M/s. India Denim Limited, Walthera V. The DCIT, Circle-2(1)(1), Ahmedabad

ITA 1928/AHD/2019

AI Insights

M/s. India Denim Ltd. appealed against the order of the CIT(Appeals)-2, Ahmedabad, which confirmed the addition of Rs.3,00,35,200 to the income of the assessee for the Assessment Year 2013-14. The addition was made on account of an alleged unjustified premium on the issue of shares, invoking Section 56(2)(viib) of the Income Tax Act. The primary contention of the assessee was that the re-opening of the assessment under Section 148 was based on a mere change of opinion and not on any new tangible material, thus rendering the notice bad in law. The Tribunal, after considering the submissions and the judicial precedents, held that the re-assessment was not justified as it was based on the same set of facts and documents that were available during the original assessment proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124709 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 30-12-2019
• Other Referred Cases: Kelvinator India Ltd. vs. ACIT, Rajesh Jhaveri Stock Brokers P. Ltd. vs. ACIT, Usha International Ltd. vs. ACIT, Shivsu Canadian Clear Waters Ltd vs. ITO, Bhavani Gems (P.) Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIRAJDEEP SINGH
• Keywords: Search and seizure; Tangible material; Fair market value; Difference of opinion; Reason to believe; Change of opinion
• Section: 147; 148; 143(3); 142(1); 115JB; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SHRIWASEEM AHMED, ACCOUNTANT MEMBER& SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I. T .A . N o .1 92 8 / Ah d/2 0 1 9 ( A s se ss m e nt Y e a r : 20 13- 14 ) M/ s . I n di a De ni m L i mi te d B u ild in g N o . 7A , Mi tta l I n du st r ia l Est a t e, A nd he r i K u rla R oa d, An dh e r i ( Ea s t) , Mu m b a i- 4 0 00 59 V s . D C I T - 2( 1 ) ( 1 ), N a vj e ev an T ru st B u ild in g , I nc o me Ta x O f f ic e, N r . N a vj e ev an P r e s s, N a vr a ng p u r a , A s hr a m R oa d , A h me da ba d - 3 80 01 4 [ P AN N o. A A BC I 3 7 51 J ] (Appellant) .. (Respondent) Appellantby : Shri Piyush Chhajed, A.R. Respondentby: ShriRajdeep Singh, Sr. D.R. D a t e of H ea r i ng 16.03.2023 D a t e of P r o no u n ce me nt 17.04.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. CIT(Appeals)-2, Ahmedabad in Appeal No. CIT(A)- 2/10392/2018-19 vide order dated 31.10.2019 passed for Assessment Year 2013-14. 2. The assessee has taken the following grounds of appeals:- “1. On the facts and circumstances of the case, the learned assessing officer erred in re-opening the assessment under section 148 without bringing out the failure on part of appellant to ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 2 - disclose fully and truly all material facts as required u/s 147 therefore, the notice issued pursuant to the same is bad in law. 2. On the facts and circumstances of the case, the learned assessing officer erred in invoking provision of section 56(2)(viib) without appreciating that the appellant company is a company in which public are substantially interested and therefore the said sections is not applicable to the appellant company. 3. On the facts and circumstances of the case, the learned assessing officer erred in making addition of Rs.3,00,35,200/- on account of unjustified Premium on issue of share without appreciating that the M/s Konark Synthetics Limited is holding more 50% share of the appellant and the Appellate is an company in which public are substantially interested. 4. On the facts and circumstances of the case, the learned assessing officer erred in considering the facts and provision of the law submitted during the course of assessment proceeding and passed the assessment order without considering that the shares were issued at fair market value. The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds of appeal at/or before time of hearing.” 3. The brief facts of the case is that the original scrutiny assessment of the assessee under Section 143(3) of the Act was finalized on ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 3 - 21.03.2016. Further, on perusal of records, the Assessing Officer observed that during the year under consideration, the assessee has issued equity shares of Rs. 40 (Rs. 10 Face Value + Rs. 30 Premium) and received an amount of Rs. 4,16,00,000/-. According to the Ld. Assessing Officer, as per Rule 11UA r.w.s. 56(2)(viib) of the Act, the value of such shares comes to Rs. 11.12 only. Accordingly, since the assessee has issued shares at an excess price of Rs. 28.88 per share there was an income to the extent of Rs. 3,00,35,200/- which escaped assessment in the hands of the assessee. Accordingly, after taking the submissions of the assessee on record, the Ld. Assessing Officer added a sum of Rs. 3,00,35,200/- to the income of the assessee with the following observations: “7.3 As evident from the table above, the fair market value of unquoted equity shares of the assessee company comes to Rs. 11.12 and the assessee has issued share at Rs. 40 per share (Face Value Rs. 10 + Premium Rs. 30), therefore, there is excess of Rs. 28.88 in value of each share issued. Further, the assessee ahs not submitted any calculation in this regard. Further, considering the above facts, the excess consideration which exceeds the fair market value as determined by the Department requires to be added to the total income of the assessee. As assessee has issued 10,40,000 shares, the excess amount comes to Rs. 3,00,35,200/- (10,40,000 x 28.88). Therefore, an amount of Rs. 3,00,35,200/0 is being treated as the income of the assessee from other sources in spite of the section 56(2)(viib) of the Income Tax Act, 1961 and ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 4 - consequently the said amount of Rs. 3,00,35,200/- is added to the total income of the assessee for A.Y. 2013-14.” 4. The assessee challenged the re-opening of assessment by the Ld. Assessing Officer before the CIT(A) on the ground that the issue was already examined by the Assessing Officer in the earlier order passed under Section 143(3) of the Act and therefore, the re-assessment order was passed by the Ld. Assessing Officer merely on a “change of opinion”, and hence, the same cannot be sustained. However, Ld. CIT(A) dismissed the challenge of the assessee to re-opening of the assessment and further confirmed the addition in the hands of the assessee. While dismissing assessee’s challenge to re-opening of assessment, the Ld. CIT(A) observed as under: “2.2 The appellant has challenged the reopening of the assessment on the ground that Assessing Officer has reopened the assessment without any fresh tangible material. The appellant has contended that the issue was already examined by the Assessing Officer in the earlier order passed u/s 143(3) and therefore is merely a change of opinion. The appellant relied upon the decision of Hon. Supreme Court in the case of Kelvinator India Ltd. It is seen that the Assessing Officer has duly recorded the reason to believe that income chargeable to tax had escaped assessment. The assessment has been reopened within 4 years from the end of relevant assessment year. The Assessing Officer has followed due procedure in reopening the assessment. The Hon. ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 5 - Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd. in 210 CTR 30 has held that so long as conditions of section 147 are fulfilled the Assessing Officer is free to initiate proceedings u/s 147. The ground is accordingly dismissed.” 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) confirming the additions made by the Ld. Assessing Officer in the assessment order. Before us, the Counsel for the assessee submitted that though the re-opening is made within a period of 4 years of the conclusion of the original assessment proceedings, however, on perusal of the “reasons recorded” it is evident that the case of the assessee has been re-opened purely on the basis of material already available on record before the Ld. Assessing Officer during the course of original assessment proceedings. The Counsel for the assessee submitted that no fresh tangible material has come into the possession of the Assessing Officer so as to reopen the case of the assessee u/s 147 of the Act. Further, the Counsel for the assessee drew our attention to the reasons of reopening of the case and submitted that on a perusal of the reasons, it is evident that the case has been reopened only on the basis of facts already placed before the Ld. Assessing Officer during the course of original assessment proceedings from where it is evident that the assessee company had, during the year under consideration, issued equity shares of Rs. 40 (Rs. 10 Face Value + 30 Premium) and had received an amount of Rs. 4,16,00,000/-. The Counsel for the assessee drew our attention to Pages53 & 54 of the Paper Book which is Notice under Section 142(1) of the Act dated 31.07.2015 issued by the Ld. Assessing Officer during the ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 6 - course of original assessment proceedings. The Counsel for the assessee submitted that at Para 6 of the aforesaid notice, the Ld. Assessing Officer had made a specific query regarding the names of the shareholders and their shareholding pattern. Further, in the above query the Ld. Assessing Officer had specifically asked that in case any fresh capital has been received from the existing shareholders / partners etc., mode of payment, amount, date of payment along with source of payment etc. should be submitted by the assessee. Thereafter, the Counsel for the assessee drew our attention to Page 66 of the Paper Book, from where it is evident that in the assessment hearing held on 09.03.2016, the Ld. Assessing Officer had made specific query regarding the share premium received by the assessee with respect to new 10,40,000 equity shares issued by the assessee during the year under consideration at a premium of Rs. 30 per equity shares. Further, the Counsel for the assessee submitted that the assessee had given a detailed reply in response to the query raised by the Ld. Assessing Officer vide reply dated 14.03.2016 and in the aforesaid reply, the assessee also discussed the applicability of the provisions of Section 56(2)(viib) of the Act which was inserted by the Finance Act, 2012 w.e.f. 01.04.2013. Vide this reply the assessee submitted that the aforesaid provision is not applicable in the case of the assessee company since the assessee is a company in which the public is substantially interested. After taking into consideration the aforesaid submissions made by the assessee, no addition was made by the Ld. Assessing Officer during original assessment proceedings. However, the Ld. Assessing Officer has reopened the assessment proceedings with respect to the very ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 7 - same issued without pointing out any new tangible material which had come into his possession so as to initiate proceedings under Section 147 of the Act. Further, it was also submitted by the Counsel for the assessee that there is no allegation of any furnishing of false or inaccurate particulars on part of the assessee so as to initiate re-assessment proceedings in the instant set of facts. 6. In response, the Ld. D.R. placed reliance on the observation made by the CIT(A) and Assessing Officer in their respective orders. 7. We have heard the rival contention and perused the materials on record. It would apt to reproduce the reasons for reopening assessment under Section 147 of the Act for the sake of clarity of facts: “Annexure ‘A’ Reasons for reopening the assessment u/s 147 of the Income Tax Act, 1961 in the case of G-One Agro Products Ltd. for Asst. Year 2013-14 Name of the Assessee India Denim Ltd. Address of the Assessee 15, Manoj Apartment, B/h Sujata Flat, Shahibaug, Ahmedabad PAN AABCI3751J Assessment Year 2013-14 Assessing Officer ACIT, Circle-2(1)(1), Ahmedabad ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 8 - (i) Assessee is a company engaged in manufacturing and trading of yarn and fabrics.Assessee filed its return of income for AY 2013-14 on 30.09.2013 declaring loss of Rs 79,95,167 under normal provision and income of Rs 11,40,729 under section 115JB of the Act. The same was and assessed u/s 143(3) and returned income was determined at loss of 69,07,495 under normal provision and income of Rs 11.40,729 under section 115JB vide order dated 21.03.2016. (ii) On perusal of the case records, it is seen that the assessee company has issued equity shares at Rs. 40 (Rs. 10 at face value + Rs. 30 premium) and received an amount of Rs. 4,16,00,000/-. As per Rule 11UA r.w.s 56(2)(viib) of the IT Act, the value of such shares comes to Rs. 11.12 only. It is also realized that during the course of assessee proceedings, the AO did not applied his mind to this aspect of the matter which is relevant from the order sheet, details called to the assessment order. Since the shares has been issued at an excess price of Rs. 28.88 per share there was an under assessment of amount of Rs. 3,00,35,200/- in terms of section 56(2)(viib) of the Act. (iii) In this case not more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice U/s 158 is obtained separately from the Joint Commissioner of Income-tax as per provision of Section 151 of the Act. ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 9 - In view of the matter, I have reason to believe that income of Rs. 14,14,274/- has escaped assessment for the A.Y. 201314 in the spirit of provision of section 147 of the Income Tax Act, 1961. It is a fit case for re-opening of the assessment by invoking the provision of section 147 of the Income Tax Act, 1961. Accordingly, notice U/s 148 of the Act is issued.” 7.1. A perusal of the reasons for re-opening shows that evidently the re- assessment proceedings were initiated only on the basis of facts which were already on record before the Assessing Officer during the course of original assessment proceedings. At Para (ii) of the aforesaid reasons for re-opening the use of the term “on perusal of the case records.........” it is evident that no new or fresh tangible material had come into the possession of the Assessing Officer at a time on issuance of section 147 notice, re-opening the case of the assessee. Further, perusal of the assessment records reveals that the issue regarding taxability of share premium received by the assessee on issuance of fresh equity shares was already enquired into and considered by the Assessing Officer during the course of original assessment proceedings. Therefore, evidently in the instant set of facts, the Assessing Officer has sought to re-open assessment proceedings in the hands of the assessee in respect of share premium received by the assessee pursuant to issue of new equity shares. However, as we have observed above, since the issue was already discussed and duly considered by the Ld. Assessing Officer during the course of original assessment proceedings, and in the absence of any new tangible material which has come into the possession of the Assessing ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 10 - Officer so as to initiate re-assessment proceedings, evidently this is a case of “mere change of opinion” where the Ld. Assessing Officer is seeking to enhance the original assessment on re-appreciation of the same set of facts and documents which were already available before him during the course of original assessment proceedings, when this issue was earlier examined by him. In our considered view, re-assessment proceedings cannot be initiated on a “mere change of opinion”, even if the same are initiated within a period of 4 years from the original assessment proceedings. In the case of Kelvinator India Ltd. 187 taxmann 312, the Hon’ble Supreme Court has categorically held that “change of opinion” is an in-built test to check abuse of power by the Assessing Officer. Hence, for the purpose of re-opening of assessment, there has to be some fresh tangible material which was not available with the Assessing Officer at the time of original assessment proceedings. In absence of any such fresh tangible material, the re-opening cannot be resorted to since the same would amount to “mere change of opinion”.Further, the Supreme Court held that “mere change of opinion” cannot be per se “reason to reopen” the assessment proceedings which have already been concluded. The Hon’ble Supreme Court made the following observations on this issue: “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 reopen. We must also keep in mind the conceptual ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 11 - difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment 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 reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1-4- 1989 , Assessing Officer haspower to reopen, provided there is "tangible material" to come to the conclusion that there is escapement ofincome from assessment. Reasons must have a live link with the formation of the belief. Our view gets supportfrom 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 againstomission 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.” 7.2 The aforesaid decision was also followed by the Hon’ble Delhi High Court in the case of Usha International Ltd. 210 taxmann 188, wherein the Delhi High Court held that when the Assessing Officer completed an assessment under Section 143(3) of the Act, he is presumed to have accepted the contentions of the assessee even if there is no ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 12 - express reference to them in the assessment order and if within 2 years he issues a notice to re-open the assessment, it is nothing but a change of opinion. Further, the Delhi High Court in the aforesaid decision held that assessment proceedings cannot be validly reopened under Section 147 of the Act even within 4 years, if the assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made under Section 143(3) of the Act. While passing the order, the Delhi High Court made the following observation: “Reassessment proceedings will be invalid in case an issue or query is raised and answered by assessee in original assessment proceedings andAssessing Officer does not make any addition in assessment order. In such situations it should be accepted that the issue wasexamined but the Assessing Officer did not find any ground or reason to make addition or reject thestand of the assessee. He forms an opinion. The reassessment will be invalid because the AssessingOfficer had formed an opinion in the original assessment, though he had not recorded his reasons.” 7.3 The assessee further relied upon the decision of the Hon’ble High Court of Madras in the case of ITO vs. Shivsu Canadian Clear Waters Ltd 133 taxmann.com 280 (Madras). While passing the order the Hon’ble Madras High Court observed as under: ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 13 - “...reassessment was initiated on ground that assessee had issued preference shares of face value of Rs. 10 each at premium of Rs. 488 per share but market value of each share was Rs. 25.20 only and consideration received from issue of shares which exceeded face value of such shares was required to be assessed to tax under section 56(2)(viib). However, no tangible material or fresh material had come to notice of Assessing Officer, and further Assessing Officer had, in fact, made a modification to valuation of first lot of shares during original assessment. The High Court held that on facts, reassessment was not justified.” 7.4 The assessee further relied on the decision of Hon’ble High Court of Bombay in the case of Bhavani Gems (P.) Ltd. vs. ACIT 138 taxmann.com 537 (Bombay). While passing the order the Hon’ble Court observed as under: “...where assessment was sought to be reopened in case of assessee on ground that assessee had issued shares at excess premium which was required to be added to assessee's income under section 56(2)(viib), however, very issue of share premium was a subject matter of consideration by Assessing Officer during original assessment proceedings and assessee had provided working of fair value of equity shares as per rule 11UA, reopening of assessment being a mere change of opinion was not justified.” ITA No. 1928/Ahd/2019 M/s. India Denim Ltd. vs. DCIT Asst.Year –2013-14 - 14 - 8. In light of the above facts as noted by us and the judicial proceedings on the subject, including the observations made by the Hon’ble Supreme Court in the case of Kelvinator India Ltd. (supra), we are of the considered view that in the instant facts the re-assessment proceedings have been initiated on a “mere change of opinion” and hence the same are not liable to be sustained. Accordingly, we direct, that the re-assessment order having been passed on “mere change of opinion” is liable to be quashed. 9. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 17/04/2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 17/04/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad