Bombay High Court Quashes Reassessment Proceedings Initiated To Tax 'Share Premium' Of Rs. 679.32 Crores

The Bombay High Court has quashed the reassessment proceedings initiated to recover the tax share premium of Rs. 679 crores.

The 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.

"Had the Assessing Officer any real doubts regarding the transition itself, then there was no justification for him to question only the transition with regard to the extent of the amount of premium charged for the said shares," the court said.

The petitioner/assessee has challenged the reassessment notice under Section 148 of the Income Tax Act, 1961, by which the AO proposed to reassess the income on the ground that the income had escaped assessment within the meaning of Section 147 of the Income Tax Act.

The Petitioner had issued shares and charged a premium of Rs. 6,79,32,00,000, and based upon analysis of the details and information of the Balance Sheet, the share premium charged was not justified on the basis of ‘intrinsic value of shares’ and ‘Net Asset Value Method’. It is stated that the worth of the company was not such as to justify the charging of such a huge premium and that the nature of the transition of the so-called share premium was not established.

The petitioner contended that the very basis for reopening was misconceived as the receipt of premium on issuance of shares was not a receipt of income but a ‘capital receipt’, and, therefore, would never become the basis for reopening on the ground that income had escaped assessment.

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. There was tangible material with the assessing officer, which would form the basis for his reason to believe that the petitioner's income had escaped assessment.

The court has held that there was neither 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.

Case Title: SLS Energy Pvt. Ltd. Versus ITO

Case No.: Writ Petition No.331 Of 2016 Along With Writ Petition No.332 Of 2016

Date: 27/06/2023

Counsel For Petitioner: V. Sridharan

Counsel For Respondent: Akhileshwar Sharma

Click Here To Read The Order