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2016 (7) TMI 1044 - GUJARAT HIGH COURT

2016 (7) TMI 1044 - GUJARAT HIGH COURT - TMI - Reopening of assessment - Held that:- Having regard to the fact that the assessment under section 143(3) read with section 147 of the Act came to be framed by the very same officer who has recorded the reasons for reopening the assessment, it has been contended by the learned advocate for the petitioner that the concerned officer during the course of assessment proceedings under section 143(3) read with section 147 of the Act, was well aware of the .....

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6 of the Constitution of India is directed against the notice dated 31.03.2015 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) whereby, he seeks to reopen the assessment of the petitioner for assessment year 2010-11. 2. The petitioner, a Limited Company, is engaged in the business of manufacturing M. S. Ingots, R.R. Castings and CTD Bars. The petitioner filed its original return of income for assessment year 2010-11 on 30.10.2010 decla .....

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mpugned notice dated 31.03.2015 issued under section 148 of the Act, the assessment of the petitioner is once again sought to be reopened for assessment year 2010-11. By a letter dated 16.08.2015, the petitioner requested the respondent to provide the reasons for reopening the assessment of the petitioner, which came to be furnished by a letter dated 19.08.2015. The petitioner vide its letter dated 21.09.2015, raised various objections on the merits of the reopening and requested the respondent .....

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asis of a change of opinion. It was submitted that the present proceedings are initiated for the purpose of reappreciating the material on record, which is impermissible in the eye of law. It was pointed out that in relation to assessment year 2009-10, the Commissioner of Income Tax took the assessment order in revision under section 263 of the Act and passed an order dated 29.11.2013 wherein, one of the grounds was regarding the amount of ₹ 6,05,00,000/- received by the petitioner for all .....

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cer who made the assessment in the previous year. Thus, the revenue cannot take a plea that this is not a case of change of opinion, inasmuch as, the Assessing Officer while framing the assessment under section 143(3) read with section 147 of the Act, must have had this issue in mind. It was submitted that there is no new material with the Assessing Officer as he had all the material before him while framing the earlier assessment. 3.1 Next, it was submitted that this is a case of borrowed satis .....

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ium by itself cannot become an income and it is for the Assessing Officer to point out that the transaction is sham and that the money has come back to him. 3.3 Reliance was placed upon the decision of this court in the case of Shree Chalthan Vibhag Khand v. Deputy Commissioner of Income Tax, (2015) 376 ITR 419 (Guj.), wherein the court had noted that on the basis of the order passed by the Commissioner of Income Tax (Appeals) in the case of some other assessees, the satisfaction of the Assessin .....

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ere is any unaccounted income which has escaped assessment. It was pointed out that the reasons are based solely on the human probabilities and not on facts. It was, accordingly, urged that on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment. Under the circumstances, the assumption of jurisdiction on the part of the Assessing Officer by issuance of notice under section 148 of the Act is without authority of law and .....

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he date when the earlier assessment was framed, viz., 17.02.2015, such tangible material in the nature of I & CI information was not available. It was submitted that in the assessment order of the earlier year, the Assessing Officer had dealt with the increase in share capital which would also be applicable to the year under consideration and hence, there was a live link between the material received and the formation of belief. It was submitted that the Registrar of Companies has given deta .....

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/- in the previous year, viz., 2009-2010, which had resulted into an assessment order whereby, an addition to the tune of ₹ 6,05,00,000/- had been made and that the facts of the assessment year under consideration are similar in nature. It was submitted that, therefore, the Assessing Officer having found that the facts of the year under consideration are similar to the facts of the preceding assessment year, viz., 2009-2010, it cannot be said that he had no reason to believe that the incom .....

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was made to the decision of this court in the case of Olwin Tiles (India) (P) Ltd. v. Deputy Commissioner of Income Tax, (2016) 283 CTR (Guj.) 200, wherein, the assessment was sought to be reopened on the ground that 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 had formed the opinion that excess premium amount of ₹ 967/- was unexplained cash credit in the hands of the assessee and therefore, h .....

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w that 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. The court, accordingly, was not inclined to terminate the assessment proceedings at that stage and dismissed the petition. It was submitted that the above decision would be squarely applicable to the facts of the present case wherein also, the petitioner has issued shares of the face value of ₹ .....

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tion to recognizing a greater leverage to the Assessing Officer to reopen the assessments which are accepted without scrutiny, also highlights that question of reason to believe could be examined from the standpoint of the relevant materials on which a reasonable person would form requisite belief and it would not be germane whether material would conclusively prove escapement. Thus, the question of reason to believe at the stage of challenge to reopen must be examined in the context whether the .....

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company is undisputedly unusual and lacks commercial substance and hence, reopening of assessment by Assessing Officer within a period of four years is based upon a firm belief that income chargeable to tax has escaped assessment. It was submitted that initially, the return of income was accepted under section 143(1) of the Act and subsequently, during the course of proceedings under section 143(3) read with section 147 of the Act, the Assessing Officer had not gone into this issue and hence, t .....

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alone has no legs to stand. It was submitted that if on a perusal of the report the Assessing Officer had made prima facie investigation into the facts and found some material on the basis of which he could have formed an opinion that the income chargeable to tax has escaped assessment, he may be justified in reopening the assessment. However, in the absence of any inquiry having been made, the Assessing Officer has no reason to form requisite belief. Referring to the reasons recorded, it was s .....

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Commissioner of Income Tax can invoke the same to carry out investigation, and section 147 of the Act, inasmuch as, the assessment cannot be reopened for the purpose of making an inquiry. It was submitted that the I & CI report has nothing to do with the income tax and has no connection at all. The only document, therefore, is the assessment order and simply following the results of the investigation made during the assessment proceedings for assessment year 2009-10, without making any furt .....

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under section 263 of the Act came to be initiated by the Commissioner of Income Tax, which culminated into an order dated 29.11.2013 wherein, one of the grounds was regarding an amount of ₹ 6,05,00,000/- received by the petitioner for allotment of shares to various investor companies on hefty premium despite the fact that the petitioner was a loss making company. Pursuant to the said order, assessment proceedings under section 143(3) read with section 263 of the Act came to be initiated, w .....

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e reopened by issuance of the impugned notice dated 31.03.2015 whereby, the assessment of the petitioner is sought to be reopened once again for assessment year 2010-11. 7. Before adverting to the merits of the rival submissions, it may be germane to refer to the reasons recorded by the Assessing Officer for the purpose of reopening the assessment which read thus: ORDER SHEET M/s. Kothi Steel Ltd. AY 2010-11 31/03/15 The assessee M/s Kothi Steel Ltd. for AY 2010-11 has filed its Return of Income .....

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said private placement of shares at a premium has been done with entities based at Kolkatta. In the case of the assessee, transactions of this nature had been carried out in AY 2009-10 also to the extent of 6,05,000 shares of ₹ 10/- each at a premium of ₹ 90/- on private placement basis. In the said AY, in the order u/s 143(1) r.w.s. 263, the AO has added the amount of ₹ 6,05,00,000/-. The AO in the said order has given the following finding: The matter is required to be consi .....

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own that there are reasons to believe that the apparent is not the real and when that be so, the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. After considering surrounding circumstances and applying the test of human probabilities as well as respectfully following various judicial decisions available, it could not be said that the explanation offered by the asses .....

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m on private placement from entities hitherto unknown for a company which is not doing financially well. This gives prima facie a reason to believe that income pertaining to the share premium received has given an unentitled benefit to the assessee to the tune of ₹ 5,00,00,000/-. Accordingly, I have prima facie reason to believe that income to the tune of at least ₹ 5,00,00,000/- has escaped assessment for the AY 2010-11. Accordingly, I propose to issue notice u/s 148 of the Income T .....

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with regard to the passing of assessment order dated 17.02.2015 under section 143(3)(ii) read with section 147 of the Act. In the reasons, it is further recorded that the information was received from I & CI that certain corporate entities have issued shares at a premium and that, on perusal of the profit and loss account of the said assessee for the financial year 2008-09 relevant to assessment year 2009-10, it is seen that the assessee has issued 5,00,000 shares of ₹ 10/- each at a .....

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/s 143(1) read with section 263 of the Act came to be made and an amount of ₹ 6,05,00,000/- came to be added. The further reasons recorded by the Assessing Officer are that the facts of the assessment year under consideration are similar to the facts of the assessment year 2009-10 and prima facie, do not stand to the test of human probability with regard to the receipt of an unusual share premium on private placement from entities hitherto unknown for a company which is not doing financial .....

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47 of the Act came to be framed by the very same officer who has recorded the reasons for reopening the assessment, it has been contended by the learned advocate for the petitioner that the concerned officer during the course of assessment proceedings under section 143(3) read with section 147 of the Act, was well aware of the order under section 263 of the Act and hence, this is a case of mere change of opinion on the part of the Assessing Officer and therefore, the reopening of assessment is b .....

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pened on the ground that there was a discrepancy in the opening stock mentioned in the profit and loss account and the closing stock of the previous year, which had resulted into the income escaping assessment. On a perusal of the assessment order made under section 143(3) read with section 147 of the Act, it is evident that the issue with regard to issuance of exorbitant share premium was not subject matter of the said assessment. From the material which has been placed on record, there is noth .....

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ment year under consideration. In the opinion of this court, the issue of change of opinion cannot be stretched to such an extent so as to undertake the exercise of examining as to what was in the mind of the Assessing Officer at the time of framing the assessment, without there being any material on record to show that he had examined such issue. Under the circumstances, the contention that the reopening is based upon a mere change of opinion does not merit acceptance. 11. The learned counsel f .....

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e there exist reasonable grounds for the Assessing Officer to form such belief, that would be sufficient to clothe him with jurisdiction to issue a notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of grounds which induce the Income Tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income Tax Officer did not hold the belief that the income chargeable to tax has escaped .....

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ef must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year. It is not any and every material, however vague and indefinite or distant, remote and far-fetched, which would warrant the format .....

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p; CI that certain corporate entities have issued shares at a premium. It appears that the petitioner s name was also included in such list. However, it cannot be gainsaid that per se an information that the petitioner has issued shares at a premium would by itself not constitute an information for the purpose of formation of belief that the income chargeable to tax has escaped assessment. The Assessing Officer has also placed reliance upon the assessment order for assessment year 2009-10, since .....

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redit. According to the Assessing Officer, the payment of share premium on private placement from entities hitherto unknown for a company which is not doing financially well, has given unentitled benefit to the petitioner. However, on a reading of the reasons as a whole, there is nothing to indicate that the Assessing Officer, upon verification of facts, has found that the very same entities who had invested in the shares of the petitioner company in assessment year 2009-10 had also invested in .....

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ssessment and which have been reproduced in the reasons recorded, do not indicate any specific material having been found to establish that the transactions in question are not genuine. All that is stated is that, considered in the light of human probabilities, instances of such transactions would be rarely available . The case of the respondent in the affidavitin- reply is that issuing shares at 900% premium of loss making unlisted company is undisputedly unusual and lacks commercial substance. .....

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o justify collection of such a high premium and that the onus under section 68 of the Act squarely lies on the assessee. In the opinion of this court, insofar as the onus under section 68 of the Act is concerned, it is for the assessee to prove the identity, genuineness, creditworthiness of the parties and not to show its profitability or value of assets etc., as is sought to be contended in the affidavit-in-reply. Besides, all that is stated in the reasons recorded is that the assessee is not d .....

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l of the said decision reveals that in the facts of the said case, the Assessing Officer had made a detailed analysis of the data furnished by the assessee with its return, which showed that whereas the net worth of the shares issued is ₹ 33, the same have been allotted for ₹ 1,000/-, i.e. an excess of ₹ 967/-. After such detailed analysis, the Assessing Officer came to the conclusion that the excess premium amount of ₹ 967/- was unexplained cash credit in the hands of th .....

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premium was unexplained cash credit in the hands of the assessee, whereas in the facts of the present case, the Assessing Officer has formed the belief that income pertaining to the share premium received has given unentitled benefit to the assessee. As rightly submitted by the learned counsel for the petitioner, the amount received by way of share premium, would be in the nature of capital receipt and would not form the income of the petitioner. On the basis of the reasons recorded, the Assessi .....

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