TORRENT REAL ESTATE P. LTD., MUMBAI V. ITO - 8(3)(2), MUMBAI

ITA 1675/MUM/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2649 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 16-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Keywords: Reopening of assessment; Unexplained cash credit; Tangible material; Fair market value; Valuation report; Reason to believe; Liquidation
• Section: 143(3); 56(2); 133(6); 143(1); 147; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.1675/M/2020 ASSESSMENT YEAR: 2008-09 M/S. TORRENT REAL ESTATE PVT. LTD., 704, SPRING LEAF CHS NO.6C, 171 AKURLI ROAD, LOKHANDWALA TOWNSHIP, KANDIVALI EAST, MUMBAI 400 101 PAN: AACCT3832A VS. INCOME TAX OFFICER 8(3)(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) ITA NO.176/M/2021 ASSESSMENT YEAR: 2007-08 M/S. TULIP REAL ESTATE PVT. LTD., C-704, ALICA NAGAR, 7CHS LTD., AKURLI ROAD, LOKHANDWALA TOWNSHIP, KANDIVALI EAST, MUMBAI 400 101 PAN: AACCT3833B VS. INCOME TAX OFFICER 8(3)(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NEELKANTH KHANDELWAL, A.R. REVENUE BY : SHRI SUNIL DESHPANDE, D.R. DATE OF HEARING : 01.04.2021 DATE OF PRONOUNCEMENT : 08.06.2021 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED APPEALS HAVE BEEN PREFERRED BY TW O DIFFERENT ASSESSEES AGAINST SEPARATE ORDERS DATED 2 1.09.2020 AND 20.02.2020 OF THE COMMISSIONER OF INCOME TAX (A PPEALS) ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 2 [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEARS 2007-08 & 2008-09 RESPECTIVELY. 2. FIRST WE WILL TAKE UP ITA NO.1675/M/2020 A.Y. 20 08-09. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS A JURI SDICTIONAL ISSUE CHALLENGING THE UPHOLDING OF ASSESSMENT BY LD . CIT(A) AS FRAMED BY THE AO UNDER SECTION 148 OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED T HE RETURN OF INCOME ON 21.01.2010 DECLARING NIL INCOME. THEREAF TER, THE CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 147 BY I SSUING NOTICE UNDER SECTION 148 DATED 30.03.2015 WHICH WAS DULY SERVED UPON THE ASSESSEE. THE ASSESSEE COMPLIED WI TH THE SAID NOTICE BY SUBMITTING THAT THE RETURN FILED ORIGINAL LY ON 21.01.2010 MAY KINDLY BE TREATED AS RETURN FILED IN COMPLIANCE TO NOTICE UNDER SECTION 148. THE REASON RECORDED U NDER SECTION 148(2) OF THE ACT ARE EXTRACTED BELOW: THE ASSESSEE, M/S. TORRENT REAL ESTATE PVT. LTD. I S ASSESSED UNDER PAN: AACCT3832A WITH THIS CHARGE AND HAS FILED ITS RETUR N OF INCOME FOR A.Y. 2008-09. 2 THE DGIT (L&CI), NEW DELHI HAS SUPPLIED THE INFOR MATION OF COMPANIES WHICH HAVE ISSUED SHARE AT HIGH PREMIUM DURING F.Y. 2008-09. I T HAS COME TO NOTICE THAT THE ASSESSEE HAS SHOWN SHARE PREMIUM OF RS. 12,920,000/ - RECEIVED DURING THE F.Y. 2007-08 (A.Y. 2008-09). THE ASSESSEE HAS RECEIVED P REMIUM OF RS.40 ON EVERY SHARES OF FACE VALUE OF RS.10/-.THE COMPANY HAS NO INCOME WHICH CAN JUSTIFY SUCH LARGE PREMIUM. FURTHER, THERE IS NOTHING ON RECORD TO CALCULATE EQUITY RATIO. THE COMPANY ON ONE HAND RECEIVES LARGE AMOUNT THOUGH SH ARE PREMIUM AND INVEST THE SAME MONEY INTO ANOTHER COMPANY. THE ASSESSEE COMPA NY IS A SHELL COMPANY DOING NO BUSINESS ACTIVITY. 3. IN THIS REGARD, THE NOTICE ISSUED U/S. 133(6) OF THE ACT WAS ISSUED ON 06.02.2015 TO THE ASSESSEE. THE ASSESSEE HAS NOT SUBMITTED THE VALUATION REPORT OF THE ASSESSEE COMPANY TO JUSTIFY THE HIGH PREMIUM CHARGE D. SINCE, THE PREMIUM CHARGED IN MUCH MORE THAN THE INTRINSIC VALUE OF SH ARE, THE NATURE OF TRANSACTION IS NOT PROVED AND SECTION 68 IS ATTRACTED. I AM SATISF IED THAT THE INCOME HAS ESCAPED ASSESSMENT BY THE REASONS OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSE SSMENT COMING WITHIN THE MEANING OF SEC 147 OF THE INCOME TAX ACT 1961. ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 3 4. I HAVE, THEREFORE, REASON TO BELIEVE THAT INCOME OF RS. 12,92,000/- CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY THE REASONS OF FAILUR E ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AND NOTICE U/S 148 OF THE INCOME- TAX ACT IS TO BE ISSUED IN THE AFORESAID CASE FOR A.Y. 2008-09 ACCORDINGLY. 5. THE ASSESSEE ALSO FILED OBJECTIONS TO REOPENING OF ASSESSMENT WHICH WAS DISPOSED OF VIDE ORDER DATED 1 0.12.2015. THEREAFTER, THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS CALLED FOR VARIOUS INFORMATION AND DETAIL FROM THE ASSESSEE. AS REGARDS THE ISSUE OF SHARE CAPITAL TO VARIOUS PARTI ES OF 3,23,000 EQUITY SHARES OF FACE VALUE RS.10 EACH AT A PREMIUM OF RS.40 EACH THEREBY RAISING A TOTAL CAPITAL OF RS.1,61,50, 000/-. THE AO OBSERVED FROM THE BALANCE SHEET THAT AUTHORISED CAP ITAL OF THE ASSESSEE HAS INCREASED FROM RS.30 LAKH TO RS.55 LAK H AND ISSUED SUBSCRIPTION AND PAID UP CAPITAL HAS INCREAS ED FROM 1,95,000 EQUITY SHARES TO 5,18,000 EQUITY SHARES. THE AO NOTED THAT THESE TRANSACTIONS ARE UNNATURAL AND SUSPICIOU S AND REQUIRED DETAIL AND DEEPER ANALYSIS AND VERIFICATIO N OF FACTS. THE AO REQUIRED THE ASSESSEE TO FILE VARIOUS DETAILED I NFORMATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS SUCH AS NAME, ADDRESS OF THE SHARE SUBSCRIBERS, MODE OF PAYMENT E TC. AND ALSO ISSUED NOTICE UNDER SECTION 133(6) OF THE ACT TO TH E VARIOUS PARTIES WHICH WERE DULY RESPONDED BY THE INVESTORS. THE AO FINALLY REJECTED THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE AS MADE DURING THE COURSE OF ASSESSMENT AND ADDED T HIS ENTIRE AMOUNT TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 BY FRAMING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT. 6. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE CHALLE NGED THE ORDER OF AO BEFORE THE LD. CIT(A) RAISING THE ISSUE ON MERIT. ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 4 HOWEVER, THIS JURISDICTIONAL ISSUE IS NOT RAISED BE FORE THE LD. CIT(A) AND BEING RAISED BEFORE US FOR THE FIRST TIM E. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT AO HAS REOPENED THE CASE OF THE ASSESSEE ONLY ON THE GROUND THAT SHARES WERE ISSUED AT A PREMIUM WHICH IS MORE THAN THE INTRINSIC VALUE OF T HE SHARES AND THEREFORE THESE FACTS ARE REQUIRED TO BE VERIFI ED AND THUS CASE IS REQUIRED TO BE REOPENED. THE LD. A.R. WHIL E REFERRING TO THE REASONS RECORDED SUBMITTED THAT YEAR UNDER CONS IDERATION IS A.Y. 2008-09 AND THE ISSUE OF SHARES AT FAIR MARKET VALUE HAS ONLY BEEN INTRODUCED ON THE STATUTORY BOOKS IN SECT ION 56(2)(VIIB) IN THE FINANCE ACT, 2012 W.E.F. 01.04.2 013 AND IS ACCORDINGLY APPLICABLE FROM A.Y. 2013-14 AND IS ACC ORDINGLY APPLICABLE FROM A.Y. 2013-14. THE LD. A.R. THEREFO RE SUBMITTED THAT THE CASE OF THE ASSESSEE CAN NOT BE REOPENED O N THE GROUND THAT SHARES WERE ISSUED AT A PREMIUM WHICH IS MORE THAN THE INTRINSIC VALUE OF THE SHARES. IN DEFENCE OF HIS A RGUMENT, THE LD. A.R. RELIED ON THE FOLLOWING DECISIONS: 1. MALCHAND DINDAYAL SALTS PVT. LTD. (ITA NO 6908/MUM/2018 AND 7097/MUM/2018) 2. BALBIR ISPAT PVT. LTD. (ITA NO 6953/MUM/201 6) 3. KHUBCHANDANI HEALTHPARKS (P.) LTD REPORTED I N 384 ITR 322 (BOM) 7. THE LD. A.R. THEREFORE SUBMITTED THAT THE REOPEN ING AS MADE BY THE AO IS WITHOUT JURISDICTION AND MAY BE Q UASHED. 8. THE LD. D.R. ON THE OTHER HAND, STRONGLY OPPOSED TO THE ARGUMENT OF THE LD. A.R. BY SUBMITTING THAT THE CAS E HAS RIGHTLY BEEN REOPENED IN ORDER TO VERIFY THE ISSUE OF PREMI UM WHICH IS APPARENTLY ON A PRICE WHICH IS MORE THAN THE INTRIN SIC VALUE OF THE SHARES AND THEREFORE THE APPEAL OF THE ASSESSEE ON THIS ISSUE MAY BE DISMISSED. ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 5 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, T HE REASONS UNDER SECTION 148(2) HAVE BEEN RECORDED ONLY TO VER IFY THE ISSUE OF SHARE PREMIUM AT MORE THAN INTRINSIC VALUE. WE NOTE THAT THE PROVISIONS OF ISSUE OF SHARE OF SHARE MARKET VALUE HAS BEEN INTRODUCED ON THE STATUTE BOOKS UNDER SECTION 56(2) (VIIB) OF THE ACT IN THE FINANCE ACT, 2012 W.E.F. 01.04.2013 AND IS APPLICABLE FROM A.Y. 2013-14. WE, THEREFORE, FIND MERIT IN TH E CONTENTION OF THE LD. A.R. THAT THE REOPENING OF THE ASSESSMENT O F THE ASSESSEE ON THIS BASIS IS NOT VALID. THE CASE OF T HE ASSESSEE IS SUPPORTED BY THE DECISION OF THE COORDINATE BENCH I N THE CASE OF ITO VS M/S MALCHAND DINDAYAL SALTS PVT. LTD. ITA NO. 6908/MUM/2018 & OTHERS WHICH HAS BEEN PASSED BY THE COORDINATE BENCH AFTER FOLLOWING BALBIR ISPAT PVT L TD. VS ITO ITA NO. 6953/MUM/2016 OF MUMBAI TRIBUNAL AND KHUBCHANDA NI HEALTHPARKS PVT. LTD. 384 ITR 322 (BOM.). THE OPERA TIVE PART IS AS UNDER:- 6. ON APPRAISAL OF THE ABOVE MENTIONED REASONS, WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED TO REOPEN THE CASE OF THE ASSESSE E IN VIEW OF THE PROVISIONS U/S 147/148 OF THE ACT. NO TANGIBLE MATERIAL IS ON RECO RD FOR REOPENING THE CASE ON THE BASIS OF WHICH THE AO FORMED REASON TO BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT. MERE MENTIONING THE FACTS AS SHOWN BY T HE ASSESSEE ABOUT THE SHARES PREMIUM OF RS.2,12,66,700/- NOWHERE GIVES THE PLAUS IBLE REASON TO THE AO TO REOPEN THE CASE U/S 147/148 OF THE ACT. NOTHING IS ON RECORD TO WHICH IT CAN BE ASSUMED THAT UNDER WHICH CIRCUMSTANCES THE INCOME O F THE ASSESSEE HAS BECOME ESCAPED ASSESSMENT. THE OTHER IMPORTANT THING WHICH CAME INTO NOTICE THAT ON THE BASIS OF SIMILAR FACTS AND CIRCUMSTANCES THE HONBL E ITAT HAS DECIDED THE ISSUE IN CASE TITLED AS BALBIR ISPAT PVT. LTD. VS. ITO IN IT A. NO. 6953/MUM/2016 DATED 28.01.2019 IN WHICH THE NOTICE U/S 147 OF THE ACT N OWHERE JUSTIFIED. IN THE SAID CASE THE RELEVANT FINDING HAS BEEN GIVEN IN PARA NO. 11 WHICH IS REPRODUCED AS UNDER:- 11. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THRO UGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE REASONS RECORDED REPRODUCED ABOVE THAT THE AO FAILED TO APPRECIATE THAT THE LAW DOES NOT PERMIT HIM TO REOPEN ASSESSMENT UNLESS HE HAS TANGIBLE MATERIAL O N THE BASIS OF WHICH HE FORMS REASON TO BELIEF THAT INCOME HAS ESCAPED ASSE SSMENT. THE MERE FACT THAT THE ASSESSEE HAS ISSUED SHARES AT A CERTAIN PR EMIUM ITSELF CANNOT BE A REASON TO BELIEF THAT INCOME HAS ESCAPED ASSESSMENT . THE AO HAS NEITHER ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 6 MENTIONED BY HOW MUCH THE SHARES ARE OVERVALUED I.E . BY WHAT AMOUNT THE PREMIUM EXCEEDS THE INSTINCT VALUE OF THE SHARES NO R THE AMOUNT, WHICH ACCORDING TO HIM, HAS ESCAPED ASSESSMENT. THE REASO NS ARE REPRODUCED ABOVE BUT FOR THE SAKE OF BREVITY THE RELEVANT PART OF REASONS ARE THAT, FROM THE RECORDS, IT IS SEEN THAT THE ASSESSEE IS IN REC EIPT OF HUGE SHARE PREMIUM AMOUNTING TO 4,56,00,000 DURING THE F.Y. 2008-09 RELEVANT TO AY 2009-10. AS THERE WAS NO SCRUTINY ASSESSMENT DONE FOR THIS Y EAR, THE SO-CALLED SHARE PREMIUM HAVING BEEN RECEIVED BY THE ASSESSEE WAS NO T EXAMINED. THE ASSESSEE IS AN UNLISTED COMPANY AND THE SOURCE OF T HE SHARE PREMIUM SO RECEIVED AS WELL AS THE NATURE OF THE SHARE APPLICA TION RECEIVED (THE INTRINSIC VALUE OF THE SHARE IN COMPARISON TO THE EXCESS PREM IUM RECEIVED) IS NOT SUBSTANTIATED. WE ALSO FIND FROM THE ABOVE THAT TH E AO STATED THAT INCOME IN THE GRAB OF SHARE APPLICATION MONEY RECEIVED IN THIS CASE HAS ESCAPED ASSESSMENT BUT HE COULD NOT POINT OUT ON WHAT BASIS / MATERIAL DOES HE BELIEF THAT THE SHARE CAPITAL IS NOT GENUINE. IN TH E SIMILAR CIRCUMSTANCES, HONBLE BOMBAY HIGH COURT IN THE CASE OF KHUBCHANDA NI HEALTHPARKS PVT. LTD. (SUPRA) HELD THAT REGULAR RETURN OF INCOME WAS ASSESSED BY INTIMATION UNDER SECTION 143(1) OF THE ACT AND NO SCRUTINY ASS ESSMENT WAS DONE. IN THE ABOVE VIEW, TO ASCERTAIN THE NATURE AND THE JUSTIFI CATION FOR CHARGING SHARE PREMIUM, THE ASSESSING OFFICER HAS REASON TO BELIEV E THAT CHARGING OF SHARE PREMIUM OVER AND ABOVE THE INTRINSIC VALUE OF THE S HARE IS INCOME WHICH HAS ESCAPED ASSESSMENT. THE NOTICE ITSELF DOES NOT INDICATE THE APPROXIMATE AMOUNT OF INCOME, WHICH THE ASSESSING O FFICER HAS REASON TO BELIEVE HAS ESCAPED ASSESSMENT NOR DOES IT QUANTIFY THE EXTENT TO WHICH THE SHARE PREMIUM RECEIVED WAS IN EXCESS OF INTRINSIC V ALUE, WHICH HAS ESCAPED ASSESSMENT. IT GIVES NO REASONS TO INDICATE THE BAS IS OF COMING TO THE CONCLUSION THAT SHARE PREMIUM IS EXCESSIVE AND, THE REFORE, INCOME. MOREOVER, THE NOTICE ALSO DOES NOT DISPUTE THAT THI S IS A SHARE PREMIUM BUT SEEK JUSTIFICATION FOR CHARGING THE SHARE PREMIUM O VER AND ABOVE INTRINSIC VALUE OF THE SHARE PREMIUM. 10. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS QUASH THE REOPENING OF THE AO. ACCORDINGLY, THE JU RISDICTIONAL GROUND OF THE ASSESSEE IS ALLOWED. 11. EVEN ON MERITS THE ASSESSEE HAS A VERY STRONG C ASE. WE NOTE THAT THE ASSESSEE FILED ALL THE DOCUMENTS BEFO RE THE AUTHORITIES BELOW I.E. AO AS WELL AS CIT(A) TO PROV E THE IDENTITY, CREDITWORTHINESS OF THE SHAREHOLDERS AND GENUINENES S OF THE TRANSACTIONS. WE ALSO NOTE THAT THE SHARES ISSUED AT A PREMIUM WERE REPURCHASED BY FAMILY MEMBERS/RELATIVES AT A P RICE LESS THAN FACE VALUE OF SHARES. THE MONEY RECEIVED BY T HE ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 7 ASSESSEE/APPELLANT HAD BEEN INVESTED IN THE SHARES OF ASSOCIATE CONCERN M/S. PREMIUM PAPER AND BOARD INDUSTRIES LTD . BUSINESS WHEREOF HAD FAILED MISERABLY TO THE EXTENT THAT SAID ASSOCIATE CONCERN WENT INTO LIQUIDATION AND THUS TH E WHOLE INVESTMENT WAS JEOPARDIZED. IT IS ONLY BECAUSE OF THIS, THE SHARES WERE BOUGHT BACK BY THE INVESTORS AT A DISTR ESS PRICE DETERMINED BY BOTH THE INVESTORS AND ASSESSEE APPEL LANT. THEREFORE, WE ARE INCLINED TO HOLD THAT THE ORDER O F LD. CIT(A) IS NOT CORRECT AND IS REVERSED. EVEN THE ISSUE IN THI RD GROUND OF APPEAL HAS WRONGLY BEEN DECIDED BY LD. CIT(A) DESPI TE THE FACTS HAVING RAISED BEFORE THE LD. CIT(A) THAT EXPENSES W ERE INCURRED TO MAINTAIN THE OFFICE OF THE COMPANY SUCH AS ACCOU NTS, WRITING CHARGES, AUDIT FEE, BANK CHARGES AND TO GIVE A CORP ORATE OFFICE INTACT AND THEREFORE THIS HAS TO BE ALLOWED TO THE ASSESSEE. ITA NO.176/M/2021 12. THE ISSUE INVOLVED IN THE PRESENT APPEAL IS IDE NTICAL TO THE ONE AS STATED ABOVE IN ITA NO.1675/M/2020 FOR A.Y. 2008-09. THEREFORE, OUR FINDING IN ITA NO.1675/M/2020 FOR A. Y. 2008-09, WOULD MUTATIS MUTANDIS APPLY TO THIS APPEAL AS WELL . ACCORDINGLY THE APPEAL OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE S ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.06.2021. SD/- SD/- ( AMARJIT SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 08.06.2021. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT ITA NO.1675/M/2020 M/S. TORRENT REAL ESTATE PVT. LTD. 8 THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.