Case Law Details
ITO Vs HSG Propmart Private Limited (ITAT Delhi)
ITAT Delhi held that re-assessment proceedings under section 147 of the Income Tax Act initiated due to change of opinion without having any fresh material on record is liable to be quashed. Accordingly, appeal of revenue dismissed.
Facts- The Assessee is a Private Limited Company and engaged in the business as builders, consultants, civil engineers. The case was selected for Complete Scrutiny through CASS and the assessment u/s 143(3) of the Act was completed on 03.10.2017 with the acceptance of the returned loss of Rs. 7,86.370/-. Subsequently, the case was re-opened u/s 147 of the Act after recording the reasons that the appellant had issued shares of face value of Rs. 10 per share with a premium of Rs. 1918 per share to Mis Allure Imports Pvt. Ltd. Therefore, the share premium of Rs. 303,40,40,000/- received in excess of market value has resulted in under assessment of income in the hands of the appellant company. After considering the reply of the appellant, the AO completed the re- assessment proceedings u/s 147 r.w.s. 144B of the Act on 31.03.2022 with the addition of Rs. 303,40,40,000/- u/s 56(2)(viib) of the Act.
CIT(A) held that the reassessment proceeding was initiated by the A.O. due to change of opinion without having any fresh information/material in hands, therefore, set aside the assessment order. Being aggrieved, revenue has preferred the present appeal.
Conclusion- The issue of share premium has been duly examined by the AO in the original scrutiny assessment proceedings u/s 143(3) of the Act and formed his opinion about non-applicability of the provision of section 56(2)(viib) of the Further, the reason to believe recorded by the AO for initiating re-assessment proceedings on the identical issue does not show any fresh tangible material available with the AO after the original assessment order to change his opinion. In fact, the AO didn’t even consider the material facts available on record in the form of Note to account, queries and written reply filed during assessment proceedings and scrutiny assessment order including office note, etc. Also, the AO failed to establish that the Assessee did not disclosed all material facts during the original assessment order. Without considering the Note-12 of the audited financial statement, questionnaire issued by AO and the submission made and the order of the Hon’ble High Court approving the Scheme of Amalgamation the impugned assessment has been framed. Apart from this, the facts recorded in the reason to believe is not correct, as the Assessee did not issue any shares to M/s Allure Imports Pvt. Ltd. in pursuance of the approved Scheme of amalgamation by the Hon’ble High Court, but it was issued to the shareholders of the Amalgamating Company i.e. M/s Allure Imports Pvt. Ltd.
Held that CIT(A) rightly held that the AO has not done the reopening of assessment u/s 147 of the Act in accordance to the provisions of the Act. Since the re-assessment proceedings in the present case have been initiated due to change of opinion without having any fresh information/materials in hands of the AO., we find no error or infirmity in the order of the CIT(A) and find no merit in the grounds of Appeal of the Revenue.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Department of Revenue against the order of the Ld. CIT(A)/National Faceless Appeal Centre (‘NFAC’ for short) Delhi, dated 22/12/2023 for the Assessment Year 2015-16.
2. The Grounds of Appeal of the Revenue are as under: –
“That the Ld. CIT(A)’s order has erred to allowing the appeal of the Assessee considering that the AO has not done the reopening of assessment u/s 147 of the Act in accordance to the provisions, of the Act and the re-assessment proceedings in the present case have been initiated due to change of opinion without having any fresh information/materials in hands of the AO, as t at the time of initiating of re- assessment proceedings only reason to believe that income chargeable to tax has escaped assessment is sufficient to invoke jurisdiction of AO to initiate reassessment proceedings to justify the claim, the following case law affirm the said issue which are given as under:-
a. As per Hon’ble Supreme Court’s decision in the case of ACIT Vs Rajesh Jhaveri Stock Brokers Ltd. 291 ITR500SC which is as under:-
At the time of initiating of re assessment proceedings only reason to believe that income chargeable to tax has escaped assessment is sufficient to invoke jurisdiction of AO to initiate re-assessment proceedings.
b. As per Hon’ble Punjab and Haryana High Court in the case of Sewak Ram vs. ITO reported in 236 CTR 462 (P&H) which is as under:-
After its amendment of S.147 of IT Act, with effect from 1st April, 1989, reassessment can be initiated even if there is disclosure in the return if without considering the particulars of the return, processing is done u/s 143(1) or assessment is made u/s 143(3). No doubt, mere change of opinion by itself is not a ground for reassessment as held in the judgment relied upon on behalf of the assessee but if there are reasons to believe that tax has escaped, reassessment is permissible. Reasons can be even on the basis of particulars of the return without any new material. Even if proceedings u/s 143(2) are not taken, reassessment proceeding can be taken. A
Further, As per section 56(2) (viib) of the IT Act provides that where any company receives in any previous year from any person, being a resident, any consideration for issue of shares that exceeds the face value of such share the aggregate consideration received for such shares as exceeds the fair market value is to be considered as income from other sources. Fair market value is to be determined as based on value on the date of issue of shares under Rule 11UA of 1. T. Rules, 1962. In the said case, the assessment year 2015-16 it was observed that the assessee company had issued shares at Rs.10 per share with a premium of Rs.1,918 per share to M/s Allure Imports Pvt. Ltd. The company was incorporated on 01.01.2014 and issued 10000 shares of Rs.10 each with a paid-up capital on Rs.1,00,000 only and therefore, the collected premium of Rs.3,03,40,40,000 in comparison to the net worth of shares of company being Rs.1,00,000 before issuance of shares. As such exceeding fair market value by Rs.3,03,40,40,000 should be chargeable in the hands of the company. The share premium received in excess of market value worked out to be Rs.3,03,40,40,000/- and after set off of current year loss of Rs.7,86,370/-, balance share premium of Rs.3,03,31,53,630/- is to be taxed.
In view of the above facts, Order passed by the Ld. CIT(A), NFAC is not acceptable. Appellate is prays to add/delete grounds.”
3. Brief facts of the case as mentioned in the order of the CIT(A) are as under: –
“The Assessee is a Private Limited Company and engaged in the business as builders, consultants, civil engineers. The appellant filed its return of income on 30.09.2015 for A.Y. 2015- 16 declaring a loss of Rs. 7,86,370/-. The case was selected for Complete Scrutiny through CASS and the assessment u/s 143(3) of the Act was completed on 03.10.2017 with the acceptance of the returned loss of Rs. 7,86.370/-. Subsequently, the case was re-opened u/s 147 of the Act after taking prior approval of the competent authority and after recording the reasons that the appellant had issued shares of face value of Rs. 10 per share with a premium of Rs. 1918 per share to Mis Allure Imports Pvt. Ltd. In the reason to believe, the AO recorded that the appellant company was incorporated on 01.01.2014 and had issued 10,000 shares of Rs. 10 each with a paid-up capital of Rs. 1,00,000/-only but it had collected premium of Rs. 303,40,40,000/- in comparison to the net worth of the company being Rs. 1,00,000/- only before issuance of such shares. Therefore, the share premium of Rs. 303,40,40,000/- received in excess of market value has resulted in under assessment of income in the hands of the appellant company. Thereafter, notice u/s 148 of the Act was issued on 30.03.2021 but the appellant did not furnished its return of income within 30 days of the issuance of the said notice. Thereafter, notice u/s 142(1) of the Act was issued on 24.11.2021. In compliance to said notice, the appellant furnished its return of income declaring loss of Rs. 7,86,370/- on 25.11.2021. Subsequently, notice u/s 143(2) of the Act was issued on 09.02.2022 and the appellant made a request for providing copy of reasons recorded, approval, proof of service, etc. and the same were provided by the AO on 14.03.2022. Thereafter, show cause notice along with draft assessment order has been issued to the appellant on 25.03.2022. In response to the said notice, the appellant filed its submission on 28.03.2022 wherein it was submitted that there was no fresh material forming any basis to issue notice u/s 148 of the Act and this has been done due to change of opinion. After considering the reply of the appellant, the AO completed the re- assessment proceedings u/s 147 r.w.s. 144B of the Act on 31.03.2022 with the addition of Rs. 303,40,40,000/- u/s 56(2)(viib) of the Act and determined total assessed income of Rs. 303,32,53,630/- after adjustment of returned loss at Rs. 7,86,370/-.”
4. Aggrieved by the assessment order dated 31/03/2022 passed u/s 147 r.w. Section 144B of the Income Tax Act, 1961 (‘Act’ for short), the Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 22/12/2023, held that the reassessment proceeding was initiated by the A.O. due to change of opinion without having any fresh information/material in hands, therefore, set aside the assessment order. Aggrieved by the order of the Ld. CIT(A) dated 22/12/2023,the Department of Revenue preferred the present Appeal on the Grounds mentioned above.
5. The Departmental Representative vehemently submitted that the Ld. CIT(A) has erred in allowing the Appeal of the Assessee on the ground that the ‘A.O. has not done the reopening assessment u/s 147 of the Act in accordance with the provisions of the Act’ and erroneously observed that the reassessment proceedings have been initiated due to change of opinion without having any fresh opinion/materials in the hands of the A.O. Further contended that the Ld. CIT(A) failed to consider that at the time of initiation of re-assessment proceedings, only reason to believe that income chargeable to tax has escaped assessment is sufficient to invoke the jurisdiction to A.O. to initiate the re- assessment proceedings.
6. The Departmental Representative apart from canvassing the oral argument, also filed written submission which reads as under: –
“In the above appeal, without prejudice to the oral arguments of the undersigned before the Hon’ble Bench, it is further submitted as under: –
i. The order of the AO u/s 143(3) dated 3/10/2017 and the appended office note, are non-speaking, mechanical and laconic in nature and lack any force. Therefore, these are of no relevance.
ii. It is obvious and clear that the AO has not applied his mind and has not carried out any enquiry and verification in respect of the share premium received by the assessee.
iii. Mere furnishing of the information is not sufficient. The AO has not examined as to what was the method or methodology of the valuation of the fair market value of the shares and the premium on such No such documents, reports or other relevant evidence has been examined by the AO.
iv. The AO has made no enquiries which could have shown the compliance of the provisions of Sec. 56(2)(viib) and the Explanation therein. There is no evidence of the application of the prescribed method as under Rule 11UA of the Income Tax Rules or any other method as substantiated by the assessee to the satisfaction of the AO based on the value, date of issue of shares, its assets, intangible assets, any other business or commercial rights, etc.
v. Therefore, the discovery of the fact relating to the receipt of huge premium of Rs. 1918 per share with face value of Rs. 10 only, on the issue of shares by the assessee was definitely a tangible material before the AO. Here, it has to be noted that the assessee company was incorporated only on 1/1/2014 and had paid up share capital of Rs. 1,00,000/- only, whereas it had received share premium of Rs. 40 Crores, on issue of shares. In view of this factual matrix, the proceedings under section 147/148 initiated by the AO were valid proceedings under the law and may kindly be upheld
On the legal issue of reopening of the assessment under section 147/148, the relevant judgments of Hon’ble Supreme Court, and Hon’ble High Courts, which favour the Revenue are summarized as hereunder and may kindly be considered. On the issue relating to re-opening of assessments, under the provisions of section 147/148 of the Income Tax Act, 1961, there is a long history of detailed and comprehensive orders of the Hon. Constitutional Courts, laying down the legal principles, on the basis of which the re-opening of assessment would be legal and valid process under law.”
The Ld. Departmental Representative has also relied on several Judgments and sought for allowing the appeal by setting aside the order of the Ld. CIT(A).
7. Per contra, the Ld. Assessee’s Representative submitted that the issue of share premium has been duly examined by the A.O. in the original scrutiny proceedings u/s 143(3) of the Act and formed his opinion about non-applicability of provision of Section 56(2)(viib) of the Act. Further submitted that, the reason to believe recorded by the A.O. for initiating re-assessment proceedings on the identical issue does not show any fresh tangible material available with the A.O. after the original assessment order to change his opinion. The Ld. Counsel for the Assessee relying on the findings and the conclusions of the Ld. CIT(A) and also several judicial pronouncements, sought for dismissal of the Appeal of the Revenue.
8. We have heard both the parties and perused the material available on record. In the present case, the Assessee furnished return of income declaring loss of Rs. 7,86,370/- which was scrutinized and an assessment order has been passed u/s 143(3) of the Act on 03/10/2017 at loss of 7,86,370/-. Later on, the assessment was reopening on the basis of the information, that the Assessee had issued equity shares with the huge premium of Rs. 303,40,40,000/-, during the year to M/s Allure Imports Pvt. Ltd., which is more than the fair market value. During the assessment proceedings A.O. found that the Assessee had issued 15,80,000/- equity shares of Rs. 10 each at premium of Rs. 1918 per share to M/s Allure Imports Pvt. Ltd. The Assessee objected for the reassessment proceedings mainly on account of change of opinion before the A.O. vide reply dated 28/03/2022 in response to show cause notice dated 25/03/2022. The A.O. recalling the attention of the Assessee made an addition of Rs. 303,40,40,000/- u/s 56(2)(viib) of the Act and passed re-assessment order on 31/03/2022. The Assessee company issued 15,80,000 equity shares of Rs. 10/- each fully paid up at Premium of Rs. 1918/- per share to the shareholders of the amalgamating company namely Allure Imports Private Limited., as per the Scheme of the Amalgamation approved by the Hon’ble High Court of Punjab and Haryana in Company Petition No. 183 of 2014 vide its order dated 01.05.2015, which was made effective from 01.01.2015. The Assessee’s case was initially selected for complete scrutiny by issuing notice u/s 143(2) of the Act dated 13.04.2016 and the assessment was completed u/s 143(2) of the Act on 03.10.2017 accepting the returned loss. The said scrutiny was undertaken on the reason of ‘large share premium received’ during the year, applicability of Section 56(2)(viib) of the Act and amalgamation during the year has been considered and the AO accepted the returned loss as the provisions of Section 56(2)(viib) of the Act are not applicable to the allotment of shares in pursuant to scheme of amalgamation. It is also not in dispute that the shares at premium were issued to the shareholders of the amalgamating company in pursuance of the approved amalgamation scheme. It was the case of the Assessee that the A.O. had wrongly recorded the reason to believe that the shares were issued to amalgamating company and the reason to believe recorded for re-opening of the assessment is nothing but a change of opinion of the AO.
9. The Ld. CIT(A) gone through the relevant documents and also the notes on account of audited financial statement of the Assessee for Financial Year 2014-15, wherein it is found that the Assessee had disclosed all the material facts relating to the issues of 15,80,000/- shares with premium of Rs. 1,918 per share. Thus, the A.O. was aware about the issuance of equity shares at premium under the scheme of amalgamation. The Assessee also furnished the requisite details/information vide letter dated 18/09/2017 before the A.O. and after considering the reply/submission of the A.O. filed during the assessment proceedings, the Ld. A.O. accepted the returned loss in the scrutiny assessment without making any addition with respect to the issue of ‘shares at premium’. The A.O. in the Assessment Order framed u/s 143 (3) of the Act dated 03/10/2017, also recorded his findings in by way of office notes which reads as follows:
“OFFICE NOTE:
The case was selected for Complete Scrutiny under CASS and reason for selection was to examine Large Share Premium received during the year (verify applicability of Section-56(2) (viib), amalgamation of demerger during the year. The issue has been examined during the assessment proceedings and reply filed by the Assessee is placed on record and no adverse inference has been drawn.”
10. during the reopening proceedings, the Ld. A.O. recorded the reasons for reopening which is reproduced as under: –
“In view of above facts, I have reason to believe that the income to the extent of Rs. 3033153630/-chargeable to tax or any other income which comes to my notice subsequently in the course of assessment proceedings u/s 147, has escaped assessment for the A.Y. 2015-16 within the meaning of section 147 of the Income Tax Act, 1961. In order to assess the above income, I proceed to initiate proceedings u/s 147 of the I.T. Act, 1961 in the case for A.Y. 2015-16.”
11. On perusal of the reasons recorded for re-opening, it is found that the A.O. did not have any fresh tangible material to form the opinion that there was any escapement of income. The A.O. did not point out any specific information or documents which was not disclosed by the Assessee during the assessment proceedings and thereafter, the Assessee failed to disclose fully and truly all the material facts during the assessment proceedings.
12. The approved scheme of amalgamation approved by Hon’ble Hon’ble High Court of Punjab reveals that 158 equity shares the Assessee company was required to be issued for every one share of the amalgamating company e. Allure Imports Pvt. Ltd. to the shareholders of the amalgamating company for the consideration of the assets and liabilities/valuation of the amalgamating company under the Scheme of Amalgamation. Therefore, the Ld. CIT(A) is right in observing that the AO has wrongly recorded the reason that the shares of Rs. 10/- per share with a premium of Rs. 1918 per share were issued to M/s Allure Imports Pvt. Ltd. i.e. amalgamating company, which was dissolved with effect from the appointed date i.e. 01.01.2015 and was not in existence on the date of issuance of shares of the appellant company.
13. In view of the scheme of amalgamation, the premium of each share of the Assessee was approved by Hon’ble High Court of Punjab and Haryana and those facts have been duly disclosed in the audited financial statement of the Assessee by way of notes on account which has been considered in the regular assessment However, the same has not been considered by the A.O. while recording the reasons for re-assessment or in the re-assessment proceedings. It is found that during the re-assessment proceedings, the A.O. asked the Assessee to furnish the report on merit but did not made any comment on the fact that the equity shares at premium were issued in pursuance of amalgamation and also failed to consider that those facts were examined in the regular assessment proceedings. The Ld. CIT(A) has also sought explanation by way of Remand Report from the A.O. on the very same point, however, A.O. failed to furnish any comment/report on the said issue. It is well settled law that at the time of original assessment, when a specific query was raised by the A.O. which was duly answered by the Assessee and thereafter the assessment was framed, it is not open for the revenue to reopen the assessment on the same issue. The judicial decisions on the said proposition are as under:-
“a) In the case of ACIT Vs Meer Gems [2023] 154 taxmann.com 647(SC) dated 25.08.2023, the Hon’ble Supreme Court has held that where AO reopened assessment on ground that deduction for notional loss exchange rate was to be disallowed as funds were utilized for non-business purpose, since issue of foreign exchange loss was a subject matter of consideration of AO during original assessment, reopening of assessment was based on merely change of opinion and thus not sustainable.
b) In the case of ACIT Vs Meer Gems [2023] 154 taxmann.com 406(SC) dated 07.2023, the Hon’ble Supreme Court has held that where Assessing Officer issued a reopening notice under section 148 after expiry of four years on ground that genuineness of amount payable to sundry creditors which was pending for long period was not ascertained during original assessment and same should have been treated as cessation of liability in terms of section 41(1), since said reason for reopening was based on same material facts which were present during original proceedings, impugned reopening notice was to be quashed and set aside.
c) In the case of CIT Vs Anjis Developers (P) Ltd [2023] 150 taxmann.com 113(SC) dated 27.02.2023, the Hon’ble Supreme Court has held that where assessee-company paid compensation for cancellation of allotment in premises of proposed building to parties from whom deposits were taken with respect to development project and claimed compensation as expenditure, since during survey genuineness of assessee’s claim with respect to compensation payable was examined and AO passed original assessment order after accepting submissions of assessee, reopening on ground that said compensation was capital payment was mere change of opinion.
d) In the case of JCIT Vs Cognizant Technology Solutions India (P) Ltd [2023] 146 taxmann.com 197(SC) dated 03.01.2023, the Hon’ble Supreme Court has held that where a reopening notice was issued upon assessee on issue of allowability of deduction of mark-to-market loss on restatement of outstanding forward contracts. since said issue was already verified by Assessing Officer while completing assessment under section 143(3) and no new material came to knowledge of Assessing Officer subsequent to original assessment proceedings, such reopening based on same set of facts which were available during regular assessment, being a clear case of change of opinion, was not permissible in law.
e) In the case of ACIT VS CEAT Ltd [2023] 146 taxmann.com 108(SC) dated 10.2022, the Hon’ble Supreme Court has held that where revenue had miserably failed to point out any facts or material which had not been disclosed by assessee during original assessment and entire basis for re-opening after expiry of four years from end of relevant assessment year was due to mistake of Assessing Officer that resulted in under assessment, reopening of assessment being on change of opinion, was impermissible in law.
f) In the case of ACIT Vs Kalpataru Land (P) Ltd [2022] 145 taxmann.com 77(SC) dated 18.08.2022, the Hon’ble Supreme Court has held that where assessee- company in support of increase in its authorized share-capital had produced evidences in form of details of share allotment, names and addresses of parties from whom share-premium was received etc. and Assessing Officer after considering same had finalized assessment and passed assessment order, subsequent reopening of assessment on same issue was purely on mere change of opinion and, thus, liable to be set aside.
g) In the case of PCIT Vs State Bank of India [2022] 145 taxmann.com 33(SC) dated 04.08.2022, the Hon’ble Supreme Court has held that where Assessing Officer issued reopening notice against assessee on ground that assessee was allowed excess deduction of dividend under section 115-0(1A)(i), Assessing Officer having proceeded solely on basis of material already on record, reassessment notice issued beyond period of four years for excess allowance of deduction under section 115- O(1A)(1) was unjustified.”
14. In the case on hand, the issue of share premium has been duly examined by the AO in the original scrutiny assessment proceedings u/s 143(3) of the Act and formed his opinion about non-applicability of the provision of section 56(2)(viib) of the Further, the reason to believe recorded by the AO for initiating re-assessment proceedings on the identical issue does not show any fresh tangible material available with the AO after the original assessment order to change his opinion. In fact, the AO didn’t even consider the material facts available on record in the form of Note to account, queries and written reply filed during assessment proceedings and scrutiny assessment order including office note, etc. Also, the AO failed to establish that the Assessee did not disclosed all material facts during the original assessment order. Without considering the Note-12 of the audited financial statement, questionnaire issued by AO and the submission made and the order of the Hon’ble High Court approving the Scheme of Amalgamation the impugned assessment has been framed. Apart from this, the facts recorded in the reason to believe is not correct, as the Assessee did not issue any shares to M/s Allure Imports Pvt. Ltd. in pursuance of the approved Scheme of amalgamation by the Hon’ble High Court, but it was issued to the shareholders of the Amalgamating Company i.e. M/s Allure Imports Pvt. Ltd. Considering the above facts and circumstances, the Ld. CIT(A) rightly held that the AO has not done the reopening of assessment u/s 147 of the Act in accordance to the provisions of the Act. Since the re-assessment proceedings in the present case have been initiated due to change of opinion without having any fresh information/materials in hands of the AO., we find no error or infirmity in the order of the Ld. CIT(A) and find no merit in the grounds of Appeal of the Revenue.
15. In the result, the Appeal of the Revenue is dismissed.
Order pronounced in the open court on 31st January, 2025
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