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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
K.R. Shriram, Neela Gokhale, JJ.
Godrej Projects Development Pvt Ltd. and ors. – Petitioners
Versus
Income Tax Officer, 1(1)(4) and ors. – Respondents
Writ Petition No. 804 of 2015
Decided On : 01-02-2024
Income Tax - Reopening of Assessment - Section 143(3) of the Income Tax Act 1961 - Share Premium - Section 148 - AY 2009-10 - [Section 143(3), Section 142(1), Section 148, Foreign Exchange Management Act (FEMA)] - The court discussed the scrutiny of petitioner's return of income, the reasons for reopening the assessment, and the legality of the same. The court highlighted the principles of 'change of opinion' and 'reason to believe' as essential for exercising jurisdiction under Section 147 of the Act. It emphasized that the receipt of share premium on the issue of fresh shares is on the capital account and constitutes a capital receipt, not chargeable to tax under the Act. The court also pointed out that the reasons for reopening were based on hypothetical and conjectural grounds, lacking tangible material to justify the belief that income had escaped assessment.
Fact of the Case:
The petitioner, a real estate developer, filed its return of income for AY 2009-10, which was scrutinized under Section 143(3) of the Income Tax Act 1961. Subsequently, the assessment was reopened under Section 148 based on the belief that share premium amount received had escaped assessment.
Finding of the Court:
The court found that the reopening of assessment was based on a change of opinion, lacked tangible material to justify the belief that income had escaped assessment, and was not in compliance with the jurisdictional conditions of Section 147 of the Act. It emphasized that the receipt of share premium on the issue of fresh shares is on the capital account and constitutes a capital receipt, not chargeable to tax under the Act.
Issues: The issues included the legality of reopening the assessment, the nature of share premium as a capital receipt, and the sufficiency of reasons to believe that income had escaped assessment.
Ratio Decidendi: The court held that the reopening of assessment lacked a valid 'reason to believe' and was based on a change of opinion. It emphasized that the receipt of share premium on the issue of fresh shares is on the capital account and constitutes a capital receipt, not chargeable to tax under the Act.
Final Decision: The court quashed and set aside the notice seeking to reopen the assessment for AY 2009-10 under Section 148 of the Act, as well as the order rejecting the objections.
JUDGMENT :
K. R. SHRIRAM, J.
1. Petitioner is in the business of development of real estate and assessed to Income Tax. For A Y 2009-10, petitioner, filed its return of income on 7th September 2009. Petitioner’s return of income was scrutinized under Section 143 (3) of the Income Tax Act 1961 (the Act) by respondent no.1 and an assessment order dated 21st December 2011 came to be passed. Prior to passing of assessment order, petitioner received two Communications dated 21st January 2011 and 12th August 2011 under Section 142(1) of the Act calling upon petitioner to provide certain documents and in particular, the details of shareholding pattern of the company. In the cash flow statement filed, petitioner had mentioned that it had received as share premium amount a sum of Rs.215,011,618/- which was used entirely for redemption of preference shares. In fact, in the communication dated 12th August 2011, petitioner was called upon to furnish “in case of securities premium / share premium received, justify charging of the same with supporting documentary evidences”. Petitioner, in its reply dated 12th September 2011, stated that petitioner had issued 16730 equity shares of the face value of Rs.10/- each at premium of Rs.12841.86 per equity share to an entity based in Mauritius and that it has taken all necessary permission under Foreign Exchange Management Act (FEMA). Copy of Foreign Inward Remittance Certificate (FIRC) was also filed along with the valuation report. The Assessing Officer (AO) passed the assessment order, in which, of course he has not dealt with the issue of share premium but has accepted the return that petitioner had filed declaring a loss of Rs.87,362/-.
2. On or about 29th March 2014, petitioner received a notice under Section 148 of the Act for reopening the assessment for AY 2009-10. The reasons for reopening reads as under:
2. A letter No. CIT-1/Mum/Share Premium/2013-14 dt. 27.03.2014 has been received in this Charge enclosing the letter No. CCIT/Coord/U-III/Share Premium/2013-14/1786 dt. 27.03.2014 for taking necessary action as the time limit of four years for issue of notice u/s. 148 will expire on 31st March, 2014. This letter also encloses a letter No. DIT(I&CI)F. No. 233/ROC/2013-14 dt.26.03.2014 furnishing the data in respect of companies who have received share premium. during FY 2008-09. The name of the assessee is found in this list having received share premium of Rs.21,48,44,318/-
3 From the records, it is seen that the authorised share capital of the assessee is 10,00,000/- and the paid up capital is Rs.6,67,300/-. As per the information provided, during the year assessee has issued 16,730 shares of face value of Rs.10/- and having total face value of Rs.1,67,300/- at premium of Rs.12,842/- per share on 09.07.2008. The total share premium received amounts to Rs.21,48,44,338/- for the previous year relevant to A.Y. 2009-10. The assessee is an unlisted company and the nature of the share application received (the intrinsic value of the share in comparison to the excess premium received) was not substantiated. This amount was utilized for redemption of preference shares. The issue of share premium was not a subject matter of verification by the A.O. and therefore no opinion has been formed on the issue in original assessment u/s 143(3). At the same time, the assessee has also not filed complete details showing the nature of this share premium (justification for the excess share premium received in comparison to the intrinsic value of the share).
4. The assessee company is engaged in the
The court established that there must be tangible material justifying the reopening of an assessment, and the assessing officer must have a reason to believe that income had escaped assessment.
Reopening of assessment beyond four years without failure to disclose material facts is invalid; share premium treated as capital receipt not taxable under Section 68 prior to 2013 amendment.
Reopening of assessment under Section 148 is impermissible if it is based on previously examined issues without new material.
The main legal point established in the judgment is the requirement for the belief to be based on reasonable grounds and the need for the assessee to disclose fully and truly all material facts neces....
Intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such appli....
The function of the assessing authority at this stage is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking....
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