TMI Blog2018 (9) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the preamended section 68 has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Incometax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit. - decided against revenue - ITA NO.622/Mum/2016 - - - Dated:- 20-6-2018 - Shri JOGINDER SINGH, Judicial Member, And Shri G. MANJUNATHA, Accountant Member For The Revenue : Shri Abhijit Patankar-DR For The Assessee : Shri Vipul Joshi ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 30/11/2015 of the Ld. First Appellate Authority, Mumbai in setting aside the reopening of assessment holding that information was already available with the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escapement of income. ( v) In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. The Explanation to the section stipulates that mere production of books of account or other documents from which the Assessing Officer could have, with due diligence, inferred material facts, does not amount to full and true disclosure of material facts (the proviso is not applicable where reasons to believe for issue of notice are recorded and notice is issued within four years from the end of assessment year). 2.3. The term and facets of the term change of opinion . The expression change of opinion postulates formation of opinion and then a change thereof. In the context of section 147 of the Act it implies that the Assessing Officer should have formed an opinion at the first instance, i.e., in the proceedings under section 143(3) and now by initiation of the reassessment proceeding, the Assessing Officer proposes or wants to take a different view. 2.4. The word opinion is derived from the latin word opinari which means to believe , to thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Delhi High Court in Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 (Delhi) held as under: In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 2.8. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. Here a distinction has to be drawn between erroneous application/interpretation /understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the material facts on record are correct but the Assessing Officer did not draw proper legal inference or did not appreciate the implications or did not apply the correct law. The second category will be a case of change of opinion and cannot be reopened for the reason that the assessee, as required, has placed on record primary factual material but on the basis of legal understanding, the Assessing Officer has taken a particular legal view. However, as stated above, an erroneous decision, which is also prejudicial to the interests of the Revenue, can be made subject-matter of adjudication under section 263 of the Act. 2.9. A division Bench of Hon ble Delhi High Court in New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi), referred to the decision of the Hon ble Apex Court in CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) and made following observations. (page 392) : In the case of CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC), the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be ultra virus article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the Income-tax Officer exercises its jurisdiction for initiating a proceeding for re-assessment only upon mere change of opinion, the same may be held to be unconstitutional. I am, therefore, of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. 2.11. The Hon ble Apex Court thereafter referred to the subsequent decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), wherein it was observed that some of the observations made in Kalyanji Mavji (supra) were far too wide and the statute did not permit reappraisal of material considered by the Assessing Officer during the original assessment. The observations in Kalyanji Maviji (supra) that reopening would cover a case where income has escaped assessment due to the oversight, inadvertence or mistake was too broadly expressed and did not lay down th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety's case [1979] 119 ITR 996 (SC) has only indicated that propo sition (2) outlined in this case and extracted earlier may have been somewhat widely stated ; it has not cast any doubt on the other three propositions set out in Kalyanji Mavji's case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). Proposition (2) may be briefly summarized as permitting action even on a 'mere change of opinion'. This is what has been doubted in the Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on 'information' in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been consci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the earlier assessment should have been brought to tax. In other words, as pointed out in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC), it also ropes in cases of a 'bare or mere change of opinion' where the Income-tax Officer (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income- tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji [1976] 102 ITR 287 (SC). The second paragraph from the judgment in the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the Income-tax Officer realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas 21 STC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the un-amended provisions. The Supreme Court was, therefore, conscious of the said principle, when the observations mentioned above in A. L. A. Firm [1991] 189 ITR 285 were made. 2.15. Under the new provisions of section 147, an assessment can be reopened if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment; but if he wants to do so after a period of four years or merely on the change of opinion, he can do so only if the assessee has fallen short of his duty to disclose fully and truly all material facts necessary for his assessment. The Act places a general duty on every assessee to furnish full and true particulars along with the return of income or in the course of the assessment proceedings so that the Assessing Officer is enabled to compute the correct amount of income on which the assessee shall pay tax. The position has been further clarified by the proviso itself in a case where assessment under sub-section (3) of section 144 of the Act or this section has been made for the relevant assessment year, no action shall be taken after the expiry of four years from the end of the relevant assessment year, unless any income c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosure of all primary and material facts necessary for the assessment, fully and truly. As to what are material or primary facts would depend upon the facts and circumstances of each case and no universal formula can be adopted. The legal or factual inferences from those primary or material facts are for the Assessing Officer to draw in order to complete the assessment and it is not for the assessee to advise him, for obvious reasons. The Explanation, however, cautions the assessee that he cannot remain smug with the belief that since he has produced the books of account before the Assessing Officer from which material or evidence could have been with due diligence gathered by him, he has discharged his duty. It is for him to point out the relevant entries which are material, without leaving that exercise to the Assessing Officer. The caveat, however, is that such production of books of account may, in the light of the facts and circumstances, amount to full and true disclosure ; this is clear from the use of the expression not necessarily in the Explanation. Thus, the question of full and true disclosure of primary or material facts is a pure question of fact, to be determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l examine the facts of the present appeal. The assessee is a purpose vehicle, formed by Govt. of India (through National Textile Corporation) as a part of textile mills in Mumbai. It is formed in pursuance of scheme for revival and rehabilitation of sick textile companies, as framed and approved by board for Industrial and Financial reconstruction. The assessee was formed as a joint venture vehicle (JVV) between National Textile Corporation Ltd.(NTC), a Govt. of India undertaking and Pantaloon Retail India Ltd. (PRIL), now future retails ltd, pursuant to MOU signed by NTC and PRIL on 06/11/2007, which envisaged NTC holding 51% share and PRIL (along with group companies) holding remaining 49% of the total share capital of the assessee. The purpose was to run and operate the textile mill a commercially viable unit. PRIL was to infuse fresh capital in the assessee in terms of minimum investment plan for modernization, by acquiring share capital of the assessee at a premium. In pursuant to this base agreement, three agreements were entered into. In fact, the MOU itself contained draft of these three agreements to be entered into subsequently. The first undertaking transfer agreement wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer, thus, in view of the finding of the Ld. Commissioner of Income Tax (Appeal) that there was no scope of bringing to tax the excess share premium, the Ld. Assessing Officer was not justified to assess the share premium received by the assessee by invoking the provision of section 68 of the Act. Since, there was no new tangible material available with the Assessing Officer while resorting to section 147/148 of the Act, more specifically, while framing original assessment u/s 143(3) of the Act, there was full disclosure of material facts by the assessee and on the basis of those facts, assessment was completed u/s 143(3) of the Act, therefore, in my humble opinion, the reassessment/reopening u/s 147 of the Act is unjustified as there was no fresh tangible material with the Assessing Officer, while reopening the assessment, therefore, the reopening beyond a period of four years is not permissible, more specifically, when the material facts were disclosed by the assessee and assessment was framed u/s 143(3) of the Act, thus, the reopening of assessment is bad in law, resultantly, we find no merit in the ground raised by the Revenue, therefore, dismissed. 3. The next g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10. 3.3. The stand of the Revenue is that the assessee did not discharged the onus cast upon it and the explanation of the assessee is not satisfactory and thus the Ld. Assessing Officer proceeded to charge the share premium, received by the assessee to tax. The assessee furnished the shares subscription and share holder agreement which contains the names and addresses of investors as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the present assessment year before us is 2009-10, therefore, the amendment made in section 68 is prospective in nature. Our view find supports from the decision in the case of ACIT vs Gagandeep Infrastructure Pvt. Ltd. (ITA No.5784/Mum/2011), order dated 23/04/2014, wherein the facts are identical. The Hon'ble Bombay High Court in CIT vs Gangadeep Infrastructure Pvt. Ltd. (394 ITR 680)(Bom.) held as under:- 1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 23rd April, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order is in respect of Assessment Year 2008-09. 2. Mr. Suresh Kumar, the learned counsel appearing for the Revenue urges the following re-framed questions of law for our consideration:- ( i ) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of ₹ 7,53,50,000/- under Section 68 of the Act being share capital/share premium received during the year when the Assessing Officer held the same as unexplained cash credit? ( ii ) Whether on the facts and in the circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondentassessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon, would be on capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P.) Ltd. ( supra ) to uphold the finding of the CIT(A) and dismissing the Revenue's appeal. ( d ) Mr. Suresh Kumar, the learned counsel appearing for the Revenue contends that proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed question of law does not give rise to any substantial question of law. Thus not entertained. 4. ( a ) Admit the substantial question of law at (ii) above. ( b ) The issue arising in question no. (ii) is essentially whether application of Rule 8D(2)(iii) of the Income Tax Act Rules would permit the Revenue to disallow expenditure not claimed i.e. much larger than the expenditure / debited in earning its total income. The Counsel inform us that there is no decision on this issue of any Court available and it would affect a large number of cases where similar issues arise. Therefore, this issue would require an early determination. In the above view, at the request of the Counsel, the appeal is kept for hearing on 17th April, 2017 at 3.00 p.m., subject to overnight part-heard. 5. Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to the present appeal available, to be produced when sought for by the Court. In the aforesaid case, the Hon'ble High Court held that the three essential tests while confirming the section 68 laid down by the Court namely the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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