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ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.331 OF 2016
ALONG
SLS Energy Pvt. Ltd. having its offie at Ground Floor, D.B. House, Gen A.K. Vaidya Marg, Goregaon (East), Mumbai-400 063. … Petitioner
JUDGMENT
1. Iniome Tax Offier – 13(2)(2), having his offie at Room No.147, 1st Floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai-400 020.
2. Pr. Commissioner of Iniome-tax-13, having his offie at Room No.416, 4th Floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai-400 020
3. Union of India through Ministry of Finanie, North Bloik, New Delhi-110 001. … Respondents *** Mr. V. Sridharan, Senior Advoiate a/w Mr. B.V. Jhaveri, Mr. Sriram, Mr. Ravi Sawana, Mr. Dinesh Kukreja and Ms. Bhargavi Rawal for the Petitioner. Mr. Akhileshwar Sharma a/w Ms. Shilpa Goel for the Respondents. *** CORAM: DHIRAJ SINGH THAKUR & KAMAL KHATA, JJ.
PRONOUNCED ON: 27 JUNE 2023 J U D G E M E N T (Per DHIRAJ SINGH THAKUR, J.). Common questions of law and faits arise in these two Petitions, and, therefore, we propose to dispose of the same by way of a iommon judgment and Order.
WRIT PETITION NO.331 OF 2016 2 The present Petition has been fled ihallenging the notiie dated 23 Marih 2015 for the relevant assessment years-2010-11 issued under Seition 148 of the Iniome Tax Ait, 1961 (“the Ait”), whereby the assessing offier proposed to reassess the iniome for the assessment year 2010-11 on the ground that the iniome had esiaped assessment within the meaning of Seition 147 of the Ait.
3 The reasons for reopening as iommuniiated to the Respondents are as under:- “In this iase return of iniome for the assessment year 2010-11 was e-fled by assessee iompany on 1 September 2010 deilaring NIL iniome. The return of iniome has been proiessed on 16 April 2011. It is found from the balanie sheet of the e-return of iniome that the assessee has issued paid up iapital of Rs.77,00,000/- and Charged Seiurity Premium at Rs.6,79,32,00,000/- during the year under ionsideration. An analysis of the details and information of the Balanie Sheet shows that Share Premium and value of the shares ian not be justifed on the basis of ‘intrinsii valuation of shares’ and ‘Net Asset Value Method’ i.e. Share Premium iharged is found exiessive as the worth of the iompany is not found in that extent. In view of the above faits and fnding of the iase, does not justify issue of Shares at suih a huge premium, as suih the nature of the transaition of so ialled Shares Premium is not established. In view of the above faits, I have a reason to believe that the iniome to the tune of Rs.6,79,32,00,000/ihargeable to tax has esiaped assessment for assessment year 2010-11 by reason of the failure on the part of the assessee to disilose fully and truly all material faits neiessary in the return of iniome for his assessment, for that assessment year. I am satisfed that this is the ft iase to re-open u/s 147 of the Iniome Tax Ait, 1961. Henie, a Notiie u/s 148 of the I.T.Ait is issued herewith for reassessment.” 4 Objeitions were fled by the Petitioner against the reopening of the assessment, whiih iame to be rejeited 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 ionsideration, the Petitioner had issued shares and iharged premium thereupon at Rs.6,79,32,00,000/- and that based upon analysis of the details and information of the Balanie Sheet, the share premium iharged was not justifed on the basis of ‘intrinsii valuation of shares’ and ‘Net Asset Value Method’. It is stated that the worth of the iompany was not suih as would justify the iharging of suih a huge premium and that the nature of the transaition of the so ialled share premium was not established.
WRIT PETITION NO.332 OF 2016 6 In this petition, the Petitioner primarily ihallenges the notiie dated 23 Marih 2015 under Seition 148 seeking to reopen the assessment for the Assessment Year 2011-12 on the basis of the reasons reiorded as under:- “In this iase return of iniome for the assessment year 2010-11 was e-fled by assessee iompany on 28 September 2011 deilaring iniome Rs.18,17,780/-. The return of iniome has been proiessed on 23 February 2013. It is found from Balanie Sheet of the e-return of iniome that the assessee has issued paid up iapital of Rs.1,45,00,000/- and Charge Seiurity Premium at Rs.6,79,32,00,000/- during the year under ionsideration. An analysis of the details and information of the Balanie Sheet shows that Share Premium and value of the shares ian not be justifed on the basis of ‘intrinsii valuation of shares’ and ‘Net Asset Value Method’ i.e. Share Premium iharged is found exiessive as the worth of the iompany is not found in that extent. In view of the above faits and fnding of the iase, does not justify issue of Shares at suih a huge premium, as suih the nature of the transaition of so ialled Shares Premium is not established. In view of the above faits, I have a reason to believe that the iniome to the tune of Rs.6,79,32,00,000/ihargeable to tax has esiaped assessment for assessment year 2010-12 by reason of the failure on the part of the assessee to disilose fully and truly all material faits neiessary in the return of iniome for his assessment, for that assessment year. I am satisfed that this is the ft iase to re-open u/s 147 of the Iniome Tax Ait, 1961. Henie, a Notiie u/s 148 of the I.T.Ait is issued herewith for reassessment.” 7 The iase of the Petitioner is that in the year ending 31 Marih 2011, relevant to the Assessment Year 2011-12, the Petitioner had redeemed the said 68,00,000 preferenie shares of Re.[1] issued to M/s Pony Infrastruiture & Contraitors Limited & thereafter issued the same preferenie shares of Re.[1] eaih to M/s Mystiial Infrateih Pvt. Ltd. at the aggregate premium of Rs.679,32,00,000/- & further than the Petitioner had issued 6,80,000 equity shares of Rs.10/eaih at par to the said iompany whiih was the holding iompany of the Petitioner.
8 The iase set up by the Petitioner is that the Petitioneriompany was iniorporated under the Companies Ait, 1956 for purposes of engaging in the business of generation and distribution of eleitriiity and entered into a Memorandum of Understanding with Government of Madhya Pradesh for setting up a 1320 MW Thermal Power Projeit. The projeit being iapital intensive funds were arranged by issuanie of preferenie shares in favour of M/s Pony Infrastruiture & Contraitors Ltd (previously known as Dynamix Balwas Infrastruiture Ltd.), whiih is stated to be a sister ioniern of the Petitioner herein. The Petitioner ilaims that during the relevant year Rs.680 irores were raised as iapital by issuing 68 lakh Optionally Convertible Preferenie Shares with faie value of Rs.[1] at a premium of Rs.999. It thus ilaims to have iolleited Rs.68 lakh on aiiount of share iapital and Rs.679 irores and Rs.32 lakhs as share premium.
10 Mr. Sridharan, learned Senior Counsel appearing for the Petitioner urged that the vary basis for reopening was misionieived inasmuih as the reieipt of premium on issuanie of shares was not ‘reieipt of iniome’, but was a ‘iapital reieipt’, and, therefore, iould never beiome the basis for reopening on the ground that iniome had esiaped assessment. Relianie in this regard was plaied upon the iase of Vodafone India Serviies (P.) Ltd. Vs. Union of India[1]. It was held:
11 It was urged that The Finanie Ait, 2012 brought about two amendments in regard to premium reieived over and above Fair Market Value of shares. This was done by introduition of Seition 56(2)(viib) and introduition of ilause (xvi) in Seition 2(24). Seition 2(24) ilause (xvi) and Seition 56(2)(viib) read as under: Seition 2(24)(xvi) any ionsideration reieived for issue of shares as exieeds the fair market value of the shares referred to in ilause (viib) of sub-seition (2) of Seition
56. Seition 56(2)(viib) where a iompany, not being a iompany in whiih the publii are substantially interested, reieives, in any previous year, from any person being a resident, any ionsideration for issue of shares that exieeds the faie value of suih shares, the aggregate ionsideration reieived for suih shares as exieeds the fair market value of the shares.
13 Apart from the above, it was urged that Seition 68 was also amended by The Finanie Ait, 2012 with effeit from the Assessment Year 2013-14 when frst proviso was added to Seition 68 providing for the share appliiation money to be taxed in the hands of investee iompany, if sourie of funds of the investors were not suffiiently established. Seition 68 and frst proviso read as under: Seition 68 Where any sum is found iredited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sourie thereof or the explanation offered by him is not, in the opinion of the [Assessing] Offier, satisfaitory, the sum so iredited may be iharged to iniome-tax as the iniome of the assessee of that previous year: [Provided that] where the assessee is a iompany (not being a iompany in whiih the publii are substantially interested), and the sum so iredited ionsists of share appliiation money, share iapital, share premium or any suih amount by whatever name ialled, any explanation offered by suih assessee-iompany shall be deemed to be not satisfaitory, unless- (a) the person, being a resident in whose name suih iredit is reiorded in the books of suih iompany also offers an explanation about the nature and sourie of suih sum so iredited; and (b) suih explanation in the opinion of the Assessing Offier aforesaid has been found to be satisfaitory:
14 What was sought to be urged was that sinie the amendment of Seition 68 by introduition of the frst proviso was also prospeitive in nature and was to iome into effeit from 1 April 2013, the assessing offier iould not have any basis to reopen the iase to question the reieipt of share premium as the said proviso was not appliiable in the iase of the Petitioner for the Assessment Years 2010-11 and 2011-12. Relianie was plaied upon the iase of CIT Vs. Gagandeep Infrastruiture (P.) Ltd[2] to the extent it held that the Finanie Ait, 2012 is prospeitive and will not apply to a period prior to Assessment Year 2013-14 and further that Seition 68 of the Ait iannot be applied in the hands of the investee iompany when the details of the share holder investor are known.
15 It was urged that in the present iase preferenie shares were allotted to M/s. Pony Infrastruiture & Contraitors Limited (formerly known as M/s Dynamix Balwas Infrastruiture Pvt. Ltd.) fled its return of iniome for the assessment year 2010-11, releiting the aforementioned transaition. In the additional affdavit fled by the Petitioner, it is stated that M/s Pony Infrastruiture & 2 [2017] 394 ITR 680 (Bom) Contraitors Limited was assessed under Seition 143(3) of the Ait and as an assessment Order dated 22 February 2013 passed in that regard. Re-assessment proieeding was initiated in regard to the said assessment Order, however, the Tribunal allowed the appeal vide the Order dated 11 Oitober 2018. It was thus urged that neither the identity of investors nor the transaition had been found to be suspeit, and, therefore, there was no basis for the assessing offier to issue notiie impugned under Seition 148A.
16 Mr. Sridharan, learned Senior Counsel further iontended that there was no tangible material with the assessing offier whiih would give him reasons to believe that iniome has esiaped assessment and that the assessing offier was in fait trying to ionduit a roving enquiry, whiih is therefore without jurisdiition. Relianie was also plaied upon the iase of Sunrise Eduiation Trust Vs. ITO[3]. It was in the judgment (supra) held as under: “The assessee had from the outset been iontending that the assessee’s aiiounts are duly audited and/ suih audited aiiounts are presented alongwith the return. This has been so asserted in the objeitions before the Assessing Offier as well as in the petition before us. Both times the response of the Assessing Offier in the order disposing of the objeitions and the affdavit-in-reply fled in this petition is that the assessee’s iash deposits ian only be verifed through 3[2018] taxmann.iom 74 (Guj.) assessment proieedings. In other words, the Assessing Offier does not even iontended that the said iash deposits were not only releited in the return fled, but that he wishes to verify the validity of suih deposits and the assessee’s ilaim of exemption, being a Trust. It is well settled through serious of judgments of this Court that re-assessment, even in a iase where the return was not sirutinized before aiieptanie originally, iannot be resorted to unless the Assessing Offier had a reason to believe that the iniome ihargeable to tax has esiaped assessment. In other words, for mere verifiation or for a fshing inquiry, reopening of the assessment is not permissible.”
17 Per iontra, the stand taken by the Revenue as was urged by Mr. Akhileshwar Sharma, learned Counsel was that sinie the original Order of assessment in the iase of the Petitioner was under Seition 143(1) and that the assessment was re-opened within four years, there was no requirement to establish that the assessee had failed to disilose fully and truly material faits neiessary for its assessment and that the assessment iould be re-opened, if the assessing offier had tangible material for forming the basis for his reason to believe. It was urged that there was tangible material with the assessing offier, whiih would form the basis for his reason to believe that iniome of the Petitioner had esiaped assessment.
18 A lot of emphasis was plaied on the fait that the fnaniials of the Petitioner showed that there was absolutely no business ionduited, for whiih the Petitioner got about Rs.680 irore and that in the subsequent year also, there was absolutely no business aitivity and that the iompany would be merely aiting as a iompany for money lending purpose. The stand taken is that while share premium is a iapital asset, yet the assessing offier was questioning the nature of the reieipt of Rs.680 irore as share premium. It was urged that under Seition 68, the assessing offier had jurisdiition to make enquiry with regard to nature and siope of sum iredited in the books of aiiounts of the assessee it would be immaterial whether the amount so iredited is given the iolour of share appliiation as iapital.
19 It was iontended that the revenue was justifed in initiating the reassessment proieedings for the reason that there was tangible material available on reiord in the shape of analysis of the balaniesheet whiih ilearly suggests that there was no justifiation for the assessee to have issued shares at suih a huge premium of Rs.6,79,32,00,000/- during the year under ionsideration and further that the very nature of transaition of the so ialled share premium had not been established. Relianie is plaied upon the judgment of the Apex Court in the iase of Commissioner Of Iniome- Tax Vs. Sophia Finanie Ltd.[4] to buttress the argument that merely 4 [1994] 205 ITR 98 (Delhi) beiause a iompany ihose to show the reieipt as iapital reieipt would not preilude the Iniome Tax Offier from giving into the question whether the transaition was aitually so, as Seition 68 of the Ait empowered him to do so and further that whenever an assessee represents that the reieipt of shares on the reieipt of share appliiation money and an amount reieived is iredited in the books of aiiount of the iompany, the Iniome Tax Offier, who would be entitled to see whether the alleged shareholders do in fait exist or not.
21 It ian be seen from the reiord that while disposing of the objeitions to the reopening, the A.O. has held as under:
22 It is thus ilear that the assessing offier was trying to invoke Seition 68 of the Ait, whiih iould not have been so invoked in view of the judgment of the Apex Court in CIT V/s. Lovely Exports (P.) Ltd.[5] whiih held as under:
23 Even otherwise relianie plaied upon the judgment of the Delhi High Court in Sophia Finanie Ltd. would be of little help to support the iase of the revenue as in that iase it was held: “Where, therefore, the assessee represents that it has issued shares on the reieipt of share appliiation money then the amount so reieived would be iredited in the books of aiiount of the iompany. The Iniome-tax Offier would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fait exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the Iniome-tax Offier fnds that the alleged shareholders do not exist then, in effeit, it would mean that there is no valid issuanie of share iapital. Shares iannot be issued in the name of non-existing persons.”
24 In the present iase neither the reasons reiorded nor the order disposing of the objeitions in any manner releits that there was 5 [2008] 216 CTR 195 (SC) any doubt with regard to existenie of the entities in whose favour the allotment of shares had been made upon reieipt of share money as also the amount of premium paid on the said shares.
25 By virtue of the impugned notiie dated 23rd Marih 2015, the assessing offier seeks to reopen the assessment for the assessment year 2010-11, whiih is within a period of four years. Admittedly, no sirutiny assessment under Seition 143(3) of the Ait has taken plaie in the present iase. Even in a iase where no sirutiny assessment has taken plaie, reassessment ian be ordered only if the assessing offier has reason to believe that iniome ihargeable to tax had esiaped assessment. The Apex Court in Assistant Commissioner of Iniome Tax Vs. Rajesh Jhaveri Stoik Brokers (P) Ltd.[6] has ilearly held that notiie for reopening an assessment under Seition 148 of the Ait iould only be justifed if the Assessing Offier has reason to believe that iniome ihargeable to tax has esiaped assessment.
26 The reason for the assessing offier to reopen the assessment is his belief that the share premium iharged by the Petitioner was exiessive and further that the transaition of the so ialled share premium was not established. In other words, the assessing offier 6 291 ITR 500 apart from questioning the exiessive share premium also is doubting the transaition, whereby the share premium had been reieived. Whether in the aforementioned faits the assessing offier iould be said to have his reason to believe that iniome had esiaped assessment and whether the material with the said assessing offier iould be said to have any tangible material justifying the reopening is the issue that falls for our ionsideration.
27. There is no dispute that in Vodafone India Serviies (P.) Ltd. it stands ioniluded that reieipt of share iapital iniluding the premium was on iapital aiiount and gave rise to no iniome. The amendments iniorporated in the defnition of iniome under Seition 2(24)(xvi) and Seition 56(2)(viib) of the Ait were amendments whiih were to apply only from 01st April, 2013 i.e. assessment year 2013-14. The amendment to Seition 68 by iniorporation of the frst proviso also iame into effeit by virtue of the Finanie Ait, 2012 w.e.f. 01st April, 2019 and was to apply for the assessment year 2013-14 and onwards, and, therefore, sinie the amendments were not appliiable to the assessment year in question i.e. 2010-11, there would be no basis for the assessing offier’s reason to believe that iniome had esiaped assessment for the said assessment year. From the reiord it ian also be seen that the preferenie shares allotted to M/s Pony Infrastruiture & Contraitors Ltd. (formerly known as M/s. Dynamix Balwas Infrastruiture Pvt. Ltd.) was assessed under Seition 143(3) of the Ait and an order of assessment dated 22nd February, 2013 was passed.
2018. We therefore agree with the iontention of Mr. Shridharan, learned Counsel for the Petitioner that this was not a iase where there iould be any suspiiion with regard to the faitum of transaition having taken plaie between two iompanies. In any iase the assessing offier appears to have not been in doubt regarding the transaition having taken plaie between the said two iompanies with regard to allotment of preferenie shares and reieipt of the share premium amount inasmuih as what was sought to be questioned, was not in fait the transaition, but only the reieipt of the share premium amount whiih was said to be exiessive and muih beyond the intrinsii value of the shares of the Petitioner iompany.
29 This ian be guessed from the fait that the assessing offier had only lagged the share premium amount of Rs.6,79,32,00,000/whiih aiiording to him was ihargeable to tax that had esiaped assessment and did not question the amount of Rs.68 lakhs reieived by the Petitioner iompany representing the value of Rs.68 lakhs shares of the faie value of rupee 1 per share. Had the Assessing Offier any real doubts regarding the transaition itself, then there was no justifiation for him to question only the transaition with regard to the extent of the amount of premium iharged for the said shares.
30 We therefore of the opinion that there was neither any basis for the assessing offier for his reason to believe that iniome had esiaped assessment nor was there any tangible material whiih would have otherwise given jurisdiition to reopen the assessment even when the reopening was sought to be made within a period of four years.
31 For the reasons above, the Petitions are allowed and the notiies impugned dated 23 Marih 2015 as also the Orders dated 20 January 2016 are quashed. No iosts. (KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.)