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2016 (1) TMI 992 - GUJARAT HIGH COURT

2016 (1) TMI 992 - GUJARAT HIGH COURT - [2016] 382 ITR 291 - Reopening of assessment - allotment of shares at high premium - reason to believe or tangible material to form an opinion - Held that:- The assessee company had issued share capital of ₹ 2.66 crores (rounded off) during the Financial Year 2010-11. The assessee had issued 60,000/- shares at a face value of ₹ 10 per share with a premium of ₹ 990/- per share. The Assessing Officer, on the basis of assets and liabilities .....

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so untenable as to terminate the assessment at this stage on the ground that the Assessing Officer cannot be stated to have any reason to believe or tangible material to form such an opinion that income chargeable to tax had escaped assessment. Prima facie, the facts appear to be glaring. Whether the assessee will be able to discharge the minimal burden of establishing identity, source and creditworthiness of the depositors is a question not possible to answer without scrutiny. Whether the asses .....

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in the hands of the assessee, despite such glaring facts. These are the issues in the realm of assessment, once it is allowed to be reopened. We are not inclined to terminate the assessment proceedings at this stage on the grounds pressed in service by the petitioners.

Decided against the assessee. - Special Civil Application No. 17307, 18388, 18389 of 2015 - Dated:- 5-1-2016 - Akil Kureshi And Mohinder Pal, JJ. For the Appellant : Mr JP Shah, Adv. with Mr MAnish J Shah, Adv For the .....

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Section 143(1) of the Income Tax Act, 1961 ("the Act" for short) and thus accepted without any scrutiny. The Assessing Officer later on issued impugned notice dated 02.03.2015 under Section 148 of the Act seeking to reopen the assessment of the petitioner for the said Assessment Year 2011-12. He supplied to the petitioner the reasons recorded for issuing such notice, which read as under:- "In this case, on verification of records, it is found that the Assessee is a Private Ltd. Co .....

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of ₹ 10 per share with a premium of ₹ 990/- per share. Hence the premium received by the assessee per share is ₹ 990 for the share of face value of ₹ 109/-. On the basis of the assets and liabilities furnished by the assessee company in its balance sheet, and computing the net worth of the company, per share valuation of the assessee company comes out to ₹ 33/-. Hence the shares of the company have been subscribed by the shareholders at a premium which is very high .....

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its return shows that whereas the net worth of the shares issued is ₹ 33/-, the same have been allotted for ₹ 1000/-, i.e. an excess of ₹ 967/-. In my opinion this excess premium amount of ₹ 967/- is unexplained cash credit in the hands of the assessee. Hence I have reasons to believe that income to the extent of ₹ 5,80,20,000/- has escaped assessment in the hands of the assessee for A.Y. 2011-12. I have, therefore, reasons to believe that income /gain chargeable to .....

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aised objections to the notice for reopening under communication dated 20.08.2015. Such objections were rejected by the Assessing Officer by order dated 18.09.2015. The petitioner has therefore filed this petition. Facts are substantially similar in all cases. 4. Learned Counsel Shri J.P.Shah for the petitioner submitted that the Assessing Officer, once having accepted the return, could not have issued notice for reopening on the basis of material which was already on record. In his contention, .....

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e Assessing Officer, Counsel contended that merely because some investors had invested in the shares of the company at a value which may seem to be excessive to the Assessing Officer, would not imply that the additional amount represents the unexplained cash credit of the assessee company which would be covered under Section 68 of the Act. 4.2 Counsel lastly submitted that in any case, the assessee company had not commenced its manufacturing activity till such investments were made. Therefore, t .....

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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, both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). 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-à-vis an intimation .....

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erring to the decision of the Supreme Court in case of CIT Vs. Lovely Exports (P) Ltd., reported in 251 ITR, page No.263, when the Court found that the investors were not even found to be bogus, observed that in any case, no addition can be made in hand of the company. 5.2 Counsel also relied on the decision of the Supreme Court in case of Income Tax Officer, I Ward, Distt. VI, Culcutta & Ors. Vs. Lakhmani Mewal Das, reported in 103 ITR page No.437, in which the Supreme Court observed that t .....

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had escaped assessment. Such reason is not open to scrutiny at this stage unless it is shown to be wholly baseless. 7. In all three cases, admittedly, the original assessments were not framed after scrutiny. We must, therefore, examine the petitioners' challenge to the notice for reopening in that background. It is by now well settled that in case of reopening of an assessment where return was accepted under Section 143(1) without scrutiny, the question of change of opinion would not arise. .....

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ion to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese .....

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n which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]. 17. The scope and effect of section 147 as substituted with effect from April 1, 1989 .....

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geable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section .....

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issioner of Income Tax, reported in 356 ITR, page No.481, Division Bench of this Court, in the context of notice for reopening of assessment under Section 143(1) of the Act, observed as under:- "11. It is undoubtedly true that proviso to section 143(2) of the Act prescribes a time limit within which such notice could be issued. It is equally well settled that such notice is mandatory and in absence of notice under section 143(2) of the Act within the time permitted, scrutiny assessment unde .....

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asons recorded by the Assessing Officer were not germane and were not sufficient to permit reopening. 12. We must recall that the return filed by the petitioner was not taken in scrutiny. No assessment, thus, took place. The Assessing Officer without any assessment, merely issued an intimation under section 143(1) of the Act accepting such return. In that view of the matter, it cannot be stated that the Assessing Officer formed any opinion with respect to any of the aspects arising in such retur .....

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erent. It was noticed that after 1.4.1989, the provisions contained in section 143 underwent substantial changes. It was noticed that the intimation under section 143(1) of the Act is given without prejudice to the provisions of section 143(3) of the Act and though technically the intimation would be deemed to be demand notice under section 156, that did not per se preclude the right of the Assessing Officer to proceed under section 143(2)(a) of the Act. The Apex Court observed that the word &qu .....

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er section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any assessment is done by them? The reply is an emphatic no. The 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 applic .....

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ment of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, reassess the income or re-compute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted un .....

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n the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer. 17. If we accept such proposition, the petitioner's apprehension that .....

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ent Craft Ltd. (supra), heavily relied upon by Shri Shah, the Division Bench of Delhi High Court, in the context of reopening of an assessment, which was originally accepted under Section 143(1) of the Act, reiterated that the requirement of 'reason to believe' would apply even in such case and that such requirement cannot be different in case of 143(1) and 143(3) assessment. On this aspect, we have no disagreement at all. In fact, this was substantially what was held in judgment of this .....

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ed on the decision of the Supreme Court in case of CIT Vs. Kelvinator of India Ltd., reported in 320 ITR, page No.561. We are unable to persuade ourselves to take such a strong line. The decision of the Supreme Court in case of Kelvinator of India Ltd. (supra) was rendered in the background of a case of reopening of an assessment which was previously framed after scrutiny. The observations of the Supreme Court of requirement of reason to believe even after amendment in Section 147 of the Act the .....

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as previously framed after scrutiny where notice is issued within four years from the end of relevant assessment year, the material to enable the Assessing Officer to form the belief that income chargeable to tax has escaped assessment, must be alien to the record. The Court observed as under:- "30. In the result, we are of the opinion that reopening of an assessment within a period of four years from the end of relevant assessment year after 1.4.1989 could be made as long as the same is no .....

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of 5 Judge Bench of the Delhi High Court in case of Commissioner of Income Tax Vs. Kelvinator of India Ltd., reported in 256 ITR, page No.1, which eventually came to be confirmed by the Supreme Court in case of CIT Vs. Kelvinator of India Ltd., reported in 320 ITR, page No.561. It was noted that even the Delhi High Court had questioned whether Kelvinator judgment of 5 Judge Bench could be read as to requiring some material outside of the record to enable the Assessing Officer to reopen an assess .....

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er:- "23. The said observations do not mean that even if the Assessing Officer did not examine a particular subject matter, entry or claim/deduction and therefore had not formed any opinion, it must be presumed that he must have formed an opinion. This is not what was argued by the assessee or held and decided. There cannot be deemed formation of opinion even when the particular subject matter, entry or claim/deduction is not examined. 24. Distinction between disclosure/declaration of mater .....

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closure. Thus in cases of reopening after 4 years as per the proviso, conduct of the assessee and disclosures made by him are relevant. However, when the proviso is not applicable, the said precondition is not applicable. This additional requirement is not to be satisfied when re-assessment proceedings are initiated within four years of the end of the assessment year. The sequitor is that when the proviso does not apply, the re-assessment proceedings cannot be declared invalid on the ground that .....

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ot a prerequisite or condition precedent but the defence/plea of change of opinion shall not be available and will be rejected. 25. Thus if a subject matter, entry or claim/deduction is not examined by an Assessing Officer, it cannot be presumed that he must have examined the claim/deduction or the entry, and therefore, it is the case of -change of opinion. When at the first instance, in the original assessment proceedings, no opinion is formed, principle of -change of opinion cannot and does no .....

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ons is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, th .....

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Member of the Bench, R.V.Easwar, J. however, expressed dissenting view. It was observed as under:- "17. In my understanding of the judgment of the Full Bench of this court in Kelvinator (supra), the ruling is applicable to all cases where the assessment was completed under section 143(3) of the Act, subject only to the condition that the assessee has furnished fully and truly all material particulars and primary facts necessary for the assessment. It is not a question of deemed formation o .....

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f they have furnished full and true particulars at the time of the original assessment, which is what the Supreme Court observed in the judgment in Srikrishna Pvt. Ltd. (supra). It certainly does not imply that every assessment order passed under section 143 (3) without an elaborate discussion of various contentions and claims put forth by the assessee is necessarily a wrong order to be corrected later by resorting to section 147. Making an assessment to income tax represents the quantification .....

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assessment order under section 143(3) of the Act, it hardly matters that he has not recorded his agreement with the assessee on every issue or point; that could be reasonably inferred." 12. Under the circumstances, we are unable to accept the contention of Counsel Shri Shah that the Assessing Officer, when recorded his reason to believe that income chargeable to tax has escaped assessment, could not have relied on the original assessment records and he must have some material outside or ext .....

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hted that the reason to believe does not have to be a final opinion that the additions would certainly be made. It was observed that whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. Reliance in this respect was made to the decision of the Supreme Court in case of Raymond Woollen Mills Ltd. Vs. ITO, reported in 236 ITR, page No. 34. We .....

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y the Assessing Officer, he noted that the assessee company had issued share capital of ₹ 2.66 crores (rounded off) during the Financial Year 2010-11. the assessee had issued 60,000/- shares at a face value of ₹ 10 per share with a premium of ₹ 990/- per share. The Assessing Officer, on the basis of assets and liabilities furnished by the assessee company in its balance sheet, after computing the net worth of the company, noted that the share valuation of the assessee company w .....

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