium over and above the intrinsic value of the share has not been explained at all. 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 re-opening of the assessment is being done in light of ratio of decision of CIT v. Usha International, 348 ITR 485 (Delhi High Court) & Export Credit Guarantee Corporation of India Ltd. v. Addl. CIT 350 ITR 651 (Bom). In view of the facts discussed above and in the light of the ratio of decisions 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. Notice u/s 148 is, therefore, issued in this case.” We find that the notice u/s 133(6) was issued by the AO on 24.03.2014. Therefore, the AO has mentioned incorrect facts at para 3 of the above “Reasons for Reopening” dated 20.03.2014. Such incorrect facts vitiate the reopening proceedings.