Alliance Space Pvt. Ltd. v. Income-tax Officer
[Citation -2015-LL-0327-2]

Citation 2015-LL-0327-2
Appellant Name Alliance Space Pvt. Ltd.
Respondent Name Income-tax Officer
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 27/03/2015
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags audited profit and loss account • permanent account number • reassessment proceedings • income chargeable to tax • share application money • issuance of notice • change of opinion • reason to believe • transfer pricing • capital account • cogent evidence • annual report • share capital • real estate
Bot Summary: Writ Petition No. 735 of 2015 pertains to the assessment year 2008-09 whereas Writ Petition No. 736 of 2015 pertains to the assessment year 2009-10. Respondent No. 2 has issued notice on March 29, 2014, under section 148 of the Act in respect of the assessment year 2008-09 for reopening of the assessment for the assessment year 2008-09. During the course of the assessment proceedings for the assessment year 2009-10, respondent No. 2 issued notices under section 133(6) of the Act to Phoenix Hospitality Co. Pvt. Ltd. and Sharyans Resources Ltd. asking them to furnish details of the return of income for the assessment year 2009-10, permanent account number along with details of the Assessing Officer, copy of the bank statement and copy of final accounts. After considering the submissions of the petitioner and the details submitted by Phoenix Hospitality Ltd. and Sharyans Resources Ltd., respondent No. 2 completed the assessment for the assessment year 2009-10 under section 143(3) of the Act on December 29, 2011, without making any adjustment on account of share premium received by the petitioner. During the course of the assessment proceedings for the assessment year 2011-12, respondent No. 2 enquired about share premium and asked the petitioner to explain and furnish the working of the share premium received by the petitioner in the relevant year. The Assessing Officer, thereafter, proceeded to complete the assessment order and issued an assessment order but did issued a volte face and a fresh notice under section 148 of the Act just one week after the issuance of the assessment order. As rightly appointed by Mr. Mistri, during his submissions, respondent No. 2 has completed the assessment and issued an assessment order on March 22, 2014, yet the very same Assessing Officer has proceeded to issue a notice under section 148 of the Act, seven days of the assessment order.


JUDGMENT judgment of court was delivered by A. K. Menon J.-Rule, made returnable forthwith. By consent of parties taken up for final hearing. By this order, we dispose of both writ petitions which are on similar set of facts. Writ Petition (L) No. 735 of 2015 pertains to assessment year 2008-09 whereas Writ Petition (L) No. 736 of 2015 pertains to assessment year 2009-10. challenge in petition is to two notices dated March 24, 2014, and March 29, 2014, respectively, issued by Income-tax Officer 6(1)-2, Mumbai, under section 148 of Income-tax Act, 1961 ("the Act"). We will briefly advert to facts in Writ Petition (L.) No. 735 of 2015. petitioner is company engaged in business of property development and constructing residential complexes, inter alia, at Pune. Respondent No. 1 is Assessing Officer in-charge of petitioner's assessment. Respondent No. 2 is earlier Assessing Officer who handled petitioner's assessment before transfer of jurisdiction to respondent No. 1. Respondent No. 2 has completed assessment in respect of petitioner. Respondent No. 2 has issued notice on March 29, 2014, under section 148 of Act in respect of assessment year 2008-09 for reopening of assessment for assessment year 2008-09. Respondent No. 3 Additional Commissioner of Income-tax had granted approval under section 151 of Act for reopening of assessment. petitioner was originally registered as company in financial year 2006-07 with nominal share capital of Rs. 1 lakh divided into 10,000 equity shares of face value of Rs. 10 each. Subsequently, share subscription agreement dated November 16, 2007, was entered into between petitioner and various entities who were to subscribe to shares of petitioner under share subscription agreement dated November 16, 2007 ("SSA"). Pursuant to SSA during financial year 2007-08 (relevant to assessment year 2008-09), shares of petitioner were allotted to subscribers as detailed below: Sl. Name of Allotted Total Date No. company shares consideration (Rs.) K2A 14- 1. 1,39,860 9,99,99,900 Hospitality Ltd. 03-2008 Edelweiss 24- 2. Trustee Services 60,000 4,30,00,000 03-2008 Pvt. Ltd. Sharyans 04- 3. 1,20,000 4,60,00,000 Resources Ltd. 09-2008 Atlas 04- 4. Hospitality Co. 10,90,000 11,99,00,000 09-2008 Pvt. Ltd. Fulda River 22- 5. 2,91,200 45,13,60,000 Ltd. 12-2008 K2A 22- 6. 2,60,140 18,60,00,100 Hospitality Ltd. 12-2008 For assessment year 2008-09, petitioner filed return of income on September 28, 2008, declaring nil income. return of income was accepted under section 143(1) of Act. For assessment year 2009-10, petitioner filed return of income on September 29, 2009, declaring total loss of Rs. 4,39,504 under provisions of Act. matter was taken up for scrutiny. In course of scrutiny, petitioner, vide letter dated October 11, 2010, filed copy of return of income, annual report along with audited profit and loss account, balance-sheet and all its annexures and also copy of audited report in Form No. 3CD. further show-cause notice dated June 14, 2011, came to be issued asking petitioner to submit certain details. On August 29, 2011, petitioner supplied, inter alia, details of secured and unsecured loans taken by petitioner, details of share application amount received by petitioner, details of capital introduced during financial year 2008-09 and name and complete addresses of all directors and shareholders of companies along with their permanent account number and shareholding. During course of assessment proceedings for assessment year 2009-10, respondent No. 2 issued notices under section 133(6) of Act to Phoenix Hospitality Co. Pvt. Ltd. and Sharyans Resources Ltd. asking them to furnish details of return of income for assessment year 2009-10, permanent account number along with details of Assessing Officer, copy of bank statement and copy of final accounts. Phoenix Hospitality Co. Pvt. Ltd., vide letter dated August 17, 2011, filed reply to said notice. Sharyans Resources Ltd. also filed reply dated letter dated August 17, 2011. After considering submissions of petitioner and details submitted by Phoenix Hospitality Ltd. and Sharyans Resources Ltd., respondent No. 2 completed assessment for assessment year 2009-10 under section 143(3) of Act on December 29, 2011, without making any adjustment on account of share premium received by petitioner. During course of assessment proceedings for assessment year 2011-12, respondent No. 2 enquired about share premium and asked petitioner to explain and furnish working of share premium received by petitioner in relevant year. petitioner, vide letters dated January 13, 2014, January 20, 2014, March 3, 2014, and March 13, 2014, provided information. Respondent No. 3 passed order on March 22, 2014, under section 143(3) of Act for assessment year 2011-12. He accepted submissions of petitioner and did not make any addition with respect to share premium received by petitioner. Thereafter, respondent No. 2 issued notice under section 148 of Act dated March 29, 2014, stating that petitioner's income chargeable to tax for assessment year 2008-09 had escaped assessment within meaning of section 147 of Act. Vide letter dated April 25, 2014, petitioner submitted that return of income filed on September 28, 2008, should be treated as its response in compliance with impugned notice and further requested for copy of reasons recorded by respondent No. 2 for reopening assessment. Vide letter dated July 16, 2014, respondent No. 2 provided extract of reasons as recorded by him. For ready reference, extract of reasons is reproduced below: "... 2. From records, it is seen that assessee is in receipt of huge share premium amounting to Rs. 14,10,01,300 during financial year 2007-08 relevant to assessment year 2008-09. As scrutiny assessment under section 143(3) of Income-tax Act, 1961, has not been done in this case for this year, huge share premium having been received by assessee has not been examined. assessee is unlisted company and nature of share application money received (the intrinsic value of share in comparison to excess premium received) is not substantiated by any cogent evidence as could be noticed from records... 5. In view of above stated facts and judicial decisions, I have reason to believe that true and correct income of assessee has escaped assessment in terms of provisions of section 147 of Income-tax Act. Thus, it is fit case for reopening of assessment under section 147 of Income-tax Act, 1961. Notice under section 148 is, therefore, required to be issued in this case..." On or about August 21, 2014, petitioner filed objections challenging validity of reassessment proceedings for assessment year 200809 and, inter alia, submitted that: (a) reasons did not quantify income which escaped assessment and, therefore, notice was invalid in view of section 149 of Act; (b) impugned notice amounted to change of opinion; (c) impugned notice amounted to review which is not permissible; (d) There was no tangible material which came into possession of respondent No. 2 on basis of which reopening can be supported; respondent No. 2 on basis of which reopening can be supported; (e) reopening was invalid as no reasons were disclosed. Subsequently, impugned order dated February 10, 2015, was passed rejecting objections of petitioner challenging validity of reassessment, inter alia, observing that under section 147 of Act, Assessing Officer can invoke provisions of section for bringing to tax escaped income by reopening assessment within period of four years and proviso to section 147 of Act is not applicable. According to Assessing Officer, quantum of escaped income was equivalent to quantum of share premium amounting to Rs. 14,10,01,300 which is more than ceiling of Rs. 1 lakh prescribed under Act and prior sanction of Additional Commissioner of Income-tax was obtained on March 28, 2014, prior to issuance of notice. petitioner, being aggrieved by proposed reopening, filed above two writ petitions. Having perused aforesaid correspondence and documents, we have heard Mr. Mistri, learned senior counsel appearing on behalf of petitioner and Mr. Malhotra, learned counsel appearing on behalf for respondents. At outset, Mr. Mistri submitted that share premium does not and cannot form part of income of company. He made quick reference to pronouncement of this court in case of Vodafone India Services Pvt. Ltd. v. Union of India reported in [2014] 368 ITR 1 (Bom) in this behalf. He submitted that Revenue had in fact accepted this judgment and Central Board of Direct Taxes issued Circular/ Instruction F. No. 500/15/2014-APA-I, dated January 29, 2015. instruction is crisply worded and records as follows (see [2015] 371 ITR (St.) 6): "Subject: Acceptance of order of hon'ble High Court of Bombay in case of Vodafone India Services Pvt. Ltd.-reg. In reference to above cited subject, I am directed to draw your attention to decision of High Court of Bombay in case of Vodafone India Services Pvt. Ltd. v. Union of India for assessment year 2009-10 (W. P. No. 871 of 2014), wherein court has held, inter alia, that premium on share issue was on account of capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. 2. It is hereby informed that Board has accepted decision of High Court of Bombay in above mentioned writ petition. In view of acceptance of above judgment, it is directed that ratio decidendi of judgment must be adhered to by field officers in all cases where this issue is involved. This may also be brought to notice of ITAT, DRPs and CsIT (Appeals). 3. This issues with approval of Chairperson CBDT. " Mr. Mistri then submitted that in any event, amount of share premium amount cannot be added to income of company. He referred to balance-sheet of petitioner for period 2009-10 forming part of auditor's report of company. perusal of balance-sheet See [2014] 368 ITR 1 (Bom). reveals that source and details of shareholders had been provided. Mr. Mistri submitted that share capital stood at Rs. 28,98,600. He then referred to balance-sheet of March 31, 2009, which shows share capital of Rs. 1,97,97,000. Thus, Mr. Mistri pointed out that surplus had increased. He then drew our attention to schedule B under which securities premium had increased from Rs. 14,10,01,200 to Rs. 78,56,48,000. Thus, according to him, money having been raised by issue of shares at premium, this should not in any way included in income and taxed. He referred to notice issued by Assessing Officer on June 14, 2011, in respect of assessment year 2009-10 whereby Assessing Officer required assessee to remain present for assessment on June 21, 2011, along with details and records. He submitted that all records demanded were produced before Assessing Officer. Vide letter dated August 29, 2011, chartered accountants of assessee provided to Assessing Officer following: (1) Party-wise details of CWIP; (2) Details of loans and advances; (3) To explain as to why interest received be not brought to tax under head "income from other sources"; (4) Balance-sheet of K2A Hospitality Ltd; (5) Confirmation of accounts of K2A Hospitality Ltd.; (6) Balance-sheet of M/s. Fulda River Ltd. After receipt of same, on March 22, 2014, Assessing Officer accepted assessment under section 143(3) of Act, total sum of Rs. 1,46,206 to total income under head of income-tax from other sources and continued investigation under penalty proceedings under section 271(1)(c) of Act for having furnished inaccurate particulars of income. Surprisingly, he issued notice under section 148 of Act stating that he has reasons to believe that income chargeable to tax has escaped assessment for assessment year 2008-09 and he proposed to reassess income. Mr. Mistri pointed out that respondent No. 2 merely relied upon huge share premium amounting to Rs. 14,10,01,300 during financial year 2007-08 relevant to assessment year 2008-09 and that in fact scrutiny assessment had not been done. Apropos, respondent No. 2's contention that he had authority to reassess income chargeable to tax which he believed had escaped assessment, Mr. Mistri submits that in fact such communication is entirely bereft of any real reasons. Vide letter dated August 21, 2014, assessee clarified that reasons cited were in fact no reasons at all and objected to reopening of assessment. Mr. Mistri pointed out decision of hon'ble Supreme Court in case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 (SC) relied upon by Assessing Officer was not applicable to present case, while highlighting fact that in Rajesh Jhaveri (supra), reopening was within four years of relevant assessment year, whereas in present case, it is proposed to be done after four years. Mr. Mistri, therefore, submitted that there was no factual basis in claim that Assessing Officer had reasons to believe that income had escaped assessment. According to Mr. Mistri, there was no real reason that could be cited for reopening of assessment. Mr. Mistri then relied upon decision of this court in case of Hindustan Lever Ltd. v. R. K. Wadkar, Asst. CIT (No. 1) reported in [2004] 268 ITR 332 (Bom) and submitted that notice under section 148 of Act after four years should clearly specify materials that were not disclosed earlier, notice itself must specify reason, that it is not possible that reasons be supplied later on. In that case, Division Bench of this court held that notice was clearly beyond period of four years and reasons recorded by Assessing Officer did not state that there was failure on part of assessee to disclose fully and truly all particulars necessary for assessment for that assessment year. This court found that Assessing Officer had no jurisdiction to reopen assessment proceedings and notice was held to be invalid and was quashed. Mr. Mistri relied upon ratio of judgment and submitted that in present case, also notice is issued beyond period of four years and did not disclose any material which assessee had failed to disclose. Assessing Officer had no reason to believe that income had escaped assessment for relevant year. He then relied upon decision of this court in case of Aroni Commercials Ltd. v. Asst. CIT reported in [2014] 367 ITR 405 (Bom) in which it is held that if notice under section 148 of Act provides identical reasons for reopening of assessment for second consecutive assessment year and earlier year notice had been held to be invalid, notice for reassessment for subsequent year should also be held to be invalid. Mr. Mistri submitted that in Writ Petition (L.) No. 736 of 2015 also identical notice had been issued bereft of any reasons or material justifying issuance of notice in respect of assessment year 2009-10. He submitted relying upon these decisions that impugned orders as well as notices in both above petitions are liable to be set aside. Referring to decision of this court in Writ Petition (L.) No. 2885 of 2014 (Rockstar Real Estate Pvt. Ltd. v. ITO), Mr. Mistri submitted that this court found that reasons furnished to petitioner-assessee were identical as in present case. court was prima facie of view that from share premium and share application money, no income arises as receipt is on capital account. However, we find that said order was at ad interim stage and it need not continue to engage our attention. Mr. Malhotra, learned counsel for respondents, has vehemently supported issuance of notices. He contended that such large premium being paid is suspect, especially if company has no track record and its earning per share were negligible, in fact it was loss-making company. Referring to balance-sheet and profit and loss account, he submitted that they were not hugely profiteering company so as to command such high share premium. According to him, matter needs to be investigated further, notwithstanding fact that some public companies are stated to have invested in assessee-company and have subscribed to share premium. He submitted that there is total absence of business acumen if such high premium had been paid. This itself raises serious doubts about bona fides of assessee-company and justifies reopening of assessment in interests of Revenue. He supported impugned notices and orders and refuted contentions of Mr. Mistri. We have given our anxious consideration to factual background and we are of view that Mr. Mistri's contentions deserve to be accepted in facts of present case. transaction seems to be entirely arm's length transaction. subscribers are limited companies who are reportedly stated to be public limited companies. petitioner is company in hospitality sector and we do not see how amount of premium that has been charged from subscribers can be questioned without revenue provided valid reasons. We have not entered into merits of controversy. Suffice it to say that apart from being public limited companies, subscribers include other infrastructure hospitality companies. Having come to this conclusion, we are constrained to hold that there is no justification in issuing of notice under section 148 of Act in given facts of case. There is no lack of disclosure or suppression of any material facts. All queries of respondent No. 2 have been answered by assessee or subscribers in question especially when all questionnaires addressed to subscribers were duly answered by subscribers. Assessing Officer, thereafter, proceeded to complete assessment order and issued assessment order but did issued volte face and fresh notice under section 148 of Act just one week after issuance of assessment order. This does not augur well for Revenue and particularly in view of fact that notice under section 148 of Act (exhibit Q to petition) dated March 29, 2014. It does not contain any tangible reasons for reopening of assessment. In fact, as rightly appointed by Mr. Mistri, during his submissions, respondent No. 2 has completed assessment and issued assessment order on March 22, 2014, yet very same Assessing Officer has proceeded to issue notice under section 148 of Act, seven days of assessment order. We may add word of caution here. Although petitioner has relied upon decision of this court in case of Vodafone and Department has accepted said decision and decided against challenging it by issuing circular, we would not equate all cases of share premium as being covered by said judgment and circular. In given case and given fact situation, assessees may be required to be probed for valid reasons. In case at hand, however, we find that there is no justification for reopening of assessment and, accordingly, we are of view that both petitions must succeed. We, accordingly, pass following order. In Writ Petition (L) No. 735 of 2015, impugned notice exhibit Q dated March 29, 2014, issued by Income-tax Officer 6(1)-2, Mumbai under section 148 of Income-tax Act, 1961, and impugned order exhibit U dated February 10, 2015, by Income-tax Officer 6(1)-1, Mumbai, in respect of assessment year 2008-09 are hereby set aside. In Writ Petition (L) No. 736 of 2015, impugned notice exhibit Q dated March 24, 2014, issued by Income-tax Officer 6(1)-2, Mumbai under section 148 of Income-tax Act and impugned order exhibit-U dated February 10, 2015, in respect of assessment year 2009-10 by Income-tax Officer 6(1)-1, Mumbai, are hereby set aside. There will be no order as to costs. *** Alliance Space Pvt. Ltd. v. Income-tax Officer
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