BRICS GILT FINANCE LTD,MUMBAI vs. DCIT CIR 1(1)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI G. S. PANNU, AM & SHRI SANDEEP GOSAIN, JM आयकरअपीलसं./ (निर्धारणवर्ा / Assessment Year:2008-09) Brics Gilt Finance Ltd. DCIT Cir 1(1)(1), Now known as M/s Brics Aayakar Bhavan, बिधम/ Gilt Finance Pvt. Ltd. Mumbai, 1st floor, Sadhna House, 570, Pin- Vs. P.H. Marg, Worli, Mumbai-400018. & आयकरअपीलसं./ (निर्धारणवर्ा / Assessment Year: 2008-09) DCIT Cir 1(1)(1), Brics Gilt Finance Ltd. Aayakar Bhavan, Now known as M/s Mumbai, Brics Gilt Finance Pvt. बिधम/ Pin- Ltd. Vs. 1st floor, Sadhna House, 570, P.H. Marg, Worli, Mumbai-400018. स्थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACJ8885B अपीऱाथीकीओरसे/ Appellant by : Sh. Vijay Mehta, AR प्रत्यथीकीओरसे/Respondentby : Sh. T. Kepgen, DR सुनवाईकीतारीख/ : 01/03/2018 Date of Hearing घोषणाकीतारीख / : 02/05/2018 Date of Pronouncement आदेश / O R D E R Per Shri Sandeep Gosain, Judicial Member:

These two appeals filed by the assessee as well as revenue are against the order of Commissioner of Income Tax(Appeals) – 2, Mumbai dated 31.08.15 for AY 2008-09. 2. Since all the issues involved in these two appeals are common, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. First of all we take up assessee’s appeal in 2008-09 as lead case. The ground of appeal are mentioned herein below:-

1) The learned Commissioner of Income Tax (Appeals) [CIT(A)'] erred in confirming the action of the Assessing Officer of re-opening the assessment under Section 147 Income-tax Act, 1961 ('the Act') by issuing notice under Section 148 of the Act. The Appellant submits that on the facts and circumstances of the case, the Assessing Officer neither had any reasons to believe nor there was any escapement of income in the case of the Appellant.

2) The learned CIT(A) erred in confirming the action of the Assessing Officer of confirming the disallowance of Rs 8,91,157/- on account of administrative expenses under Section 14A of the Act r,w. Rule 8D of the l.T. Rules.

The Appellant submits that no part of administrative expenditure has been incurred towards earning of exempt income.

The Appellant craves leave to add to, alter or amend the above Grounds of Appeals and when advised.

4. As per the facts of the present case, the assessee is a company engaged in the business as Lending and Securities Investment. The return of income for the year under consideration was filed on 26.09.2008 declaring total income of Rs. 3,92,46,470/-. From the records, it was observed by AO that during the year under consideration, the assessee has shown receipt of share application money amounting to Rs. 48,05,68,320/- as compared to last assessment year 2007-08 at Rs. 14,05,000,007/-. The assessee had issued new shares on premium basis. The assessment was completed u/s 143(1) without scrutiny assessment. Therefore, it was observed by AO that assessee has brought shares premium amount which is required to be verifiable. In view of all these facts, the AO was of the view that income in the garb of share application money has escaped assessment. The AO therefore reopened the case u/s. 147 of the Act. Consequently additions were made while passing order u/s 143(3) r.w.s 147 of the I.T. Act. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee but sustained the order of AO regarding reopening u/s 147 of the I.T. Act. Aggrieved by the order of Ld. CIT(A), both i.e. assessee as well as the revenue have filed their respective appeals before us. However at present we are dealing with the appeal filed by the assessee on the grounds mentioned herein above. Ground No. 1.

5. This ground relates to challenging the order of Ld. CIT(A) in confirming the action of the Assessing Officer of re-opening the assessment under Section 147 Income-tax Act, 1961 ('the Act') by issuing notice under Section 148 of the Act.

6. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised before Ld. CIT(A). The Ld. AR submitted before us that the initiation of re-assessment proceeding by issuing notice u/s 148 of the I.T. Act was bad in law there was no escapement of income for the year under consideration and there was ‘no reasons to believe’ at all that the income has escaped assessment. Ld. AR further submitted that the impugned case has been re-opened on the ground that on verification of the return of income for the Assessment Year 2008-2009 and it was observed that the Assessee did not file complete supporting details with regard to the nature of share premium money received from shareholder and hence income in the garb of share application money received has escaped assessment within the meaning of section 147 of the Act. Ld. AR further submitted that during the year under consideration, the assessee company has received share premium of Rs 20,03,41,600 (40,06,832 @ Rs 50 per share3) pursuant to issue of Right shares by the Appellant Company to its existing shareholder. The copy of the reasons recorded for re-opening the case is enclosed (Refer Pages 1 and 2 of the Compilation). For the sake of convenience, the extract of the reasons recorded for re-opening the case forAY2008-09, is reproduced as under: "From the records it is seen that during the FY 2007- 08 relevant to AY 2008-09, Assessee has shown receipt of share applications money amounting to Rs 48,05,68,320 as compared to last AY 2007-08 at Rs 14,05,00,007/-. Assessee has issue new shares on premium basis. Assessment was completed under Section 143(1) without scrutiny assessment. Therefore, assessee has brought shares premium amount required to be verifiable. After verification of return of income for the AY 2008-09 seen that assessee did not file completed supporting details of nature of share premium taken from shareholders. In view of the above facts, I have reason to believe that income, in the grab of share application money received in this case has escaped assessment in terms of provisions of section 147 of the I. T.Act.

Notice u/s. 148 is therefore, issued in this case."

Ld. AR further submitted that the Assessing Officer has stated in his reasons for reopening the case for Assessment Year 2008-09 that the records shows that the Assessee Company's Share Capital has been increased and Assessee Company has issued shares at premium. Further, the Assessing Officer is of the view that since the amount of share premium brought in by the Assessee Company was not verifiable and on verification of return of income for the year under consideration, it was observed that the Assessee did not file complete supporting details of the nature of share premium taken from shareholders. Hence the Assessing Officer was of the view that income in the garb of share application money has escaped assessment. Ld. AR further submitted that the return of income filed for Assessment Years 2008-09 and 2007-08 indicates that there has been no addition to the equity shareholders (holding more than 10% of the shareholding) pursuant to allotment of shares. This is verifiable from the tax returns of both the Assessment Years 2007-08 and 2008-09 ('Refer Pages 5 to 61 of the Compilation). The only equity shareholder holding substantial shareholding in the Assessee Company is Mr Nakul Jagjivan. Ld. AR further submitted that under the Scheme of the Act, the Assessing Officer is empowered to assess / reassess a particular receipt only when such receipt is taxable under the provisions of the Act. Share premium is not a revenue receipt as it is capital in nature and hence such receipt does not come within the ambit of the provisions of the Act (as it stands as on March) at all. It was stated that the Hon'ble jurisdictional High Court in case of Vodafone India Services Private Limited v UOI (Born) (reported in 368 ITR 01) has observed that share premium is a capital receipt not chargeable to tax under the provisions of the Act, unless otherwise covered under the specific provisions of Section 56(2)(vii) which are effective from April 1, 2013 and hence for the year under consideration such provisions cannot be invoked in the present case. This principle has also been followed by Hon'ble Mumbai ITAT in the case of Green Infra Limited (159 TTJ 728) (Mum). Ld. AR further submitted that in such circumstances, the Assessing Officer does not have any 'reasons to believe',as required under the provisions of Section 147 of the Act, to arrive at a conclusion there is any escapement of income as there is no 'income' to have ‘any reason to believe’ that there has been escapement of such income. If there is no income chargeable to tax and consequently, there is no reason to believe that any such income has escaped assessment, then the invoking of 148 of the Act in the present case is bad in law and the entire re-assessment proceedings itself is bad in law and the re-assessment order passed by the Assessing Officer shall be directed to be quashed. In support of the above contention, we rely on the recent judgement of the Bombay High Court in the case of Alliance Space Private Limited v ITO, Mumbal and Others (Write Petition (L) No 735 of 2015 and 736 of 2015) (Born). The jurisdictional High Courtin the present case have on identical facts held that the initiation of re-assessment proceedings is bad in law. Ld. AR further submitted that initiation of re-assessment proceedings is based on borrowed satisfaction and not on the Assessing Officer’s own enquires for forming a belief for re- assessment. Ld. AR further submitted that the Notice issued under Section 148 of the Act, for reassessment of the case, is without jurisdiction and bad in law. The assessment has been reopened vide Notice dated November 12, 2014, that is, more than four years from the end of the Assessment Year. Since more than four years have been elapsed, the proviso to Section 147 of the Act would be applicable in the present case. The relevant proviso reads as under: 'Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.'

Ld. AR further submitted that there is no failure on the part of the Assessee to disclose truly and fully any material facts as required under the provisions of the Act to invoke the provisions of Section 147 of the Act. The Return of Income filed by the Appellant clearly reflects that there is a change in Share Capital and Share Premium and the return also reflects the details (name, address and PAN) of the substantial shareholder Mr Nakul Jagjivan and the percentage of shareholding getting changed (on comparison of both the years tax returns). Ld. AR further submitted that the Return of Income filed for the preceding year also reflects such details of substantial shareholder. These disclosures indicate that there has been an increase in Share Capital and Share Premium during the year under consideration. It was further submitted by Ld. AR that there is no material on record to prove that there is a failure on the part of the Assessee to disclose fully and truly all material facts. Hence, there was no reason to believe that there was no full and true disclosure on the part of the Assessee as all the relevant information was fully disclosed to the Department along with the return of income. Ld. AR further submitted that Ld. CIT(A) upheld the order of AO regarding reopening case u/s 147 of the I.T. Act by merely concluding the original assessment was completed u/s 143(1) of the I.T. Act without scrutiny of assessment and thus the assessment done u/s 143(1)(a) is not supposed to be full-fledged assessment order. It is only an intimation and accordingly, the AO has rightly issued notice u/s 148 of the I.T. Act. Ld. AR relied upon the following judgments.;- 1. Delta Air Lines vs. ITO (International Taxation) (ITA No.3476/M/2008) (Mumbai ITAT) 2. Telco Dadajee Dhackjee Ltd. vs. DCIT (ITA No.4613/M/2005) (Mumbai ITAT) 3. Inductotherm (India) Pvt. Ltd. vs. DCIT (258 CTR 61) (Gujarat High Court) 4. CIT vs. Orient Craft Ltd. (215 Taxman 28) (Delhi High Court)

Ld. AR also relied upon the following decision which are mentioned below:- 1) CIT v. Orient Craft Ltd. [354 ITR 536, 548 (Del)] 2) CIT v. Atul Kumar Swami [362 ITR 693, 695-696 (Del)] 3) Inductotherm (India) (P) Ltd. v. M. Gopalan, DCIT - 258 CTR 61 (Guj) 4) Bapalal and Co. Exports v. it. CIT [289 ITR 37, 45 (Mad)] 5) Telco Dadajee Dhackjee Ltd. v. DCIT for A.Y 1998- 99 in dated 1205.2010 (TM) 6) Delta Air Lines Inc. v. ITO [153 Ui 506 (Mum)] 7) S. Ranjith Reddy v. DCIT [161 TTJ 316, 345 (Hyd)] 8) Amit Engineers v. ACIT [156 lTD 556 (Chd)] 9) Aipita Marketing (P.) Ltd. v. ITO [21 SOT 302 (Mum)]

After analyzing the aforementioned order, we notice that Hon’ble Delhi High Court has also consider many other judgments passed by respective courts and also based its finding on the judgment passed by Hon’ble Supreme Court in the case of CIT vrs. Kelvinator of India Ltd (2010) 187 Taxman 312/320 ITR 561 (SC), wherein it was held that in the absence of any tangible material, there will be a review in guise of reopening and held as under:- An assessee in whose case the return was processed under section 143(1) cannot be placed in a more vulnerable position than an assessee in whose case there was a flit/-fledged scrutiny assessment made under section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression 'reason to believe ' in cases where assessments were framed earlier under section 143(3) and cases where mere intimations were issued earlier under section 143(1) may well lead to such an unintended mischief It would be discriminatory too. An interpretation that leads to absurb results or mischief is to be eschewed.

In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income 'on going through the return of income filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words 'reason to believe' vis-a-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the Assessing Officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147. We have also considered the other judgments cited by the respective parties, wherein it was unanimously held as under:- It is while expounding the words „reason to believe‟ that the Supreme Court in the later judgment in CIT vrs Kelvinator of India Ltd (supra) held that there should be „tangible material‟ to come to the conclusion that income had escaped assessment. Thus, in my humble understanding of both the judgments, while resorting to section 147 even in a case where only an intimation had been issued under section 143(1)(a), it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment.

We have also gone the orders passed by the Coordinate Bench of Hon’ble ITAT in in case titled „Tarang Textile Pvt. Ltd. Vrs. ITO‟ wherein it was held as under:- We have gone through the judgment cited above and we find that it is a settled law that reopening of assessment completed u/s 143 (1) of the Act within four years is impermissible in the absence of tangible/fresh material. From the facts and circumstances of the present case no fresh/tangible material was found by the AO before initiating the reopening of assessment proceedings. Even the Hon‟ble High Court of Delhi in the case of Jay Bharat Maruti Ltd versus Commissioner of income tax (2009)223 CTR (Delhi) 269 held as “No reasonable person could have come to a conclusion that there was relevant material available with the AO to have reason to believe that assessee‟s income chargeable to tax had escaped assessment only by virtue of the fact that the assessee had charged to its P&L a/c the credit balance available in its modvat account hence, reopening of assessment was such a tenuous ground was bad in law”. From the co- joint reading of all the judgments cited above as well as taking into consideration the facts of the case and the reasons recorded by the AO while initiating proceedings for reopening of the assessment, we find that the AO had no tangible fresh material at the time of initiating the proceedings for reopening of the assessment. Therefore while relying upon the judgment and reasons cited above, we hold that the proceedings of reopening of assessment are bad in law and invalid.

We have also gone through the order passed by Hon’ble Jurisdictional Bombay High Court in the case of Piramal Enterprised Ltd Vrs. DCIT in Writ Petition No. 2958 of 2016, wherein it was held as under :- It is a settled position that even where and assessment has been only processed under Section 143(1) of the Act, the reopening notice must satisfy the test of having reason to believe that the income chargeable to tax has escaped assessment (see Asst. CIT v/s. Rajesh Jhaveri Stock Brokers (P)Ltd. 291 ITR 500). The reason to believe has to arrived at after applying one's mind to the material available and to reach prima facie view that income chargeable to tax has escaped assessment. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessment. In the present case the Assessing Officer prima facie has not done the bare necessary/rudimentary enquiry into the material received before he concludes that income chargeable to tax has escaped assessment.

From the co- joint reading of all the judgments cited above as well as taking into consideration the facts of the case and the reasons recorded by the AO while initiating proceedings for reopening of the assessment, we find that the AO had no tangible material at the time of initiating proceedings for reopening of the assessment. Apart from this, we have also considered the judgment in the case of Vodafone India Services Pvt. Ltd. Vrs. CIT 368 ITR 1, wherein the court was of the view that the share premium being on capital account cannot be subjected to tax as ‘income’. We have also considered the judgment of Hon’ble Gujarat High Court in the case of Inductotherm (India) (Pvt) Ltd Vrs. M. Gopalan, DCIT (2013) 36 taxmann.com 401 (Gujarat), wherein it has been categorically held that for mere verification of the claim, power for reopening of assessment could not be exercised. The AO in guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims as if it were as scrutiny assessment. In the present case, the AO initiated the reopening proceedings only on the ground that share premium amount received from the share holders, requires to be verifiable. The Ld. CIT(A) upheld the order of reopening by holding that the original assessment was completed u/s 143(1) of the I.T. Act without scrutiny assessment and therefore, it was only regarded as intimation. Keeping in view the submissions made by both the parties, judgment cited and the facts of the present case, we are of the considered view that it is a settled law that reopening of assessment u/s 143(1) of the Act within four years is impermissible in the absence of tangible /fresh material. From the facts and circumstances of the present case, no fresh /tangible material was found by the AO before initiating the reopening of assessment proceedings. Even the Hon’ble High Court of Delhi in the case of Jay Bharat Maruti Ltd. Vrs. CIT (2009) 223 CTR (Delhi) 269 and also in the case of CIT vrs. Orient Craft Ltd. (2013) 29 taxman.com 392 (Del) have taken views in favour of assessee by holding that when AO had no tangible fresh material at the time of initiating the proceedings for reopening of the assessment, then in that eventuality, the proceedings of reopening of assessment were held to be bad in law and invalid. We are in agreement with the contention of the counsel for the assessee that for mere verification of the claim, power for reopening of assessment could not be exercised. The AO in the guise of power to reopen an assessment cannot seek to undertake a fishing and roving inquiry and seek to verify the claim as if it were a scrutiny assessment.

Therefore, while relying upon the judgments and reasons cited above, we hold that the proceedings of reopening of assessment are bad in law and invalid. 9. Since we have already decided ground No. 1 on merits and held that the proceedings of reopening the assessment as bad in law, therefore, in view of our above findings, the other grounds raised by the assessee becomes infructuous.

ITA No. 5685/Mum/2015 for AY 2008-09.

Order pronounced in the open court on 2nd May, 2018. (G. S. Pannu) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member म ंबई Mumbai;यदनांकDated : 02.05.2018 Sr.PS. Dhananjay