Reassessment Proceedings Initiated on Recovery of Tax Share Premium of Rs 679.32 Crores without any Tangible Material to Prove Income Escapement: Bombay HC Quashes Reassessment Order

In a significant case, the Bombay High Court has quashed the reassessment proceedings initiated to recover the tax share premium of Rs. 679 crores without any reason on tangible material to prove Income Escapement.

The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, whereby the assessing officer proposed to reassess the income for the assessment year 2010-11 on the ground that the income had escaped assessment within the meaning of Section 147 of the Act.

Mr Sridharan, Senior Counsel appeared for the Petitioner and urged that the very basis for reopening was misconceived since the receipt of premium on the issuance of shares was not ‘receipt of income, but was a ‘capital receipt, and, therefore, could never become the basis for reopening on the ground that income had escaped assessment.

It was urged that The Finance Act, of 2012 brought about two amendments regarding premiums received over and above the Fair Market Value of shares. This was done by the introduction of Section 56(2)(viib) and the introduction of clause (xvi) in Section 2(24).

The department contended that since the assessment was reopened within four years, there was no requirement to establish that the assessee had failed to disclose fully and truly material facts necessary for its assessment. The assessment would be reopened if the assessing officer had tangible material to form the basis for his reason to believe.

The division bench of Justice Dhiraj Singh Thakur and Justice Kamal Khata has observed that the AO had only lagged the share premium amount of Rs.679.32 crores, which according to him was chargeable to tax that had escaped assessment, and did not question the amount of Rs.68 lakhs received by the Petitioner company representing the value of Rs.68 lakhs of shares of the face value of rupee 1 per share.

There was neither tangible material from the assessing officer to form the basis for his reason to believe that the petitioner's income had escaped assessment. In the absence of any basis for the AO's reason to believe that income had escaped assessment nor any tangible material that would have otherwise given jurisdiction to reopen the assessment, even when the reopening was sought to be made within a period of four years, the Court quashed the reassessment process.

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