TaxTMI 
TaxTMI 
2022 (9) TMI 1098
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....itor General appearing for Mrs.Hema Muralikrishnan, learned Senior Standing Counsel for the respondents have been heard. 2. These Writ Petitions, along with several others challenging proceedings for re-assessment, were originally dismissed by a Division Bench of this Court on 04.07.2014 as against which some of the assessees including these petitioners approached the Hon'ble Supreme Court that set aside the orders passed by this Court remanding the matters to the file of the learned single Judge for consideration, vide orders dated 21.11.2016 and 08.12.2016. 3. The submissions advanced on behalf of the petitioners are taken conjointly, seeing as, barring some differences, relevant facts remain largely the same in both cases. The challenge is to proceedings for re-assessment in terms of the Income tax Act 1961 (in short 'Act') for the periods 2008-09 and 2009- 10 in the case of Mr.Kalanidhi Maran (in short and referred to hereinafter as 'Petitioner A') and 2009-10 in the case of Mrs.Kaveri Kalanidhi (in short and referred to hereinafter as 'Petitioner B'). 4. Returns of income (ROI) were filed by the petitioners within time. Both petitioners state that they are promoter di....
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....l and there is a disclosure therein, italicized above for clarity, to the effect that the shares of the company had been issued at a premium to one, South Asia Entertainment Holdings Limited, and at par to the petitioners herein. I will refer to this aspect of the matter more in detail, in the paragraphs to follow. 8. An assessment order came to be passed in terms of Section 143(3) of the Act in the case of petitioner A on 30.11.2011. The order has been passed after scrutiny, and at paragraph 2 thereof, the heads under which income has been admitted in the ROI, being 'salary', 'house property', 'short term capital gains' and 'other sources', have been noted by the officer. 9. As regards petitioner B, the ROI was not taken up for scrutiny and only an intimation was issued in terms of Section 143(1) of the Act. However, petitioner B would urge that, seeing as she was assessed in the same circle as that of petitioner A, and insofar as the issues earmarked for reassessment are one and the same, the distinction drawn between a scrutiny assessment under Section 143(3) and an intimation under 143(1), is artificial and contrary to law. 10. While this was so, and within four years ....
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.... 8709677 10 0 87096770 Allotment without premium* 02.04.2008 13233974 10 0 132339740 Allotment without premium* 31.07.2008 9873191 10 0 98731910 Allotment without premium* 30.09.2008 3280730 10 0 32807300 Allotment without premium* M/s. South Asia Entertainment Holdings Ltd was allotted shares on 10.12.2007, 02.04.2008, 31.07.2008 and on 30.09.2008 at a premium of Rs.69.57 for the allotment of shares of 3,96,77,420, 14704415, 10970211 and 3645256 shares respectively. Since the percentage of shares allotted to M/S.SAEHL is below 26%, it did not have any controlling stake in the Company. The value of the shares allotted to it is at Rs.79.57 per share including premium of Rs.69.57. However, the promoter Director was allotted shares at par. Section 2(24) (iv) of the Income-tax Act, 1961 defines that income includes the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such a person, and any sum paid by any such company in respect of any ....
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....e, Premium, if any, Date of allotment and total value of shares. Your case is posted for hearing on 07.08.2013 @ 11.30 a.m. You are requested to appear before the undersigned on the hearing date either in person or through an authorised representative authorised for this purpose and produce the details called for. In case of failure, the 147 proceedings for the AY 2009- 10 will be finalised based on material available on record as per law." 12. The reasons, recorded in the case of petitioner B, read as follows: "As requested in your letter dated 26.04.2013, the reasons for reopening your assessment for the AY 2008-09 are furnished as under: "Mrs. Kaveri Kalanidhi, PAN: AGIPK2942F is a promoter Director in M/s. Sun Direct TV Pvt. Ltd., Chennai and assessed in Media Circle I, Chennai. She has filed her return of income for the assessment year 2009-10 on 29.09.2009 returning income of Rs.32,72,74,380/-. The case was taken up on scrutiny and an order u/s 143(3) was passed on 30.11.2011 assessing the income at Rs.33,39,11,300/-. In the computation of income enclosed by her along with the return of income, she had disclosed the following income, nam....
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....would have been payable by the director or other person aforesaid". Any perquisite or profits in lieu of salary is taxable under the provisions of Chapter IV-A of the Act. Further, clause (iv) of Section 28 provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income-tax under the head "profits and gains of business or profession". Based on the above, am satisfied that by allotting shares at par to its Director, Smt.Kavery Kalanithi on 02.04.2008, 31.07.2008 and on 30.09.2008 while allotting shares at a premium of Rs.69.57 per share to SAEHL, the company has given a value of benefit but for such benefit, the some would have been payable by Smt.Kavery Kalanithi. The income escaped assessment on the allotment of shores of 90891637 at the premium of Rs.69.57 per shore works out to Rs.6,32,33,31,186/- during the assessment year 2009-10. Further, the interest of the assessee in M/s. South East Entertainment Holdings Ltd and its Parent company, M/s. Astro All Asia Networks Plc, which are incorporated outside India, is also to be looked into. ....
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.... reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking Order before proceeding with the assessment in respect of the abovesaid five assessment years." 15. In line therewith, the petitioners filed objections on 15.11.2012 to the assumption of jurisdiction by the authority. Both petitioners stoutly stood by their returns, as filed originally. They maintained that full disclosure had been made therein and there was thus no avenue under the Act for re-assessment of the income. They also advanced detailed submissions on the merits or otherwise of the proposed additions.....
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.... other person aforesaid. 21. Section 28(iv) provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income-tax under the head "profits and gains of business or profession. According to the petitioner, neither of the provisions as aforesaid would be applicable to his case. 22. Section 17(2), which is an inclusive definition of the term 'perquisite', contains clause (vi) which deals with the value of any specified security or sweat equity shares allotted or transferred directly or indirectly by the employer or former employer, free of cost or at a concessional rate. 23. The impugned enhancement could only have been made, according to petitioner A, invoking the provisions of Section 17(2)(vi) that takes effect from 01.04.2010, applicable from the next financial year onwards. Prior to its substitution, clause (vi) dealt with the value of Fringe Benefit tax or amenities, not relevant to this matter. Thus, even assuming that the notional value of a 'benefit' or' perquisite' would be taxable, such liability cannot be fastened for a period prior to the insertion of the....
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....fit by way of ESOP taxable as income specifically. It became specifically taxable only with effect from 1.4.2000 when Section 17(2)(iiia) stood inserted. 9. At the outset, we may state that in these civil appeals we are not concerned with taxability but with the value of a perquisite. .......... 15. As stated above, unless a benefit/receipt is made taxable, it cannot be regarded as "income". This is an important principle of taxation under the 1961 Act. Applying the above principle to the insertion of Clause (iiia) in Section 17(2) one finds that for the, first time w.e.f. 1.4.2000 the word "cost" stood explained to mean the amount actually paid for acquiring specified securities and where no money had been paid, the cost was required to be taken as nil. .... 17. Be that as it may, proceeding on the basis that there was "benefit", the question is whether every benefit received by the person is taxable as income? In our view, it is not so. Unless the benefit is made taxable, it cannot be regarded as income. During the relevant assessment years, there was no provision in law which made such benefit taxable as income. Further, as stated, th....
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....is any business or profession related transaction involved. Hence, the instant case cannot be covered Under Section 28(iv) of the IT Act for the purpose of tax liability. 26. Reference is also made to the judgment of the Calcutta High Court in the case of Commissioner of Income Tax V. PRS Oberoi (183 ITR 103). In all, petitioner A argues that if at all there is any 'benefit' gained or 'perquisite' earned, which fact is in itself denied, the applicability of Section 28(iv) would only be confined to business or professional transactions. In the case of PRS Oberoi (supra), the assessee was a Director and there was no employeremployee relationship between the assessee and the company warranting application of Section 28(iv) of the Act. So too in the present case. Hence, the ratio of the aforesaid decisions, support his case, on all fours. 27. As far as petitioner B is concerned, the argument focuses upon the provisions of Section 56(2)(vii) of the Act, proceeding on the premise that this forms the basis of the impugned proceedings. The provisions themselves have been inserted with effect from 01.10.2009 to apply in relation to transactions undertaken on or after such date only. I....
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....the revenue made any addition in the hands of the promoters. A compilation dated 04.02.2014 and comprising 9 annexures is filed that contains the extract of the financials of the companies stated to have engaged in similar issue of shares at differential pricing. 31. The instances cited are: 1.State Bank of India's IV with Australian Insurance Major 2.India First Life Insurance Company Limited 3.Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited 4.Apollo Munich Health Insurance Company Limited (formerly Apollo DKV Insurance Company Limited) 5.Just Dial Limited 6.TVS Automobiles Solutions Limited 7.Pipavav Shipyard Limited 8.Shriram Housing Finance Limited The above, in summary, are the submissions of the petitioners. 32. I now advert to the submissions advanced on behalf of the respondents in defence of the impugned proceedings. Firstly, and on jurisdiction, they point out that the reasons for re-assessment in case of both petitioners disclose that information had been received on 26.07.2012 from the office of the Chief Commissioner of Income Tax, Chennai, enclosing a letter of the Di....
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....nue to reopen the assessment if there was an apparent lack of justification to do so, in law. 38. If the reasons, based upon which the re-assessment is initiated, contain no merit whatsoever, in law, then, notwithstanding that the procedural and statutory requirements may be satisfied by the respondents, the reassessment would still fail. To counter, revenue would cite and rely upon a slew of decisions as set out below to explain the scope of judicial review when it comes to a challenge to quasi-judicial proceedings: (i) Sonia Gandhi V. ACIT (2018) 97 taxmann.com (Del) (ii) Acorus Unitech Wireless (P) Ltd. V. ACIT (2014) 43 taxmann.com 62 (Delhi) (iii) Choksi Vachharaj Makani & Co. V. ACIT (2016) 76 taxmann.com 17 (Delhi) (iv) Yogendrakumar Gupta V. ITO (2014) 46 taxmann.com 56 (Guj.) (v) Yogendrakumar Gupta V. ITO(2014) 51 taxmann.com 383 (SC) (vi) Mohan Ravi V. ITO (2019) 112 taxmann.com 373 (Md) (vii) Raymond Woolen Mills V. ITO (199) 236 ITR 34 (SC) 39. They submit that the scope of judicial review, in such matters, must be restricted to an examination of whether the officer concerned has the requisite authori....
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....reasons, only to determine if arbitrariness, illegality or irrationality is writ large thereupon. It is on the anvil of the above tests that I commence the discussion and first take up the case of petitioner B as it is legally, the simpler of the two matters before me. 45. The admitted legal and factual position in the case of Petitioner B is as follows: (i) A return of income has been filed within time. (ii) The return was, admittedly, not taken up for scrutiny. (iii) The impugned notice under Section 148 has been issued on 28.03.2013 within a period of four years. (iv) The procedure as prescribed in the context of GKN Driveshafs Vs. Income Tax Officer [259 ITR 19] was triggered by the petitioner adopting the return filed originally as filed in compliance of the notice and seeking the reasons for re-assessment. (v) The reasons disclose that the jurisdictional Assessing Officer had received information from the Director of Income Tax, New Delhi based upon which, he arrived at a prima facie belief that the income disclosed by the petitioner might call for enhancement, and income had, as it were and prima facie, escaped assessment to ta....
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.... 16.Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word"reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with Solicitude for the public exchequer with an in built idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd v. ITO [1991] 191 ITR 662, or initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the first outcome of proceeding is not relevant. In other words, at the initiation stage, what is required is"reason to believe", but not the established....
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....he Income Tax Act, there was no question of "change of opinion" inasmuch as while accepting the return under the aforesaid provision no opinion was formed and therefore, on this basis, the notice issued was valid. We find that this aspect is squarely covered by the judgment of this part in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 in the following manner.- "15. In the scheme of things, as noted above, the intimation under Section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under Section 143(1)(a) as it stood prior to 1-4- 1989, the assessing officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the legislature i.e. to minimise the departmental work to scrutinise each and every return and to concentrate on selective scrutiny of returns. These aspec....
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....mpermissible in law. 54. The reasons disclose the receipt of information that was hitherto unavailable with the Assessing Authority. Though it is the specific case of the petitioner that the materials relied upon were available on record even at the first instance, there is nothing on record either by way of correspondences or any other material from the petitioner to indicate this. The financials of the company have filed before the Court to urge that the share pricing was duly disclosed therein and available with the officer. 55. That apart, the petitioner has also filed a copy of notice dated 26.08.2011 issued to the company and a copy of the financials of the company wherein, in the schedules for the year ended 31.03.2008 there is a disclosure made in regard to the differential pricing of the shares issued to the petitioners, at par, and those issued to South Asia Entertainment Holdings ltd., at a premium. In my view, these materials are of no avail to the petitioner as the details were not produced in the course of the assessment of the petitioner and thus were unavailable to the officer while finalising these assessments. 56. In order to avail the benefit of the argu....
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....ve two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat th....