Case Note & Summary
The petitioner, Bhavani Gems Private Limited, challenged a notice dated 30.03.2021 issued under section 148 of the Income Tax Act, 1961 for reopening assessment for assessment year 2014-15, and the order disposing of objections dated 15.12.2021. The original assessment under section 143(3) was completed on 23.12.2016, accepting the returned income of Rs.35,81,93,760. The reopening notice was issued after expiry of four years from the end of the relevant assessment year, attracting the proviso to section 147 which bars reopening unless the Revenue shows that the assessee failed to fully and truly disclose all material facts. The reasons recorded for reopening raised two issues: first, that the petitioner had issued shares at a premium of Rs.230 per share, whereas according to the Assessing Officer the fair premium was only Rs.204.52, resulting in excess premium of Rs.1,59,25,000 liable to be added under section 56(2)(viib); second, that goodwill of Rs.26 Crores was self-generated and not acquired, and should have been shown at nil. The court held that the Revenue did not allege any failure on the part of the petitioner to disclose material facts. The petitioner had disclosed the share issue and premium, and the goodwill, in the return and during the original assessment proceedings. The Assessing Officer had accepted the returned income after scrutiny. Therefore, the reopening was not justified. The court quashed the notice and the order on objections.
Headnote
A) Income Tax - Reopening of Assessment - Section 147 proviso, Section 148 - Reassessment after four years - The proviso to section 147 bars reopening after four years unless the Assessing Officer has reason to believe that income has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts. The Revenue must discharge the onus of showing such failure. (Paras 3-6) B) Income Tax - Share Premium - Section 56(2)(viib) - Valuation of shares - The Assessing Officer sought to add excess share premium on the ground that the assessee charged premium higher than the fair value. However, the court found that the assessee had disclosed the share issue and premium in the return and during assessment, and the AO had not alleged any failure to disclose material facts. (Paras 4, 6) C) Income Tax - Goodwill - Self-generated goodwill - The Assessing Officer sought to disallow self-generated goodwill introduced on conversion of partnership firm into company. The court noted that the assessee had disclosed the goodwill in the return and during assessment, and there was no failure to disclose material facts. (Paras 5-6)
Issue of Consideration
Whether the reopening of assessment under section 148 of the Income Tax Act, 1961 after expiry of four years from the end of the relevant assessment year is valid when the Revenue has not established that the assessee failed to fully and truly disclose all material facts necessary for assessment.
Final Decision
The court allowed the petition and quashed the notice dated 30.03.2021 under section 148 and the order on objections dated 15.12.2021.
Law Points
- Reopening of assessment after four years
- proviso to section 147
- failure to fully and truly disclose material facts
- share premium valuation
- self-generated goodwill
- section 56(2)(viib)
