By TIOL News Service

NEW DELHI, MAR 28, 2019: THE ISSUE IS - Whether when the Revenue gets hold of information which has the potential of undermining its findings previously made in original assessment, then invocation of power to reassessment is warranted. YES IS THE VERDICT.

Facts of the case:

The assessee company is engaged in the business of rendering financial services. During relevant F.Y, the assessee received share application money of Rs.87,00,00,000/- from its promoter/founder Analjit Singh towards fresh allotment of equity shares. Thereupon, the assessee filed its return declaring a total income Rs.37,746/-. Later on, as a part of the exercise of reorganization of the group and consolidation of shareholding, the right to receive allotment of shares against the said share application money of Rs.87 crores, was transferred by Analjit Singh to his family trust, i.e. Neeman Family Foundation through a gift. Since a substantial amount was received against unallotted shares, the assessee's case was taken up for scrutiny and the AO issued a questionnaire querying the assessee as to why share application money of Rs.87 crores received should not be added to its income. The assessee's reply was that the share application money was received during the A.Y 2012-13 and that it was holding 5% of paid up share capital of Max India Limited as promoter group entity. The allotment of equity shares by assessee to Neeman Family Foundation, would have resulted in change in ownership status of assessee from individual promoters to Trust. The said allotment of shares to trust would then have triggered the requirement of Public Offer/Announcement finder SEBI Takeover Code, 2011. The assessee also stated that trusts already sought an exemption from SEBI under the applicable provisions during the F.Y 2014-15 for allotment of shares against pending share application money. The AO however added said outstanding amount of share application money to the declared income of assessee as unexplained income in its hands. It was also held that the family trust did not get any benefit having regard to the purpose it was created which showed that it was just shifting tax burden on deemed income of trust by this route.

On appeal, the CIT(A) deleted the addition made by AO, inter alia, on the ground that since the said share application money was not received in the relevant AY i.e. 2012-13, the provisions of Section 68 were not applicable in that year. Later on, the AO issued notices u/s 148 observing that various contradictions were observed leading to credits of Rs. 87 crores being share application money received by the assessee during financial year 2009-10. On the basis of material available with the undersigned it was clear that the transactions with respect to credits of Rs. 87 crores was not genuine and thus could be the basis of reason-for formation of belief that income had been escaped assessment.

Hence, present petition by the assessee contending that when the scrutiny assessment for AY 2011-12 had examined the matter and the addition made on the same ground, was deleted on appeal, the Revenue Department could not resuscitate the same issue, without any new material.

High Court held:

++ it is submitted that the assessee gave various contradictory evidences to prove the genuineness of the credits of Rs.87 crores in its books during the course of assessment proceedings for A.Y 2012-13 and also during the course of stay proceedings. It is argued that no evidence to prove the source of receipt of share application money was ever produced by the assessee. The assessee has for the first time filed the "gift deed" as Annexure before this court. This gift deed between Analjit Singh and Neeman Family Foundation was devoid of all these ingredients of gift, as it was made for furthering the family arrangements and was thus out of compulsion. In such circumstances, doubting the genuineness of transactions cannot be stated to be out of context. It is also an admitted fact that the assessee has not issued the shares even till date and the reason stated by the assessee is that permission would be required from the SEBI. But it is relevant to note that the share application money was received in F.Y 2009-10 and it was only on Nov 26, 2014, when the assessee filed a Petition before SEBI. The assessee failed to elaborate as to why no shares were issued from F.Y 2009-10 to 2014-15. The contradiction itself established that the transaction pertaining to credit of Rs.87 crores was not genuine;

++ the decision of Commissioner of Income Tax v. Kelvinator - 2010-TIOL-06-SC-IT is now the ruling precedent on what are valid considerations that would justify issuance of a reassessment notice u/s 148. These are briefly, when full disclosure of material facts is not made during the original assessment. The Supreme Court held that the AO has power to re-open the assessment if there is tangible material to conclude, prima facie that there has been escapement of income. However, the court cautioned that the power of reassessment is not one of review and that it does not admit of formation of a second opinion. The scope of the phrase "reason to believe" was examined by the Supreme Court previously in M/s. Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr - 2002-TIOL-794-SC-IT, wherein it was observed that: "....where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case...." Clearly therefore, when the Revenue gets hold of information or material which tends to or has the potential of undermining its findings previously made in the assessment proceedings, and have an important bearing, invocation of the power to reassessment is warranted;

++ in the present case, the Revenue presses several such circumstances: one, that the SEBI application was made in 2014 after a questionnaire was issued by the AO; two there was nothing to justify the premium of 457 per cent over the face value of the shares-even the market value of the share according to the Revenue on the date of issue of the shares was only Rs.318/- per share. Three, the SEBI approval was given much later; four, when the authorized capital of company was Rs.20 lakhs, the necessity for issuing shares worth Rs.87 crores remained unanswered. In the opinion of this court, the reassessment notice in this case was clearly warranted. Though the assessee had sought to explain that the share application amounts were received and later the shareholding rights were transferred by Analjit Singh to his family trust. The identity of Analjit Singh was known; however, looking at the transaction i.e. allotment of shares vastly in excess of the authorized capital, in the absence of any SEBI approval and retention of that money by the assessee which did not show any reason for issuing the shares, the other ingredients of Section 68 i.e. genuineness of the transaction or credit and the credit worthiness of the individual providing the money, were apparently not established. In the light of these circumstances, the Revenue was justified in issuing reopening notice.

(See 2019-TIOL-686-HC-DEL-IT)