TMI Blog2022 (9) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... ers to material received from the DGIT Investigation bringing to his notice information relating to the allegedly offending share allocation and pricing. This constitutes tangible material on the basis of which jurisdiction has been assumed. As in the case of Commissioner of Income Tax. Delhi V. Kelvinator of India [ 2010 (1) TMI 11 - SUPREME COURT] considered the impact of re-assessment proceedings initiated within four years, and upon noticing that there was no new material that had come to the possession of the Department held that the re-assessment was nothing but a review. The assumption of jurisdiction in this case, is based upon additional material over and above what formed part of the records, that have lead to the belief that income has escaped assessment and not a review of existing materials that found part of the assessment records of the petitioners. This issue is answered in favour of the revenue. - W.P. Nos.3275, 3276 and 3277 of 2014 - - - Dated:- 9-9-2022 - Honourable D R. Justice Anita Sumanth For the Petitioner in W.P.No.3277 of 2014 : Mr.AL.Somayaji Senior Counsel For Mr.K.GirishNeelakantan For the Petitioner in W.P.Nos.3275 3276 of 2014 : M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was reflected, under the head 'payments'. The specific entry, as aforesaid, reads thus: Cash Flow Statement FY 2008-09 Opening Balance CUB 01.04.2008 ..... Add: Receipts ......... Less: Payments Investment in Sun Direct 26,38,78,950 ....... 6. The petitioners aver that the factum of investment by the petitioners in Sun Direct, and the pricing methodology adopted was well within the knowledge of the assessing authority, as the assessing officer was common to both the petitioners and Sun Direct. In this connection, the petitioners draw attention to Schedule I of the Annual Report of Sun Direct, (page 67 of compilation dated 20.07.2022) that reads as follows: Sun Direct TV (P) Ltd. Schedules to the financial statements for the year ended 31.03.2008 As on March 31, 2008 As on March 31, 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, the respondent, being of the view that there has been escapement of income to tax, issued notices under Section 148 of the Act. Both petitioners responded stating that the ROIs filed originally be taken as filed in response to the notices under Section 148. Reasons recorded on the basis of which the reassessments had been initiated, were sought. 11. The reasons, common in W.P.Nos.3275 and 3276 of 2014 in the case of petitioner A, read as follows: As requested in your letter dated 26.04.2013, the reasons for reopening your assessment for the AY 2008-09 are furnished as under: Mr.Kalanidhi Maran, PAN: AFGPM8138N is a promoter Director in M/s. Sun Direct TV Pvt. Ltd., Chennai and assessed in Media Circle I, Chennai. He has filed his return of income for the assessment year 2009-10 on 28.07.2009 returning income of Rs.33,11,96,260/-. The case was taken up on scrutiny and an order u/s 143(3) was passed on 30.11.2011 assessing the income at Rs.33,39,11,300/- In the computation of income enclosed by him along with the return of income, he had disclosed the following income, namely: Income from Salary from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertainment Holdings Ltd was allotted shares on 10.12.2007, 02.04.2008, 31.07.2008 and on 30.09.2008 at a premium of Rs.69.57 for the allotment of shares of 3,96,77,420, 14704415, 10970211 and 3645256 shares respectively. Since the percentage of shares allotted to M/S.SAEHL is below 26%, it did not have any controlling stake in the Company. The value of the shares allotted to it is at Rs.79.57 per share including premium of Rs.69.57. However, the promoter Director was allotted shares at par. Section 2(24) (iv) of the Income-tax Act, 1961 defines that income includes the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such a person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid. Any perquisite or profits in lieu of salary is taxable under the provisions of Chapter IV-A of the Act. Further, clause (iv) of Section 28 provides that the value of any benefit or perquisite, whether convertible into m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AY 2009- 10 will be finalised based on material available on record as per law. 12. The reasons, recorded in the case of petitioner B, read as follows: As requested in your letter dated 26.04.2013, the reasons for reopening your assessment for the AY 2008-09 are furnished as under: Mrs. Kaveri Kalanidhi, PAN: AGIPK2942F is a promoter Director in M/s. Sun Direct TV Pvt. Ltd., Chennai and assessed in Media Circle I, Chennai. She has filed her return of income for the assessment year 2009-10 on 29.09.2009 returning income of Rs.32,72,74,380/-. The case was taken up on scrutiny and an order u/s 143(3) was passed on 30.11.2011 assessing the income at Rs.33,39,11,300/-. In the computation of income enclosed by her along with the return of income, she had disclosed the following income, namely: Income from Salary from M/s. Sun TV Network Ltd : 32,41,09,600 Income from House property : 2,29,795 Income from Other sources (interest Share from Trust) : 3,00,000 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promoter Director was allotted shares at par. Section 2(24)(iv) of the Income-tax Act, 1961 defines that 'income' includes the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such a person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid . Any perquisite or profits in lieu of salary is taxable under the provisions of Chapter IV-A of the Act. Further, clause (iv) of Section 28 provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income-tax under the head profits and gains of business or profession . Based on the above, am satisfied that by allotting shares at par to its Director, Smt.Kavery Kalanithi on 02.04.2008, 31.07.2008 and on 30.09.2008 while allotting shares at a premium of Rs.69.57 per share to SAEHL, the company has given a value of benefit but for such be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntimation has been issued in the case of Petitioner B and no scrutiny order was passed. Hence nothing turns on this error in the reasons recorded, though it was clearly to have been avoided. 14. The procedure for re-assessments has been settled by the Hon ble Supreme Court in the case of GKN Driveshafts (India) Ltd vs Income Tax Officer and Ors (259 ITR 19), and the relevant paragraph reads thus: We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking Order before proceeding with the assessment in respect of the abovesaid five assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(24)(iv) includes within the ambit of income , the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such a person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid. 21. Section 28(iv) provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income-tax under the head profits and gains of business or profession . According to the petitioner, neither of the provisions as aforesaid would be applicable to his case. 22. Section 17(2), which is an inclusive definition of the term perquisite , contains clause (vi) which deals with the value of any specified security or sweat equity shares allotted or transferred directly or indirectly by the employer or former employer, free of cost or at a concessional rate. 23. The impugned enhancement could only have been made, according to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if there is ambiguity in any of the four concepts then levy would fail. In this case, we are concerned with the forth concept. There is one more principle which is required to be noted. A benefit/receipt under the 1961 Act must be made taxable before it can be regarded as income . 8. During the assessment years 1997-98, 1998-99 and 1999- 2000 there was no provision in the said 1961. Act which made the benefit by way of ESOP taxable as income specifically. It became specifically taxable only with effect from 1.4.2000 when Section 17(2)(iiia) stood inserted. 9. At the outset, we may state that in these civil appeals we are not concerned with taxability but with the value of a perquisite. . 15. As stated above, unless a benefit/receipt is made taxable, it cannot be regarded as income . This is an important principle of taxation under the 1961 Act. Applying the above principle to the insertion of Clause (iiia) in Section 17(2) one finds that for the, first time w.e.f. 1.4.2000 the word cost stood explained to mean the amount actually paid for acquiring specified securities and where no money had been paid, the cost was required to be taken as nil. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er convertible into money or not, arising from business or the exercise of a profession. 22.On a first look of the said provision, it is apparent that such benefit or perquisite shall have arisen from the business activities or profession whereas in the instant case there is nothing as such. The applicability of Section 28(iv) is confined only to the case where there is any business or profession related transaction involved. Hence, the instant case cannot be covered Under Section 28(iv) of the IT Act for the purpose of tax liability. 26. Reference is also made to the judgment of the Calcutta High Court in the case of Commissioner of Income Tax V. PRS Oberoi (183 ITR 103). In all, petitioner A argues that if at all there is any benefit gained or perquisite earned, which fact is in itself denied, the applicability of Section 28(iv) would only be confined to business or professional transactions. In the case of PRS Oberoi (supra), the assessee was a Director and there was no employeremployee relationship between the assessee and the company warranting application of Section 28(iv) of the Act. So too in the present case. Hence, the ratio of the aforesaid decisions, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esses who had engaged in identical transactions. Hence they allege that they were being singled out for differential treatment. In the objections to assumption of jurisdiction, petitioners have enumerated instances where shares were allotted at par to the promoters and at a premium to overseas investors, identical to the present case. In none of the aforesaid cases has the revenue made any addition in the hands of the promoters. A compilation dated 04.02.2014 and comprising 9 annexures is filed that contains the extract of the financials of the companies stated to have engaged in similar issue of shares at differential pricing. 31. The instances cited are: 1.State Bank of India s IV with Australian Insurance Major 2.India First Life Insurance Company Limited 3.Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited 4.Apollo Munich Health Insurance Company Limited (formerly Apollo DKV Insurance Company Limited) 5.Just Dial Limited 6.TVS Automobiles Solutions Limited 7.Pipavav Shipyard Limited 8.Shriram Housing Finance Limited The above, in summary, are the submissions of the petitioners. 32. I now advert to the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction and no further. To this, Mr.Somayaji would retort that the question of jurisdiction should be seen contextually, taking note of the merits as well. While one facet of jurisdiction would flow from the specific statutory conditions, another facet of jurisdiction hinges upon the merits of the matter as well, as there would be no avenue to reopen the assessment if there was an apparent lack of justification to do so, in law. 38. If the reasons, based upon which the re-assessment is initiated, contain no merit whatsoever, in law, then, notwithstanding that the procedural and statutory requirements may be satisfied by the respondents, the reassessment would still fail. To counter, revenue would cite and rely upon a slew of decisions as set out below to explain the scope of judicial review when it comes to a challenge to quasi-judicial proceedings: (i) Sonia Gandhi V. ACIT (2018) 97 taxmann.com (Del) (ii) Acorus Unitech Wireless (P) Ltd. V. ACIT (2014) 43 taxmann.com 62 (Delhi) (iii) Choksi Vachharaj Makani Co. V. ACIT (2016) 76 taxmann.com 17 (Delhi) (iv) Yogendrakumar Gupta V. ITO (2014) 46 taxmann.com 56 (Guj.) (v) Yogendrakumar Gupta V. ITO (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not apparently arbitrary or illegal, Courts do not traverse much into this arena as it normally considered to be beyond the pan of preliminary judicial scrutiny, and falling within the realm of subjective satisfaction of the officer. This test will thus be restricted to an overall and prima facie evaluation of the reasons, only to determine if arbitrariness, illegality or irrationality is writ large thereupon. It is on the anvil of the above tests that I commence the discussion and first take up the case of petitioner B as it is legally, the simpler of the two matters before me. 45. The admitted legal and factual position in the case of Petitioner B is as follows: (i) A return of income has been filed within time. (ii) The return was, admittedly, not taken up for scrutiny. (iii) The impugned notice under Section 148 has been issued on 28.03.2013 within a period of four years. (iv) The procedure as prescribed in the context of GKN Driveshafs Vs. Income Tax Officer [259 ITR 19] was triggered by the petitioner adopting the return filed originally as filed in compliance of the notice and seeking the reasons for re-assessment. (v) The reasons disclose that the jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted beyond a period of four years but within six years in the former matter, whereas in the latter case, proceedings had been initiated within four years. 50. The relevant paragraphs in the aforesaid judgments are as follows: In the case of Rajesh Jhaveri: . . . . 16.Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification 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 in built idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd v. ITO [1991] 191 ITR 662, or initiation of action under section 147(a) (as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the High Court, we find that the main issue which is involved in this case is not at all addressed by the High Court. A contention was taken by the appellant-Department to the effect that since the assessee's return was accepted under Section 143(1) of the Income Tax Act, there was no question of change of opinion inasmuch as while accepting the return under the aforesaid provision no opinion was formed and therefore, on this basis, the notice issued was valid. We find that this aspect is squarely covered by the judgment of this part in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 in the following manner.- 15. In the scheme of things, as noted above, the intimation under Section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under Section 143(1)(a) as it stood prior to 1-4- 1989, the assessing officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet anchor of his argument. The re-assessment has been initiated just three days shy of the completion of four years, on 28.03.2013. The case of petitioner A would thus have to be tested in the context of whether the impugned proceedings constitute a review, impermissible in law. 54. The reasons disclose the receipt of information that was hitherto unavailable with the Assessing Authority. Though it is the specific case of the petitioner that the materials relied upon were available on record even at the first instance, there is nothing on record either by way of correspondences or any other material from the petitioner to indicate this. The financials of the company have filed before the Court to urge that the share pricing was duly disclosed therein and available with the officer. 55. That apart, the petitioner has also filed a copy of notice dated 26.08.2011 issued to the company and a copy of the financials of the company wherein, in the schedules for the year ended 31.03.2008 there is a disclosure made in regard to the differential pricing of the shares issued to the petitioners, at par, and those issued to South Asia Entertainment Holdings ltd., at a premium. In my view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was nothing but a review. 60. At paragraph 6, the Bench states as follows: 6. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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