2017 (3) TMI 38 - HC - Income Tax

Court restrains Revenue from reopening assessment for AY 2011-12 due to lack of valid reasons. Share premium not taxable.

The court restrained the Revenue from taking further action on a notice seeking to reopen assessment for Assessment Year 2011-12. The court found that the ... Reopening of assessment - reason to believe that income has escaped assessment - application of mind to available material - validity of notice under Section 148 - share premium on capital account not taxableReopening of assessment - reason to believe that income has escaped assessment - application of mind to available material - validity of notice under Section 148 - Impugned notice under Section 148 for Assessment Year 2011-12 is prima facie without jurisdiction because the Assessing Officer did not form a reasoned belief that income had escaped assessment. - HELD THAT: - The Tribunal's order reopening assessment proceeded on information received regarding issue of shares at a premium. The reasons recorded by the Assessing Officer show no quantification of any amount alleged to have escaped assessment and reflect only receipt of communication and identification of a single subscriber. The court applied the settled test that even where assessment was processed under Section 143(1), the reopening notice must rest on a reasoned belief arrived at after applying mind to the available material. Mere receipt of information is insufficient. Absent rudimentary enquiry and any prima facie determination of escaped income (as evidenced by omission of any amount), the Assessing Officer failed to satisfy the statutory requirement for forming a reason to believe, rendering the notice prima facie invalid. [Paras 4, 5, 7]Impugned notice prima facie invalid for lack of application of mind and failure to record any amount escaping assessment; further action pursuant to the notice restrained until final disposal of the petition.Share premium on capital account not taxable - Share premium received on issue of shares is, prima facie, not taxable as income. - HELD THAT: - Relying on the view in Vodafone India Services Pvt. Ltd., the court noted that share premium being on capital account cannot be subjected to tax as income. That legal position was taken to indicate that the reopening notice, which targets share premium, is prima facie without jurisdiction. [Paras 6]Prima facie, share premium on capital account is not taxable and undermines the basis for reopening the assessment.Final Conclusion: On prima facie consideration the reopening notice dated 24th February, 2016 for Assessment Year 2011-12 is without jurisdiction because the Assessing Officer did not apply his mind to form a reasoned belief of income escaping assessment, and because share premium on capital account is, prima facie, not taxable; revenue restrained from acting on the notice pending final disposal of the petition. Issues:Challenge to order of Income Tax Appellate Tribunal under Section 148 for reopening assessment for Assessment Year 2011-12.Analysis:The petition under Article 226 of the Constitution challenges the order passed by the Income Tax Appellate Tribunal seeking to reopen the assessment for the specified Assessment Year. The reasons for the impugned notice are based on the fact that no scrutiny assessment was done for the subject year, and the assessment was processed only under Section 143(1) of the Income Tax Act. The reasons recorded mention a communication from the office of the Chief Commissioner of Income Tax, which directed the matter to be examined. Subsequently, the Assessing Officer issued a notice seeking details of the share capital issued at a premium. The petitioner provided the requested details. The court notes that even in cases where assessment was processed under Section 143(1) only, the reopening notice must have a valid reason to believe that income has escaped assessment. The Assessing Officer must apply his mind to the material available and reach a prima facie view that income chargeable to tax has escaped assessment. Mere receipt of information is not enough to justify reopening. In this case, the court finds that the Assessing Officer did not conduct a basic inquiry into the material before concluding that income had escaped assessment, as evidenced by the absence of any determined amount in the reasons.The court also refers to a previous judgment stating that share premium being on capital account cannot be taxed as income. Therefore, prima facie, the court finds that the impugned notice lacks jurisdiction. Consequently, the respondent Revenue is restrained from further action on the notice until the final disposal of the petition. The petition is scheduled for final hearing along with another Income Tax Appeal.