TMI Blog2023 (7) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ny assessment u/s 143(3) of the Act has taken place in the present case. Even in a case where no scrutiny assessment has taken place, reassessment can be ordered only if the assessing officer has reason to believe that income chargeable to tax had escaped assessment. The Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. [ 2007 (5) TMI 197 - SUPREME COURT] has clearly held that notice for reopening an assessment under Section 148 of the Act could only be justified if the AO has reason to believe that income chargeable to tax has escaped assessment. Reason for the assessing officer to reopen the assessment is his belief that the share premium charged by the Petitioner was excessive and further that the transaction of the so called share premium was not established. AO apart from questioning the excessive share premium also is doubting the transaction, whereby the share premium had been received. Whether in the aforementioned facts the assessing officer could be said to have his reason to believe that income had escaped assessment and whether the material with the said assessing officer could be said to have any tangible material ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income to the time of Rs. 6,79,32,00,000/-chargeable to tax has escaped assessment for assessment year 2010-11 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary in the return of income for his assessment, for that assessment year. I am satisfied that this is the fit case to re-open u/s 147 of the Income Tax Act, 1961. Hence, a Notice u/s 148 of the I. T. Act is issued herewith for reassessment. 4. Objections were filed by the Petitioner against the reopening of the assessment, which came to be rejected by virtue of Order dated 20 January 2016. 5. The basis for reopening as is seen from the reasons furnished to the Petitioner are that during the year under consideration, the Petitioner had issued shares and charged premium thereupon at Rs. 6,79,32,00,000/- and that based upon analysis of the details and information of the Balance Sheet, the share premium charged was not justified on the basis of 'intrinsic valuation of shares' and 'Net Asset Value Method'. It is stated that the worth of the company was not such as would justify the charging of such a huge premium and that the nature of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Petitioner-company was incorporated under the Companies Act, 1956 for purposes of engaging in the business of generation and distribution of electricity and entered into a Memorandum of Understanding with Government of Madhya Pradesh for setting up a 1320 MW Thermal Power Project. The project being capital intensive funds were arranged by issuance of preference shares in favour of M/s Pony Infrastructure Contractors Ltd (previously known as Dynarnix Balwas Infrastructure Ltd.), which is stated to be a sister concern of the Petitioner herein. The Petitioner claims that during the relevant year Rs. 680 crores were raised as capital by issuing 68 lakh Optionally Convertible Preference Shares with face value of Rs.1 at a premium of Rs .999. It thus claims to have collected Rs. 68 lakh on account of share capital and Rs. 679 crores and Rs. 32 lakhs as share premium. 9. Objections to the reopening were filed, which were rejected by virtue of the Order dated 20 January 2018. 10. Mr. Sridharan, learned Senior Counsel appearing for the Petitioner urged that the vary basis for reopening was misconceived inasmuch as the receipt of premium on issuance of shares was not receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2013-14. 13. Apart from the above, it was urged that Section 68 was also amended by The Finance Act, 2012 with effect from the Assessment Year 2013-14 when first proviso was added to Section 68 providing for the share application money to be taxed in the hands of investee company, if source of funds of the investors were not sufficiently established. Section 68 and first proviso read as under : Section 68 Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : [ Provided that] where the assessee is a company (not being a company in which the public are 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 whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment (supra) held as under : The assessee had from the outset been contending that the assessee's accounts are duly audited and/ such audited accounts are presented alongwith the return. This has been so asserted in the objections before the Assessing Officer as well as in the petition before us. Both times the response of the Assessing Officer in the order disposing of the objections and the affidavit-in-reply filed in this petition is that the assessee's cash deposits can only be verified through assessment proceedings. In other words, the Assessing Officer does not even contended that the said cash deposits were not only reflected in the return filed, but that he wishes to verify the validity of such deposits and the assessee's claim of exemption, being a Trust. It is well settled through serious of judgments of this Court that re-assessment, even in a case where the return was not scrutinized before acceptance originally, cannot be resorted to unless the Assessing Officer had a reason to believe that the income chargeable to tax has escaped assessment. In other words, for mere verification or for a fishing inquiry, reopening of the assessment is not permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y so, as Section 68 of the Act empowered him to do so and further that whenever an assessee represents that the receipt of shares on the receipt of share application money and an amount received is credited in the books of account of the company, the Income Tax Officer, who would be entitled to see whether the alleged shareholders do in fact exist or not. 20. We have heard learned Counsel for the parties. 21. It can be seen from the record that while disposing of the objections to the reopening, the A.O. has held as under: 7. As far as the argument that receipt of premium on the issue of shares cannot lead one to come to the conclusion that income has escaped assessment is concerned, it is premature, as the assessment proceedings are just initiated and only after the finalization of assessment and after considering the facts of the case whether the share premium received by the assessee was genuine or not and fully explained or not would be decided. If the cash credit shown in assessee's balance sheet is found unjustified, the AO can treat the same as unexplained cash credit u/s. 88 of the I.T. Act. Therefore, on this ground, the assessee's plea cannot be accepta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. 291 ITR 500 has clearly held that notice for reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. 26. The reason for the assessing officer to reopen the assessment is his belief that the share premium charged by the Petitioner was excessive and further that the transaction of the so called share premium was not established. In other words, the assessing officer apart from questioning the excessive share premium also is doubting the transaction, whereby the share premium had been received. Whether in the aforementioned facts the assessing officer could be said to have his reason to believe that income had escaped assessment and whether the material with the said assessing officer could be said to have any tangible material justifying the reopening is the issue that falls for our consideration. 27. There is no dispute that in Vodafone India Services (P.) Ltd. it stands concluded that receipt of share capital including the premium was on capital acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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