ABEER TEXTILES PRIVATE LIMITED THRU DIRECTOR NAISHADH INDRAKANT PARIKH V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1)

SCA/2789/2022

AI Insights

The case involves Abeer Textiles Private Limited, which challenged the notice issued by the Assistant Commissioner of Income Tax for reopening its assessment for the Assessment Year 2014-2015. The reopening was based on the grounds that the company had received a share premium of Rs. 24,30,50,000, which was allegedly not in commensuration with its financial status as it had declared a loss in the previous year. The company argued that all necessary disclosures were made during the original assessment, and the issue of share premium was already considered, thus reopening constituted a mere change of opinion. The court found that there was no new tangible material to justify the reopening and that the original assessment had thoroughly examined the issue.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 763475 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 29-08-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income tax v. Kelvinator of India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M R BHATT; KARAN SANGHANI; MUNJAAL BHATT
• Assessee Lawyers: HIREN TRIVEDI
• Keywords: Assessment Year 2014-2015; Escapement of income; Income tax reassessment; Share premium
• Section: 147; 148; 142(1); 143(2); 139(1); 151; 56(2)(viib)

Judgement Text

"C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 2789 of 2022 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== ABEER TEXTILES PRIVATE LIMITED THRU DIRECTOR NAISHADH INDRAKANT PARIKH Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1) ========================================================== Appearance: HIREN J TRIVEDI(8808) for the Petitioner(s) No. 1 MR MR BHATT SENIOR ADVOCATE WITH MR KARAN SANGHANI WITH MR MUNJAAL BHATT FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 29/08/2022 ORAL JUDGMENT Page 1 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned advocate Mr. Hiren j. Trivedi for the petitioner and learned Senior Advocate Mr. M.R. Bhatt with learned advocate Mr. Karan Sanghani with learned advocate Mr. Munjaal Bhatt for M.R. Bhatt and Co. for the respondent. 2.Having regard to the controversy involved in the present case which lies in a very narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing. 3.Rule returnable forthwith. Learned advocate Mr. Karan Sanghani waives service of notice of rule on behalf of the respondent. 4.By this petition under Article 226 of the Constitution of India, the petitioner has Page 2 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 challenged the notice dated 25.03.2021 issued under section 148 of the Income Tax Act, 1961 (For short “the Act”) for reopening of the assessment proceedings for the Assessment Year 2014-2015 and order disposing objections raised by the petitioner company dated 11.08.2021. 5.Brief facts of the case are as under : 5.1) The petitioner is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in manufacturing business. 5.2) The petitioner company filed its return of income under section 139(1) of the Act for the Assessment Year 2014-2015 on 29.09.2014 declaring total loss of Rs. (-)10,81,506/-. Page 3 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 5.3) Case of the petitioner was taken for scrutiny assessment under section 143(2) of the Act. The Assessing Officer issued notice under section 142(1) of the Act dated 15.09.2016 calling for details of share premium received along with details like PAN, address and copies of income tax return. 5.4) The petitioner vide letter dated 22.09.2016 supplied the necessary details as called for. 5.5) The Assessing Officer issued yet another notice dated 2.12.2016 calling for providing copy of CA certificate for market value of shares by applying Rule 11UA of the Income Tax Rules, 1962 with regard to premium received from Amazon Textile Pvt Ltd of Rs. 2,20,00,000/- and also asked the petitioner company to explain why provisions of section 56(2) of the Act should not be invoked. Page 4 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 5.6) The petitioner vide reply dated 8.12.2016 provided the CA certificate and gave explanation for non applicability of section 56(2)(viib) of the Act to the case of the petitioner. 5.7) The Assessing Officer passed the assessment order dated 26.12.2016 wherein no addition was made under section 56(2)(viib) of the Act, however addition on account of capital gains of Rs. 93,17,500/- was made. 5.8) The respondent issued notice under section 148 of the Act dated 25.03.2021 for the Assessment Year 2014-2015 for reopening the assessment. 5.9) The petitioner therefore, filed the return of income on 19.04.2021 and requested for a copy of the reasons recorded by the Page 5 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 Assessing Officer. Such reasons recorded dated 22.03.2021 were provided to the petitioner by communication dated 11.05.2021. The reasons recorded by the Assessing Officer for reopening the assessment under section 147 of the Act read as under : “Reasons for reopening the assessment in the case of M/s. ABEER TEXTILE PVT LTD for A.Y.2014-15 u/s 147 of the I.T. Act. 1. Brief facts of the case: The original return of income was filed by the assessee on 29.09.2014 declaring total income of Rs.(-)10,81,506/-. Assessment u/s 143(3) was completed on 26.12.2016 by determining total income at of Rs.85,35,990/-. 2. Brief details of information received: In this case, during the course of the assessment proceedings in the case of Amazon Textiles Pvt Ltd. (PAN AABCB6914E) for A.Y.2014-15, it is seen that the Amazon Textiles Pvt Ltd. has purchased shares of Rs.24,30,50,000/- from the assessee on more than fair market value. On perusal of the case records of the assessee, it is seen that during the year under consideration, the assessee has received share premium of Rs.24,30,50,000/-. The assessee-company has claimed to have Page 6 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 complied with the rule 11UA of the I.T. Rules. Further, the assessee-company has declared the loss of Rs.(-)867/- as per the return of income for AY.2013-14. Thus, the financial results of the assessee-company had been adversely affected. Therefore, the assessee has received share premium amounting to Rs. 24,30,50,000/- which is required to be taxed under the provisions of section 56(2)(vii) of the Act. 3. Analysis of information received:As per information, during the course of the assessment proceedings in the case of Amazon Textiles Pvt Ltd. (PAN AABCB6914E) for A.Y.2014-15, it is seen that the Amazon Textiles Pvt Ltd. has purchased shares of Rs.24,30,50,000/- from the assessee on more than fair market value. On perusal of the case records of the assessee, it is seen that during the year under consideration, the assessee has received share premium of Rs.24,30,50,000/-. The assessee-company has claimed to have complied with the rule 11UA of the I.T. Rules. Further, the assessee-company has declared the loss of Rs.(-)867/- as per the return of income for AY.2013-14. Thus, the financial results of the assessee-company had been adversely affected. Therefore, the assessee has received share premium amounting to Rs. 24,30,50,000/- which is required to be taxed under the provisions of section 56(2)(vii) of the Act. Page 7 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 4. Enquiries made by the AO as sequel to information collected/ received: In this case, specific information has been received clearly outlining the systematic evasion of taxes by the assessee. The facts as enumerated above have been found out on examination on the case records of the assessee and are self explanatory. Therefore, no further enquiry is required in this case. On the basis of the same there are reasons to believe that the income chargeable to tax has escaped assessment. 5. Findings of the AO: After analysis of the information with the facts available on record, it can be concluded that the Amazon Textiles Pvt Ltd. has purchased shares of Rs.24,30,50,000/- from the assessee on more than fair market value. On perusal of the case records of the assessee, it is seen that during the year under consideration, the assessee has received share premium of Rs.24,30,50,000/-. The assessee-company has claimed to have complied with the rule 11UA of the I.T. Rules. Further, the assessee-company has declared the loss of Rs.(-)867/- as per the return of income for A.Y.2013-14. Thus, the financial results of the assessee- company had been adversely affected. Therefore, the assessee has received share premium amounting to Rs. 24,30,50,000/- which is required to be taxed under the provisions of section 56(2)(viib) of the Act. Therefore, an amount of Rs. 24,30,50,000/- has escaped assessment and the same is required to be brought to tax. Page 8 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 6. Basis of forming reason to believe and details of escapement of income: In this regard, it is stated that the information was not in the possession of the undersigned earlier. The said information/scheme of tax evasion could be unearthed only after receiving the information. Although, during the course of assessment proceedings, the assessee submitted, P&L account, Balance sheet and other details, the scheme of tax evasion was embedded in annual report, audited P&L A/c, balance sheet and books of account in such a manner that it could not be detected by the AO and could be detected only receiving the information. It can be reasonably concluded that there is failure on the part of assessee to disclose fully and truly all necessary facts during the assessment proceedings. For aforesaid reasons, it is not a case of change of opinion by the AO. It is evident from the above facts as mentioned in the para 3 & 5, that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration. On the basis of the above, I have reason to believe that income of the assessee to the extent of Rs.24,30,50,000/- has escaped assessment for the year under consideration. Therefore, I am satisfied that it is a fit case for initiating proceedings u/s 147 of the Act. 7. Paragraph will include escapement of income chargeable to tax in relation to Page 9 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 any assets (including financial interest in any entity) located outside India: NA 8. Applicability of the provisions of section 147/151 to the facts of the case: In this case a return of income was filed for the year under consideration and regular assessment u/s. 143(3) of the Act on 26.12.2016 Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings u/s. 147 are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraph 4, 5 and 6). In this regard, it is also pertinent to mention here that above referred details have not been called for by the AO and thus are not been examined by the AO nor such details are furnished by the assessee. It was only after receiving the information that this scheme of tax evasion could be unearthed. It is pertinent to mention here that the aforesaid information was not in the possession of the undersigned earlier. have carefully considered the assessment records containing the submissions made by the assessee in response to various notices issued during the assessment Page 10 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 proceedings and have noted that the assessee has not fully and truly disclosed the following material facts necessary for assessment for the year under consideration: In the AY 2014-15, there is an escapement of income chargeable to tax aggregating to Rs.24,30,50,000/-. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary for assessment for the year under consideration thereby necessitating reopening u/s. 147 of the Act. It is true that the assessee has filed a copy of annual report and audited Profit & Loss A/c and Balance Sheet alongwith return of income where various information/material were disclosed. However, the requisite full and true disclosure of all the material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has produced books of account, annual report, audited P&L A/c and Balance Sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act. It is evident from the above discussion Page 11 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 that in this case, the issues under consideration were never examined by the AO during the course of regular assessment This fact is corroborated from the contents of notices issued by the AO u/s 143(2)/142(1) and order sheet entries recorded during the assessment proceedings. It is important to highlight here that material facts relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceeding and the same may be embedded in annual report, audited P&L A/c, Balance sheet and books of accounts in such a manner that it would require due diligence by the AO to extract these information. For aforestated reasons, it is not a case of change of opinion by the AO. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence necessary sanction to issue the notice u/s. 148 is being requested from Principal Commissioner of Income tax as per the provisions of section 151 of the Act.” 5.10) The petitioner company raised its objections to the reasons recorded vide letter dated 26.05.2021. 5.11) The Assessing Officer rejected such Page 12 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 objections vide order dated 11.08.2021. Thereafter, assessment proceedings continued and notices under section 142(1) of the Act dated 11.08.2021 and 24.11.2021 were issued. The petitioner also gave replies dated 30.11.2021 and 13.01.2021 to such notices. 5.12) Being aggrieved by the action of the respondent of issuing notice and disposing of the objections of the petitioner, the petitioner has preferred this petition. 6.Learned advocate Mr. Hiren J. Trivedi for the petitioner submitted that only reason for reopening of assessment under section 147 of the Act is that as per the Assessing Officer, the assessee company has issued shares and received share premium i.e. amount in excess of fair market value of shares amounting to Rs. 24,30,50,000/- which is required to be taxed under the provisions of Page 13 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 section 56(2)(viib) of the Act. It was submitted that the assessee company had already been assessed and order section 143(3) of the Act was passed on 26.12.2016. At the time of filing the return of income as well as during the course of assessment proceedings, the assessee company had filed the financial statement of the company which shows that the company has issued equity shares during the year under consideration at premium. It was therefore, submitted that all necessary materials pertaining to the issue for which the case of the company has been reopened was already available on record and in fact during the assessment proceedings, the assessee had submitted various explanations as well as documentary evidences which included certain details with respect to the issue of 2,20,00,000 shares which the assessee company had already supplied to the Assessing Officer. It was submitted that Page 14 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 after consideration of all these materials, the order under section 143(3) of the Act accepting the return filed by theassessee came to be passed. 6.1) It was submitted that during the original assessment proceedings the petitioner had provided copy of audited financial statement, copy of Form NO.2 with respect to allotment of shares, acknowledgment of return of income filed by the shareholder and copy of share application money on account appearing in the books of account of petitioner along with copy of bank statement as called for by the Assessing Officer. It was further submitted that the petitioner company also provided the CA certificate for market value under Rule 11UA/ 11U of the Rules as called for by the Assessing Officer. It was submitted that since the shares were issued at fair value, Page 15 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 the petitioner company has not received any excess payment and thus provisions of section 56(2)(viib) of the Act are not applicable to the case of the petitioner which fact was brought to the notice of the Assessing Officer. 6.2) Learned advocate Mr. Trivedi submitted that after examining the issue threadbare, the Assessing Officer made no additions under section 56(2)(viib) of the Act and therefore, reopening is nothing but mere change of opinion. It was further submitted that reason to believe must have a live link with formation of opinion on the basis of any tangible new material and nosuch new material has been brought on record. 6.3) Learned advocate Mr. Trivedi further submitted that reopening of assessment is beyond the applicable limit of period of Page 16 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 limitation of four years as per section 147 read with section 149 of the Act. It was submitted that during the course of original assessment proceedings, the petitioner company duly submitted each and every detail called for and such details were verified by the Assessing officer and therefore, reassessment proceedings beyond a period of four years cannot be permitted. 7.On the other hand learned Senior Advocate Mr. M.R. Bhatt for the Revenue submitted that the petition is filed at a pre-mature stage inasmuch as only a notice under section 148 read with section 147 of the Act for the Assessment year 2014-2014 has been issued and in the event the petitioner is aggrieved by the reassessment proceedings, alternative efficacious remedy is available by way of an appeal before the CIT(Appeal) and thereafter before the Tribunal as per the provisions of Page 17 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 the Act. 7.1) Learned Senior Advocate Mr. Bhatt submitted that the case was reopened on the basis of information that during the course of assessment proceedings in case of Amazon Textiles Pvt. Ltd. it was observed that the Amazon Textiles Pvt. Ltd. had purchased shares of Rs. 24,30,50,000/- from the petitioner on fair market value and the petitioner had received share premium of Rs. 24,30,50,000/- whereas the petitioner had declared loss of Rs. (-) 867 as per the return of income for Assessment Year 2013- 2014 and therefore, the share premium does not commensurate with the financial status of the petitioner. 7.2) Learned Senior Advocate Mr. Bhatt submitted that petitioner failed to submit valuation report under Rule 11UA based on the Page 18 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 audited balance sheet and therefore, there is clear failure on part of the petitioner to fully and truly disclose material facts necessary for assessment. It was therefore, submitted that there is escapement of income in view of the aforesaid facts which give jurisdiction to the Assessing Officer to reopen the assessment. 8.Considering the submissions made by the learned advocates on both the sides, it appears that the impugned notice under section 148 of the Act, 1961 is issued only on the ground that the assessee has received share premium amounting to Rs.24,30,50,000/- which is required to be taxed under the provisions of section 56(2)(viib) of the Act. 9.During the original assessment proceedings the petitioner had provided copy of audited financial statement, copy of Form no.2 with Page 19 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 respect to allotment of shares, acknowledgment of return of income filed by the shareholder and copy of share application money on account appearing in the books of account of the petitioner along with copy of bank statement. 10. The petitioner assessee had submitted copy of valuation certificate determining the fair value of the shares by applying Rule 11UA/11U of the Income Tax Rules, 1962. All other details proving the identity, creditworthiness and genuineness of the shareholders have also been provided to the Assessing Officer. 11. Further, the shares have been issued to Amazon Textiles Private Limited at the fair value determined in accordance to Rule 11UA/U and hence no excess payment has been received in respect of the shares issued. Thus the Page 20 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 provision of section 56(2)(viib) of the Act cannot be made applicable in facts of the case. 12. The Assessing Officer finalised the assessment after examining the issue threadbare and did not make any addition under section 56(2)(viib) of the Act. Thus, the present reopening of assessment is based upon mere change of opinion as there is no fresh tangible material to show escapement of income due to failure on part of the petitioner to disclose fully and truly any material fact necessary for assessment. 13. It is therefore, apparent that there is change of opinion by the Assessing Officer to reopen the assessment for the Assessment Year 2014-2015, more particularly, when the issue of share premium required to be taxed was already considered during the assessment Page 21 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 proceedings under section 143(3) of the Act, 1961. The Assessing Officer cannot have any jurisdiction to issue the notice under section 148 of the Act, 1961 for reopening the assessment for the year under consideration more particularly, when the assessment is sought to be reopened beyond a period of four years as held by the Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in 2010(2) SCC 723 as under: “2. A short question which arises for determination in this batch of civil appeals is, whether the concept of \"change of opinion\" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? xxxx 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 Page 22 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 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. But re-assessment has to be based on fulfillment of certain pre- condition and if the concept of \"change of opinion\" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of \"change of opinion\" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re- open, provided there is \"tangible material\" to come to the conclusion that there is escapement of income Page 23 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words \"reason to believe\" but also inserted the word \"opinion\" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words \"reason to believe\", Parliament re- introduced the said expression and deleted the word \"opinion\" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: \"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to Page 24 of 25 C/SCA/2789/2022 JUDGMENT DATED: 29/08/2022 the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same.\" 14. In view of foregoing reasons, considering the facts of the case impugned notice under section 148 of the Act, 1961 is not tenable in law and is accordingly quashed and set aside and order dated 11.08.2021 disposing of the objections raised by the petitioner against the reopening is also quashed and set aside. 15. Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 25 of 25 "