2016 (2) TMI 710 - HC - Income Tax

Assessing Officer must have 'reason to believe' for income escape assessment. Share premium above intrinsic value not taxable.

The High Court held that the Assessing Officer must have a 'reason to believe' that income has escaped assessment, even if the original assessment was ... Reopening of assessment - charging of share premium over and above the intrinsic value of the share is income which has escaped assessment - Held that:- The reason in support of the impugned Notice proceed on the basis that the regular Return of income was assessed by Intimation under Section 143(1) of the Act and no scrutiny assessment was done. In the above view, to ascertain the nature and the justification for charging share premium, the Assessing Officer has reason to believe that charging of share premium over and above the intrinsic value of the share is income which has escaped assessment. The Notice itself does not indicate the approximate amount of income, which the Assessing Officer has reason to believe has escaped assessment nor does it quantify the extent to which the share premium received was in excess of intrinsic value, which has escaped assessment. It gives no reasons to indicate the basis of coming to the conclusion that share premium is excessive and, therefore, income. Moreover, the Notice also does not dispute that this is a share premium but seek justification for charging the share premium over and above intrinsic value of the share premium. Primafacie, we are of the view that the basis of the impugned Notice stands concluded by the decision of this Court in Vodafone India Services Ltd. Vs. CIT [2014 (10) TMI 278 - BOMBAY HIGH COURT ], wherein it has been held that the share premium being on the capital amount cannot be subjected to tax as income. - Decided in favour of assessee Issues:1. Challenge to reopening Notice under Section 148 of the Income Tax Act, 1961.2. Requirement of 'reason to believe' for issuing reopening notices.3. Justification for charging share premium above intrinsic value.4. Applicability of previous court decisions on the case.Analysis:1. The preliminary issue raised by the respondent's counsel was regarding the challenge to the reopening Notice dated 20th March, 2015, under Section 148 of the Income Tax Act for Assessment Year 2010-11. The Supreme Court's decision in a related case emphasized that if the original return was accepted under Section 143(1) of the Act, there should be no change of opinion for issuing a reopening notice. However, the High Court referred to another Supreme Court decision that required the Assessing Officer to have a 'reason to believe' that income has escaped assessment, even if the assessment was completed by Intimation under Section 143(1) of the Act.2. The court analyzed the requirement of 'reason to believe' for issuing reopening notices. It noted that the Supreme Court had not specifically addressed whether the Assessing Officer must have a reason to believe that income has escaped assessment when the original assessment was completed by Intimation under Section 143(1) of the Act. The court emphasized that the 'reason to believe' condition is essential even if the assessment was completed by Intimation under Section 143(1) of the Act, based on the precedent set by the Supreme Court in a previous case.3. The court examined the justification for charging share premium above intrinsic value. The Assessing Officer sought to reopen the assessment based on the belief that charging share premium above intrinsic value constituted income that had escaped assessment. However, the court found that the Notice did not provide sufficient reasoning or quantify the alleged income that had escaped assessment. The court also referred to a previous decision that held share premium on capital amount cannot be taxed as income.4. The court discussed the applicability of previous court decisions on the case. The respondent's counsel tried to distinguish earlier decisions, but the court found that those decisions did not further the Revenue's case. The court observed that each case must be evaluated on its own merits, and the decision in a specific case regarding share premium should apply to the present case. The court granted interim relief based on these observations and scheduled the petition for final hearing.