Supra Estates India Pvt.Ltd. v. Income-tax Officer, Ward-11(2)(4), Mumbai / Pr. Commissioner of Income-tax–11, Mumbai
[Citation -2019-LL-0821-156]

Citation 2019-LL-0821-156
Appellant Name Supra Estates India Pvt.Ltd.
Respondent Name Income-tax Officer, Ward-11(2)(4), Mumbai / Pr. Commissioner of Income-tax–11, Mumbai
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 21/08/2019
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags share application money • application of mind • slum redevelopment • expenses incurred • reason to believe • change of opinion • source of income • exempted income • share premium • share capital • reopening of assessment • full and true disclosure
Bot Summary: The Petitioner- Supra Estates India Pvt.Ltd. has challenged the notice dated 24 March 2019 issued by the respondent- Assessing Officer proposing to reopen the assessment and the order dated 25 June 2019 passed by the Assessing Officer rejecting objections raised by the Petitioner to the notice seeking to reopen the assessment. The Petitioner filed its Return of income on 30 September 2012 for the assessment year 2012-13 declaring the total income of Rs.22,23,404/-. The Assessing Officer vide a notice under section 142(1) issued on 21 August 2014 ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 3 1902.19-wp C.edited-1.doc called upon the Petitioner to explain shareholding pattern, details of shareholders, details of share application money/premium, allotment of shares, details of expenditure above Rs.5 lakh debited to profit and loss account and the comparative figures of gross profit and net profit. The Assessing Officer issued another notice under section 142(1) on 13 February 2015 seeking further details regarding share premium, details of earning per share and profit earned by the Petitioner; the comparative rate of premium charged by other companies; computation of share premium, the net worth of the Petitioner, subscription agreements etc. The petitioner in his objections had pointed out there is no averment in the reasons that the assessee has failed to disclose fully and truly all material facts necessary for the assessment, and factually there has been no such failure. In the reasons given for reopening the assessment, the Assessing Officer had stated that considering that the Petitioner was showing no profits from the business for tax during the period before the year of issuance of shares and there was no justification for issuing shares at such a high premium. Having considered the material, it is clear there was no failure by the Petitioner to fully and disclose all the material facts for assessment as regards the reasons supplied under notice for reassessment.


IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1902 OF 2019 Supra Estates India Pvt.Ltd. Having its office at 601/602, Sony House- 34, Gulmohar Road, JVPD Scheme, Vile Parle (West), Mumbai- 400 056. Petitioner. V/s. 1. Income Tax Officer, Ward-11(2)(4), having her office at Room No.349, 3rd Floor, Aayakar Bhavan, Maharshi Karve Road, Churchgate, Mumbai- 400 020. 2. Pr. Commissioner of Income-tax 11, having his office at Room No.437, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai- 400 020. Respondents. Mr.J.D.Mistry, Senior Advocate with Mr.B.V.Jhaveri and Mr.S.Sriram for Petitioner. Mr.Akhilesh Sharma for Respondent Nos.1 and 2. CORAM: M.S. SANKLECHA AND NITIN JAMDAR, JJ. DATE : 21 August 2019. JUDGMENT : (Per Nitin Jamdar, J.) Rule. Rule made returnable forthwith. Respondents waive service. petition is taken up for final disposal. 2. Petitioner- Supra Estates India Pvt.Ltd. has challenged notice dated 24 March 2019 issued by respondent- Assessing Officer proposing to reopen assessment and order dated 25 June 2019 passed by Assessing Officer rejecting objections raised by Petitioner to notice seeking to reopen assessment. 3. Petitioner, private limited company, is in business of redevelopment of residential premises in cities of Mumbai and Thane. Petitioner filed its Return of income on 30 September 2012 for assessment year 2012-13 declaring total income of Rs.22,23,404/-. case of Petitioner was selected for scrutiny by respondent- authorities. notice under section 143(2) of Act was issued on 13 August 2013. Petitioner participated in assessment proceedings. Assessing Officer vide notice under section 142(1) issued on 21 August 2014 ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 3 1902.19-wp C.edited-1.doc called upon Petitioner to explain shareholding pattern, details of shareholders, details of share application money/premium, allotment of shares, details of expenditure above Rs.5 lakh debited to profit and loss account and comparative figures of gross profit and net profit. Petitioner submitted details of information called for on 9 September 2014 and 9 February 2015. Assessing Officer issued another notice under section 142(1) on 13 February 2015 seeking further details regarding share premium, details of earning per share and profit earned by Petitioner; comparative rate of premium charged by other companies; computation of share premium, net worth of Petitioner, subscription agreements etc. details were submitted by Petitioner on 20 February 2015. One more notice under section 142(1) of Act was issued on 20 February 2015 to which Petitioner submitted explanation on 27 February 2015. order was passed by Assessing Officer on 13 March 2015 accepting return filed by Petitioner. 4. After period of four years, on 28 March 2019, notice was issued by Assessing Officer under section 148 of Act, seeking to reopen assessment. Petitioner by letter dated 5 April 2019 filed its return of income and requested for reasons for reopening assessment. Respondent No.1- Assessing Officer on 10 May 2019, furnished reasons recorded for exercising jurisdiction under section 148 of Act. Petitioner filed its ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 4 1902.19-wp C.edited-1.doc objections to reopening on 20 May 2019. Assessing Officer rejected objections by order dated 25 June 2019. By this petition, Petitioner has challenged notice dated 28 March 2019 and order dated 25 June 2019. 5. assessment year in question is 2012-13. impugned notice under section 148 was issued on 28 March 2019, i.e. after expiry of four years from end of assessment year. 6. period of four years is vital because of language of section 147 of Act. Under Section 147, Assessing Officer has jurisdiction to reopen assessment, if he has reason to believe that income chargeable to tax has escaped assessment. However, if assessment sought to be reopened after four years, then there is additional requirement, that is, there must be failure on part of assessee to fully and truly disclose all material facts necessary for assessment. existence of these parameters is jurisdictional requirement. If jurisdictional requirement is not met, Assessing Officer would not have jurisdiction to reopen assessment after four years. 7. As regards satisfaction of condition of failure by assessee to fully and disclose all material facts for assessment, there are two facets. First, Assessing Officer must be satisfied; there is failure to disclose all material facts. Second, even if Assessing ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 5 1902.19-wp C.edited-1.doc Officer is satisfied there is failure by assessee, factually it must be demonstrated so. 8. satisfaction of Assessing Officer regarding failure of assessee must be reflected in reasons given for reopening assessment1 notice proposing to reopen assessment must reflect application of mind of Assessing Officer to this critical facet of section 147 of Act, i.e. after four years assessment can be reopened only if there is failure by assessee. 9. Turning to facts, reasons supplied to petitioner are as under: 1. return of income for AY 2012-13 was e-filed on 30.09.12 declaring total income of Rs.22,23,404/-. same was processed u/s 143(1). Subsequently, assessment was completed u/s 143(3) on 13.03.2015 assessing total income at Rs.22,23,404/-. assessee company is engaged in business of construction. 2. During year under consideration, i.e. F.Y. 2011-12 relevant to A.Y. 2012-13, assessee company has issued 103845 shares of face value of Rs.100 at premium of Rs.1200 per share. On perusal of financials of company from A.Y. 2008-09 onwards it is observed that assessee company has been continuously showing business losses till A.Y. 2018-19. Because no profits from business have been offered for tax during period 1 (2012) 343 ITR 183 (Bom) (Titanor Components Ltd. v. Asst.CIT) ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 6 1902.19-wp C.edited-1.doc before year of issuance of shares, there is no justification for issuing shares at such high premium of Rs.1200 per share. assessment for A.Y. 2016-17 was selected under CASS, one of reasons being "to verify large share premium". Accordingly, details of share premium received were called for. It was submitted that shares were issued in F.Y. 2011-12 and subsequently no shares were issued by assessee company. 3. During assessment proceedings for A.Y. 2016-17, it is seen that project has not been completed but has been delayed as Dy. Collection (Encroachment & Removal) is re-verifying eligibility of Slum Dweller. This means that Slum Rehabilitation Project as on 31.03.2016 is itself in initial stages wherein slum developers are yet to be shifted to transit accommodation. Further, earning per share of company during year under consideration, i.e. 2012-13 is 9.54 and negative in preceding year. Hence, in view of above, there is no justification for receiving such huge premium of Rs.12,46,14,000/- considering net worth of assessee company and projected project plans. 4. It is further observed that assessee company has incurred expenses on account of legal and professional fees to tune of Rs.85,95,000/- for providing consultancy services by Queens Developer. said amount has been paid for availing consultancy services in slum redevelopment project. Because expenses incurred in relation to Slum Rehabilitation Project have been debited to work in progress and above amount which has been claimed by assessee company in profit and loss account is not in order. Further, during assessment proceedings for A.Y. 2016-17, it is seen that only transit accommodation is being constructed for rehabilitating slum dweller and no income has been offered from said project. Hence, this expenditure ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 7 1902.19-wp C.edited-1.doc should have been considered under work in progress instead of claiming it as P & L Expenditure. 5. Therefore, high share premium of Rs.12,46,14,000/- @ 1200/- per share received by company vis-a-vis financials of company remains unexplained. Also, expenditure to tune of Rs.89,50,000/- claimed as expenditure in Profit & Loss account is also unexplained. 6. Hence, in view of above, I have reason to believe that income to extent of Rs.13,32,09,000/- (12,46,14,000 + 85,95,000) has escaped assessment for A.Y. 2012-13. 7. Therefore, notice u/s 148 r.w.s. 147 of Act is being issued to assess such income chargeable to tax, which has escaped assessment, after obtaining necessary approval from competent authority. petitioner in his objections had pointed out there is no averment in reasons that assessee has failed to disclose fully and truly all material facts necessary for assessment, and factually there has been no such failure. While rejecting objections, Assessing Officer has not even noticed this requirement and has referred to decision of courts which do not deal with situation at hand. Thus, first jurisdictional requirement that notice must disclose application of mind by authority seeking to reopen assessment to additional requirement under section 147 in case of reopening after four years is missing. ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 8 1902.19-wp C.edited-1.doc 10. Secondly, there is no such failure by Petitioner- assessee to fully and truly disclose all material facts necessary for assessment. In reasons given for reopening assessment, Assessing Officer had stated that considering that Petitioner was showing no profits from business for tax during period before year of issuance of shares and there was no justification for issuing shares at such high premium. It was also stated that during assessment proceedings, project was not completed but was delayed and slum rehabilitation project was in initial stages and earning per share of Petitioner was negative in preceding year and, hence, there was no justification for receiving such huge premium. It is further observed that expenditure incurred on account of legal and professional fees should have been considered as work in progress in spite of claiming it as expenditure in Profit & Loss Account. It is stated that this remained unexplained. question was whether this is because of result of failure of Petitioner to submit necessary details. 11. Earlier, by notice dated 21 August 2014, various details were called for, particularly regarding shareholding pattern, details of shareholders and various other details in 29 requirements. record shows that Petitioner had supplied these details on 9 September 2014 and 9 February 2015. Again 10 point details were sought on 13 February 2015. Those were also handed over on 20 February 2015. Petitioner had given note on valuation of ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 9 1902.19-wp C.edited-1.doc share at premium along with details, and all details were placed on record. order passed by Slum Rehabilitation Authority and agreement entered into between Petitioner, and Developer was also placed on record. 12. Vide notice dated 21 August 2014, various details were called for, which were submitted by petitioner on 9 September 2014 and 9 February 2015. These were list of firms and companies in which shareholders had equities; details of Directors; details of sister concerns and group concerns; shareholding pattern; share application money and premium; monthly summary of purchases and sales; details of bank accounts; details of sundry creditors; details of sundry debtors; assessment history; inventories; elements of indirect taxes and custom duty; additions to fixed assets; rate of depreciation; date of installation; break-up of other income; details of exempted income; details of donations made; exemption certificates; demat accounts. 13. In respect of share premium, on 13 February 2015, details were called for and they were submitted. These are : i. persons from whom share premium has been collected during F.Yrs. 2009-10 and 2011-12. ii. earning per share and profit in past years as against premium collected per share. iii. premium charged by reputed companies in he field of business and comparative data. ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 10 1902.19-wp C.edited-1.doc iv. valuation of premium worked out. financial consultants on whose advice such premium was worked out. v. net worth of company as per Balance Sheet and presentation on future prospects of company. vi. Subscription Agreements with parties. vii. minutes of Meeting of Board of Directors where premium amount to be charged was fixed. viii. Resolution authorizing issuing of shares passed. When was this Resolution intimated to Registries of Companies: ix. source of income of all investing companies/ individual? Copy of their ROI for last five years. x. details of Directors of investing company/ Companies and whether any Directors partners in these entities are in any way related to any of Director s / shareholders of investor. 14. petitioner submitted note on valuation of shares at premium. relevant part of which reads as under: It has been agreed between parties that ETA Start property Developers shall hold 35% of Share Capital of Company. Company is in business of redevelopment of Slums situated at Andheri West and accordingly has signed diverse agreement with Slum dwellers of following societies: 1. Jagrut Hanuman Welfare SRA Co-op Housing Society Limited. 2 to 16 Company has also made necessary application to slum authorities for sanction of above redevelopment. LOI issued by slum authorities is in respect of 46,490.26 sq.mt. Of FSI (5,00,235 Sq.ft) for free sale building. Ready Reckoner rate of FSI on CTS 198 is Rs.39,600 per sq mt and 208 is ::: Uploaded on - 27/08/2019 ::: Downloaded on - 29/08/2019 09:52:37 ::: skn 11 1902.19-wp C.edited-1.doc Rs.31300 per sq mt ie average of Rs.35450 per sq mt. Hence total valuation of free sale of FSI in hands of company is approx. 165 crores less 65 crores for construction of rehabilitation and transit buildings for slum dwellers ie. 100 crores valuation. In order that ETGA holds 35% of Share Capital, ET was required to bring in Rs.74.99 Crores as detailed under. Hence it is provided in JV agreement dated 30.7.2009 that ETA shall bring following amounts: 1. Rs.2,69,23,000/- Face value of 35% shares 2. Rs.32,30,76,000/- Premium Amount 3. Rs.20,00,000/- Interest free Unsecured Loans 4. Rs.20,00,00,000/- Interest bearing unsecured Loans Rs.74,99,99,000/- Total It may be noted that shares has been allotted to ETA on following dates against funds brought in by them. 1. 6.10.2009 Rs.21,50,00,500/- First Allotment 2. 13.10.2011 Rs13,49,98,500/- Second Allotment Rs.34,99,99,000/- Total. Petitioner explained in note how valuation of share premium was arrived at. Having considered material, it is clear there was no failure by Petitioner to fully and disclose all material facts for assessment as regards reasons supplied under notice for reassessment. power to reopen assessment is not power to review, and this power cannot be used to review because there is change of opinion by Assessing Officer. 15. Thus, to summarize, on both counts, there is no application of mind by Assessing Officer to jurisdictional requirements. First, to existence of failure of assessee to disclose all material skn 12 1902.19-wp C.edited-1.doc facts for assessment since assessment was sought to be reopened after four years as it is not so mentioned in reasons supporting notice for reassessment. Second, factually, there has been no failure by Petitioner to fully and truly disclose material facts. reasons in support of notice of reassessment mention areas in which reassessment needs to be carried out, and record shows that material regarding these topics was called for over two occasions from Petitioner and was supplied. 16. In these circumstances, although Petitioner had remedy of statutory appeal since order is without jurisdiction and contrary to settled position of law, it requires to be quashed and set aside. We hold and declare that Respondents had no jurisdiction to issue impugned notice, consequently, impugned order rejecting objections is also without jurisdiction. 17. Rule is made absolute in terms of prayer clause (a). No costs. NITIN JAMDAR, J. M.S. SANKLECHA, J. Supra Estates India Pvt.Ltd. v. Income-tax Officer, Ward-11(2)(4), Mumbai / Pr. Commissioner of Income-tax11, Mumbai
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