In this case what emerges from the record is that no fresh tangible material distinct from what was made available by the petitioner during the assessment proceedings is emerging and specific queries which have been raised with regard to issues now raised have already been explained by the petitioner and the assessing authority having accepted the replies and explanation, no addition is made and as such, a case is made out by the petitioner calling for our interference, since reopening of assessment appears to be on the basis of change of opinion which is against the settled proposition of law as discussed herein-above.
In view of the above The impugned notice dated 20.03.2021 under section 148 and order dated 16.11.2021 are quashed and set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. By way of this petition under Article 226 of the Constitution of India, petitioner has challenged the legality and validity of the impugned notice dated 20.3.202 1 at Annexure-A and has also sought for quashing and setting aside the impugned order dated 16.11.201 at Annexure-H to the petition.
2. The background of facts which has given rise to the present petition is that petitioner is engaged in the business of manufacturing of aluminum extruded aerosol containers in various sizes. Petitioner filed its original return of income for A.Y. 2016-17 on 29.11.2016, declaring a total loss of Rs.39,16,25,787/-. Return of the petitioner was processed and case of the petitioner was selected for scrutiny. Notice under Section 142(1) was issued on 11.6.2018, requiring the petitioner to submit specific details relating to (a) increase in share capital along with confirmation and ITR of the persons from whom the same was received, (b) details of premium received on shares along with name, PAN, address and confirmation of the persons from whom same was received and (c) details of method adopted for determining premium of shares.
2.1. Petitioner on receipt of said notice replied in detail vide communication dated 22.6.2018. Another notice under Section 142(1) came to be issued on 10.10.2019 inquiring further into valuation of premium and its conformity with Rule 11U and 11UA of the Income Tax Rules, 1962. This also has been replied to by the petitioner on 22.10.2019 and finally a show cause notice was issued on 3.12.2019 in respect of valuation of premium on shares issued by petitioner.
2.2. Petitioner on receipt of said show cause notice also filed a reply on 6.12.2019, explaining every circumstance and thereafter, Assessing Officer having satisfied with such explanation has not made any addition on the issue mentioned in the show cause notice and assessment order under Section 143(3) came to be passed on 15.12.2019, whereby a loss of Rs.38,73,56,773/- came to be assessed.
2.3. It is the case of petitioner that despite aforesaid situation, respondent authority issued impugned notice under Section 148 of the Act on 20.3.2021, calling upon petitioner to file return of income of A.Y. 2016-17. In response to this, without prejudice, petitioner filed its return of income as desired and then reasons have been recorded on 16.3.202 1 by the authority, which are supplied to the petitioner only on 19.5.2021. Against said reasons, petitioner filed preliminary objections on 16.7.2021 on income tax e-filing portal inter alia questioning the legality of notice under Section 148 of the Act on 17.7.202 1. The respondent disposed of the objections of petitioner on 16.11.2021 and simultaneously, authority on 16.11.2021 issued notice under Section 142(1) calling upon petitioner to supply details in relation to re-assessment by 1.12.2021. This according to the petitioner is in clear violation of the guidelines contained in a decision delivered by the High Courts, wherein clear period, which is prescribed, is to be given to petitioner so as to enable the petitioner to challenge the notice under Section 148 after the order disposing of the objections is issued and as such, in view of the afore-mentioned circumstances, petitioner has challenged the impugned notice dated 20.3.2021 issued under Section 148 of the Act as also an order disposing of the objections dated 16.11.2021 by invoking extraordinary jurisdiction of this Court.
2.4. The petition was initially entertained by issuance of notice based upon submission vide order dated 20.12.2021 and later on, same has come up for consideration before this Court and after an order dated 19.7.202 1.
3. Learned advocate Mr. Bandish Soparkar appearing for petitioner has vehemently contended that action on the part of respondent authority is not only unjust and arbitrary, but also grossly in violation of the fundamental rights guaranteed under Article 14 of the Constitution of India and impugned notice being patently bad, illegal and contrary to the settled proposition of law, same deserves to be quashed. It has been contended that in view of Section 151 of the Income tax Act, 1961, no notice under Section 148 can be issued unless superior authority is satisfied of the reasons recorded by the Assessing Officer. Whereas, in the instant case, sanction which is shown to have been accorded by relevant higher authority is less than few hours on the same day, which clearly indicates that higher authority has not applied its mind while granting sanction and as such, sanction being reflected is merely an empty formality and very issuance of notice under Section 148 of the Act is mechanical exercise of power, without just reasons. Hence, deserves to be quashed. It has also been submitted that respondent is seeking to reopen the assessment only on one issue that petitioner received excess share premium of Rs.12,43,55,310/- against issuance of 6,00,75,029 shares and such share premium is required to be added under Section 56(2)(vii) (b) of the Act and this issue had been clarified by the petitioner and when called for assessing officer after having satisfied himself with the explanation so offered has not made any addition on this issue while passing the assessment order under Section 143(3) on 15.12.2019 and as such, authority is now inclined to take a different view than what has been examined and decided and as such, impugned notice issued under Section 148 is based upon change of opinion which is impermissible by virtue of Section 147 of the Act. Hence, he prays for quashing of said notice.
3.1. Learned advocate Mr. Bandish Soparkar has further contended that in the instant case, on number of occasions explanation had been called for from petitioner and once assessment order has been passed based on reply given and no new material or information having been received by the respondent authority on the basis of very same material reopening is impermissible by issuance of notice under Section 148. Apart from that, even on factual scenario also, reasons which are recorded are also erroneous. Respondent has initiated reassessment proceedings recording reasons that petitioner has received excess premium and is chargeable under Section 56(2)(vii) (b). It is contended that petitioner issued 6,75,00,029 shares to non-resident shareholder and received premium of Rs.41,45,17,700/- in A.Y. 2016-17 and a reading the provisions contained under Section 56(2)(vii) (b), it would indicate that same is applicable only to a resident shareholder and therefore, ex-facie provisions cannot be applied since petitioner has received consideration from non-residents and therefore, reasons which are recorded are also factually incorrect and based upon such material, impugned notice has been issued which deserves to be quashed.
3.2 Additionally, learned advocate Mr. Bandish Soparkar has further submitted that issuance of shares with premium is genuine, true transaction and there is no income that has escaped reassessment in any form. On the contrary, the Assessing Officer has not made any addition as this circumstance has already been explained and as such, issuance of notice under Section 148 of the Act is required to be quashed since reasons which are recorded for reopening are also based on factual error, same also does not stand the test of law. Hence, in this background of facts, the relief prayed for in the petition deserves to be granted in the interest of justice.
3.3 To substantiate the aforesaid contentions raised, learned advocate Mr. Bandish Soparkar has relied upon following decisions:-
(1)  76 taxmann.com 184 (Gujarat) (paragraph 11) – Shanti Enterprise case- on the issue of no new fresh tangible material;
(2)  73 taxmann.com 369 (Gujarat) – Premium Finance (P) Ltd. case;
(3)  75 taxmann.com 281 (Gujarat)- Gujarat State Board of School Taxtbooks- on contention of change of opinion;
(4) Decision dated 19.7.2016 delivered in Special Civil Application No.2854 of 2013;
(5) Decision dated 28.9.2016 passed in Special Civil Application No.15068 of 2010;
4. As against this, learned advocate Mr. Varun Patel appearing for respondent authority has vehemently opposed the petition on the ground that action is sought to be initiated within a period of 4 years and as such, only requirement of satisfaction of assessing authority as stipulated under Section 147 of the Act would be required and same is available. Merely because the Assessing Officer at relevant point of time has not opined or allowed addition, it cannot be construed as a change of opinion; only requirement is satisfaction of an authority especially when same is within the period of 4 years. It has also been contended that valuation which has been projected was not as per the relevant rules. Hence on this ground also, it is open for an authority to reopen the assessment. Mr. Patel has further submitted that all the decisions which are relied upon by the learned advocate for the petitioner are related to a situation, wherein action was sought to be initiated beyond the period of 4 years and therefore, principles which are tried to be projected are not applicable to the case on hand and to strengthen his submission that Assessing Officer at relevant point of time has not paid any attention, cannot be construed as change of opinion. Decision reported in  123 Taxman 196 (Gujarat) is referred to by learned advocate Mr. Varun Patel to contend that reassessment is justified. No further submissions have been made.
5. Having heard the learned advocates appearing for the parties and having gone through the material on record, few facts deserves to be noted before arriving at a conclusion.
5.1. The main reason for reopening of assessment by issuance of impugned notice under Section 148 of the Income Tax Act, 1961 is that during the year 2016-17, the assessee had issued 6,00,75,029 equity shares and received premium of Rs.41,45,17,700/- and by computing fair market value of these shares by the Assessing Officer at Rs.89,09,12,680/- has arrived at an opinion that Rs.12,43,55,310/- is excess money received, which is liable to be taxed as per Section 56(2) (vii) (b) of the Income Tax Act. It appears from the records that at the time of scrutiny, the Assessing Officer has accepted the replies/explanation of assessee and while passing the assessment order, no addition appears to have been made. In this context, it appears from Annexure-D-1 that authority has called upon petitioner to furnish certain particulars while undertaking assessment proceedings for the assessment year 2016-17 and query nos. 14, 15 and 16 is specifically put to the notice of petitioner, whereby petitioner has been called upon to furnish details of share capital increased during the year along with confirmation and ITR of the persons from whom the same was received. The details of the premium received on shares during the year along with name, PAN, address and confirmation of the persons from whom the premiums have been received. Petitioner – assessee was also called upon to furnish the details about the method adopted for determining the premium of shares has also been called upon to be furnished. The said queries raised by authority have been replied by petitioner vide communication dated 22.06.20 18 reflecting from Annexure-D-2 at page 60 of the petition compilation. While dealing with the aforesaid queries raised, petitioner has enclosed all details vide Annexure-VII, dealing with the share capital and share premium consideration received from the holding Company based in Netherlands. So, petitioner has explained that filing of ITR is not applicable and they do not have PAN in India as well and the shareholders confirmation was also supplied in the said Annexure. Which method has been adopted is also disclosed in the said reply by indicating that net present value used under discounted free cash-flow method used to determine the premium on shares and in the said reply all details have been furnished as sought for. Based upon such explanation and reply in addition to further details which have been provided, the assessment order in specific has been passed on 15.12.2019 reflecting at Annexure-E on page 106 and in the said order it has been clearly indicated that no addition is made on the said issue by the authority and as such, issue appears to have been considered and no addition was made and this has reached finality.
5.2. Further, it appears that yet another show cause notice was issued on 03.12.2019 at Annexure-D-5, which was issued during the assessment proceedings and again details with regard to share premium was sought for and petitioner was directed to explain whether provisions of Section 79 of the Income Tax Act is applicable, if so, the treatment given for the purpose of taxation. It was also indicated in said notice to provide the details of the share premium so worked out and explain whether it is in accordance with the formula/mechanism specified in Rule 1 1U and 1 1UA of the Income Tax Rules, 1962. In furtherance of this show cause notice, a detailed reply appears to have been given by the petitioner at Annexure-D-6 dated 06.12.2019 and in the said reply it has been clearly indicated by the petitioner that 6,00,75,029 shares of face value of Rs.10 against which premium of Rs.41,45,17,700/- has been received. Said shares had been issued to non-resident shareholders and not to the resident shareholders. The shareholder is non-resident. Hence, no ITR is filed in India and further it has been indicated that there is no transfer of share holding power and as such Section 79 of the Income Tax Act is not applicable and formula/mechanism specified in Rule 11 U and 11 UA of the Income Tax Rules, 1962 is not relevant to the present controversy. It has further been indicated that petitioner has submitted valuation certificates under FEMA Regulation in previous submission and as such, reiterating such explanation. A request is made to consider the said explanation. It has further been mentioned in the reply that if any further information was required, the petitioner would be ready to supply the same, even in person at the respondent office and it is only after this consideration of material, assessment order has been passed on 15.12.2019 and whatever disallowance has taken place seem to have been accepted by the petitioner.
5.3. Additionally, petitioner is served with reasons for reopening of the assessment on the ground of assessment of M/s. Ball Aerocan India Pvt. Ltd., for the Assessment Year 2016-17 under Section 147 of the Income Tax Act has been reopened. The said reasons have also been met with by petitioner by submitting a detailed reply. It appears from the record that along with the said reply, in addition to other particulars, petitioner has also projected clearly the non-applicability of Section 56(2) (vii)(b) of the Income Tax Act and has specifically submitted that reasons for re-opening are merely on the ground of change of opinion and as such reassessment cannot be made after considering such detailed inquiries and explanation in connection with the taxability under Section 56(2) (vii)(b) of the Income Tax Act and, therefore, requested not to precipitate the issue any further. Considering all the aforesaid material on record, a perusal of the order dated 16.11.2021 disposing of the objections filed against notice issued under Section 148 of the Income Tax Act would prima facie indicate that conclusion arrived at is nothing but change of opinion, particularly, when Assessing Officer after having been satisfied with the explanation offered during course of assessment proceedings has not made any addition to the aforesaid issue. As pointed out earlier, said issue which has cropped up and raised for the purpose of re-opening of the assessment has been well explained as indicated above and as such, it appears that issuance of notice under Section 148 of the Income Tax Act is based upon a mere change of opinion.
5.4. In fact, reassessment proceedings appears to have been initiated on the basis of very same material and no new material or information came within the knowledge of the respondent authority to take a different view and as such, in the absence of any new material or information, notice appears to be unsustainable.
5.5. Further, the explanation which has been offered by assessee as indicated above specifying that provisions of Section 56 (2) (vii) (b) of the Income Tax Act would apply only to resident shareholder and same is not applicable to the case of petitioner since petitioner has received consideration from nonresident and the said issue has been explained by petitioner and still authority has chosen to initiate the proceedings. In addition to it, records disclose petitioner- assessee has issued shares to non-resident, which is not in dispute and as such, Section 79 of the Act and Rule 1 1U and 1 1UA of the Rules do not apply to the facts of the present case, which explanation appears to have been placed on record. Hence, in the absence of any fresh tangible material distinct from what was made part of the assessment proceedings, reopening of assessment already concluded is impermissible.
5.6. The background of present facts prevailing on record would lead us to a proposition of law settled by co-ordinate Bench of this Court in some of the decisions which are brought to our notice and since we have considered the same, we deem it proper to reproduce here-under :
5.7. The first decision which has been brought to the notice is a decision dated 28.09.20 16 passed by the co-ordinate Bench of this Court in Special Civil Application 15068 of 2010 in which after considering several decisions, it came to be held that reopening of assessment was impermissible. Paragraph 8 of the said decision is indicating a proposition that when the issue has been thoroughly gone through during the assessment proceedings, simply because the assessing officer has not assigned any independent reasons on the issue would not amount that no opinion is formulated and in that context, following reference is taken note of, which is reproduced hereunder:
“Reference may be made to a decision in the case of Gujarat Power Corpn. Ltd. v. Assistant Commissioner of Income-Tax reported in  350 ITR 266 (Guj), which covers the issued on hand, relevant portion thereof reads as under:
“41. The powers under section 147 of the Act are special powers and peculiar in nature where a quasi-judicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, a judicial or quasi-judicial order is subject to appeal, revision or even review if statute so permits but not liable to be re-opened by the same authority. Such powers are vested by the Legislature presumably in view of the highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review.
42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer.
43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.”
9. In view of aforesaid circumstances, and in addition thereto, it is further appearing to us that the ratio laid down by the Apex Court in the case of Kelvinator of India Ltd. (supra) is also governing the controversy in question and, therefore, the relevant extract of catch-note of this decision worth to be taken note and therefore reproduced hereafter:
“The concept of “change of opinion” on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of “change of opinion” must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is “tangible material” to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief.”
5.8. In the above-said decision, stand of the Revenue was that the action under challenge was within a period of four years and therefore, it is always open for the authority to re-open the assessment. However, said issue was also dealt with and held that in the absence of any tangible material distinct from what was made available during the assessment proceedings, reopening of assessment is impermissible and for arriving at this conclusion, co-ordinate Bench has also referred to the decision rendered in the case of Calcutta Discount Co. Ltd. v. Income Tax Officer reported in  41 ITR 191 which was also considered and it was found that notice for reopening and order passed upholding notice in said proceedings have been quashed.
5.9. Yet another decision on similar line has also been brought to our notice which is delivered on 19.07.20 16 in Special Civil Application 2854 of 2013. In furtherance of this, a decision has also been brought to our notice i.e. the decision of the coordinate Bench of this Court in the case of Shanti Enterprise v. Income Tax Officer reported in  76 Taxmann.com 184 (Gujarat), wherein, this Court has considered the proposition that where the Assessing Officer during scrutiny of assessment, notices a claim for exemption or deduction or like claim is made by the assessee, would prima facie raises a doubt reconsidering the Assesssing Officer (AO) to call upon the assessee to satisfy him (AO) in respect of such claim and thereafter if he does not make any addition in the final order of assessment, it can be stated that AO had formed an opinion whether or not to grant the relief in the final order and also gives his reasons for not making the addition thereafter cannot change his view or opinion. In the case of Gujarat Power Corpn. Ltd. v. Assistant Commissioner of Income Tax reported in  350 ITR 266, it was opined that reassessment on the basis of mere change of opinion is impermissible. A reference is made to paragraphs 8 and 9 of the said decision.
5.10. In the said decision, in paragraph 11 the stand of the Revenue was also dealt with about the stand that within a period of four years re-opening of assessment can be undertaken. About the entertain ability of petition in the context was also dealt with based upon the decision of Calcutta Discount Co. Ltd. (supra). The relevant observations contained in paragraph 11 of the said decision are apposite to be referred to:
“11. The contention of the Revenue that the impugned action is within the period of four years and, therefore, it is always open for the authority to reopen the assessment cannot be accepted. Simply because the action is within the period of four years would not give a leverage to the authority to just go on repeating the exercise of examining the issue which has already been gone into. There appears to be no tangible material distinct from what was made a part of the assessment proceedings and, therefore, reopening of the assessment is not permissible. The proposition of law is aptly clear, as stated above and, therefore, in our opinion, permitting the authority to reopen the assessment would not be valid. We cannot shut our eyes over the aforesaid circumstance simply because it is within the period of four years and having regard to the decisions of Apex Court which propounded that the Courts would be failing to perform their duty, if reliefs were refused without adequate reasons, we see that the action on the part of the respondent authority is impermissible in view of aforesaid set of circumstance. The observations made by the Apex Court in case of Calcutta Discount Co. Ltd. v. ITO reported in [ 41 ITR 191 at page 195 head-note (v) are worth to be reproduced hereafter:
“That though the writ of prohibition or certiorari would not issue against an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority, acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. When the constitution conferred on the High Courts the power to give relief it becomes the duty of the Courts to give such relief in fit cases and the courts would be failing to perform their duty if relief were refused without adequate reasons.”
6. From the aforesaid discussion, what emerges from the record is that no fresh tangible material distinct from what was made available by the petitioner during the assessment proceedings is emerging and specific queries which have been raised with regard to issues now raised have already been explained by the petitioner and the assessing authority having accepted the replies and explanation, no addition is made and as such, a case is made out by the petitioner calling for our interference, since reopening of assessment appears to be on the basis of change of opinion which is against the settled proposition of law as discussed herein-above.
7. In the context of aforesaid discussion, we proceed to examine the applicability or otherwise of the decision in the case of Gruh Finance Ltd. v. Joint Commissioner of Income-Tax reported in  123 Tasman 196 (Gujarat) referred to by revenue to justify their action for reopening of assessment by issuance of notice under Section 148 of the Income Tax Act. On perusal of said decision it would clearly emerge that facts of the said case are altogether different and apart from that, it is not possible to construe that at the time of first assessment, there was no conscious consideration of material and no mistake can be said to have been committed by the AO permitting the Revenue to re-open the assessment. No income appears to have escaped assessment as is visible from the explanation offered by assessee and consideration thereof by the authority in the present case on hand. Hence, an attempt has now been made to wriggle out from settled proposition of law by projecting that mistake might have been committed by the authority in not consciously considering the explanation. The said stand is not possible to be accepted by us. Hence, we are of the clear opinion that a case is made out by the petitioner. Hence, we proceed to pass the following
: O R D E R :
(1) Special Civil Application is allowed.
(2) The impugned notice dated 20.03.2021 at Annexure-A and order dated 16.11.2021 at Annexure-H are quashed and set aside.
(3) Rule made absolute.
(4) No order as to costs.