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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI B.P. JAIN
PER B.P. JAIN, ACCOUNTANT MEMBER:
This appeal of the assessee arises from the order of ld. CIT(A)-XX, New Delhi vide order dated 23.02.2015 for the A.Y. 2007-08. The assessee has raised the following grounds of appeal:- “1.That the CIT(A) has erred on the facts and in the circumstances of le case and in law, in confirming the action of the AO of eopening the assessment u/s 148 of the: I. T. Act, 1961.
2. That the CIT(A) has erred on the facts and m the circumstances of the case and in law, in confirming the Page 1 of 8 addition of Rs. 10,00,000/ -, (representing 5000 Sweat Equity shares of Rs. 10/- each issued at premium of Rs. 190/-each).
3. That the CIT(A) has erred on the facts and in the circumstances of the case and in law, in confirming that shares issued as ’Sweat Equity shares’ is income of the assesses u/s 28(iv).
4. That the CIT(A) has erred on the facts and in the circumstances of the case and in law, in confirming the value of shares issued as ‘Sweat Equity shares’ at Rs. 200/- per Share.
5. That the CIT(A) has erred on the facts and in the circumstances of the case and in law, in confirming that the conditional issia m shares is a perquisite.
6. That the impugned appellate order is arbitrary, illegal, cud in law and in violation of rudimentary principles of contemporary jurisprudence.
7. That the Appellant craves leave to add/alter any/all grot rah- : appeal before or at the time of hearing of the Appeal.”
The brief facts of the case as emanating from the order of the Assessing Officer are reproduced here in below (only relevant paras):-
“This office received information that a search and seizure operation u/s 132 of the I.T. Act, 1961 was carried out of the Directorate of Income Tax (Investigation), New Delhi on 06.09.2011 on Rockland Group of cases. After going through the information received as well as the documents available in this office, it was found that M/s. Rockland Hospital Limited had issued sweat equity shares without any amount being paid as consideration to the directors/employees/professionals. In this chain Dr. Kamla Kant Pandey had also received sweat equity shares without any consideration.”
The Assessing Officer concluded after considering the submission of the assessee as follows:-
“3.7.From the submissions of the assessee, information obtained from ROC and Rockland Hospital Ltd. as well as the discussion above, it is clear that the assessee received 5000 sweat equity shares from the Rockland Hospital Ltd. during the A.Y. 2007-08. These shares were received by Dr. Kamla Kant Pandey in the capacity of a professional, which is very much clear from the sweat equity agreement itself. The value of these shares is Rs. 200/- per shares which makes the total value of sweat equity shares (perquisite) received by the assessee as Rs. 10,00,000/-. 3.8. The issue with respect to the taxability of sweat equity shares in the hands of the assessee is examined and it is found that the same should be treated as professional income in the hands of the 'i assessee in view of the provisions section-28(iv) of the i T. Act, 1961. 3.9. As 5000 shares of face value of Rs. 10 and premium of 190 were received by the assessee, in view of section 28(iv) of the IT. Act, 1961 an addition of Rs, 10,00,000/- is being made. Penalty proceedings u/s. 271(l)(c) of the Income Tax Act, 196! is being initiated separately for concealing) the particulars of income and furnishing inaccurate particulars of the income.”
The ld. CIT (A) confirmed the action of the Assessing Officer.
I have heard the rival contentions and perused the facts of the case. It was pointed out at page 5 of the assessment order by the ld. Counsel of the assessee Sh. P.C. Yadav, Advocate that amongst the various share holders, two share holders i.e. the assessee and one Dr. R.S. Chatterjee were allotted sweat shares. Identical issues were raised in the case of Dr. R.S. Chatterjee (Sh. Rajat Shubra Chatterjee) before the ITAT, Delhi “D” Bench in vide order dated 20.5.2016, which held as under:-
“Ground No.l: In this ground, the assessee has questioned validity of reopening of the assessment. In support of this ground, the Learned AR submitted that the Assessing Officer has assumed jurisdiction under sec. 147 of the Act on the basis of facts which are not in existence on the date when the reasons for assuming jurisdiction were recorded. He submitted that sweat equity shares is defined under sec. 79A of the Companies Act, as per which "sweat equity shares” means shares issued by a company to its employees or directors at a discount or for a consideration other than cash for providing knowhow or making available rights in the nature of intellectual property rights. He submitted that Rock Land Hospital without following due process of issuance of sweat equity shares on its own issued certain sweat equity shares and passed entries in its books. RLH credited in the liability side of the balance sheet by face value and premium of the shares issued and debited the assets side by creating a fictitious assets, namely, intellectual property rights. The Learned AR submitted that when the mistake committed by RLH was pointed out by the auditors, RLH moved before the Hon’ble High Court of Delhi and Hon'ble High Court after Page 4 of 8 considering the entire facts and law reversed the entry of premium vide its order dated 26.2.2010. As a result of the order of the Hon'ble High Court, RLH reversed the entries of premium and subsequently took back all the sweat equity shares from the professional and transferred those shares to some trust. Meaning thereby, that at the time of assumption of jurisdiction by the Assessing Officer under sec. 147, everything was diminished. He pointed out that the Assessing Officer had issued notice under sec. 148 of the Act on 8.3.2013 and in compliance of the order dated 26.2.2010 of the Hon’ble High Court, the RLH had taken surrender of sweat equity shares on 20.5.2011 and search under sec 132 of the Act was conducted at the premises of the RLH on – 6.9.2011. Thus, it is clear that by the time search took place on RLH the so called shares were never in existence and the value as mentioned in the reasons recorded was already vanished in view of the order of the Hon'ble H:gh Court. Therefore, the material which came into the possession of the Assessing Officer was vague and was having no direct nexus with the belief entertained by the Assessing Officer. It is settled position of law that for invocation of reopening proceedings under sec. 147 of the Act, material should be specific and has bearing on the belief entertained by the Assessing Officer while recording his reasons. The Learned AR referred page Nos. 26 of the paper book where copy of the reasons to belief recorded by the Assessing Officer has been made available. The Learned AR placed reliance on the Page 5 of 8 following decisions: i) Signature Hotel - 338 ITR 51 (Del.); ii) Sarthak Security -329 ITR 110 (Del.); iii) Ranee Singh - 330 ITR 417 (Del.):”
The brief facts of the case and the conclusive part are reproduced here in below with the said case:- “On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor (supra), we find that in that case as in the present case before us, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings. The same was questioned by the Revenue before the 1TAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab initio. It w as held that Assessing Officer having not followed procedure er sec. 153C, reassessment order was rightly quashed by the Learned L Appeals). In the present case before us, it is an admitted fact, as also v idem from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information received from the Directorate of Income-tax (Inv.) on the basis of search & seizure operation conducted at the premises of Rock Land Group of Cases and the documents related to the Page 6 of 8 assessee found during the course of search were made available to the Assessing Officer of the present assessee. We thus respectfully following the decision of Co-ordinate Bench of the ITAT in the case of ACIT vs. Arun Kapur - 140 TTJ 249 (Amritsar) hold that provisions of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act, hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab initio. The reassessment in question is accordingly quashed. The ground no. 1 is accordingly allowed. ”
Since the issue in the present case is also identical and therefore following order of Delhi “D” Bench dated 20.5.2016(supra). The reassessment in question so framed is accordingly quashed and ground no. 1 raised by the assessee as a legal ground is allowed. Since the assessee succeeds on the legal ground, I need no adjudication on merit in ground no. 2 to 7. Accordingly the appeal of the assessee in is allowed.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on 07.03.2017.