Source: http://itatonline.org/archives/sonia-gandhi-vs-acit-delhi-high-court-s-147-562vii-law-explained-on-i-reopening-of-assessment-by-issue-of-s-148-notice-at-the-11th-hour-and-based-on-stale-material-ii-nature-of-sancti/
Timestamp: 2019-04-24 20:16:57+00:00

Document:
PRINCIPAL COMMISSIONER OF INCOME TAX-18 AND ORS.
Through: Sh. Arvind Datar, Sr. Advocate with Ms.
and Sh. Vaibhav Kulkarni, Advocates, for petitioner in W.P.(C) 8482/2018 and W.P.(C) 8483/2018.
Sh.Tushar Mehta, ASG with Sh. Zoheb Hossain, Sr.
2. The brief facts necessary to decide these three petitions are that the Indian National Congress (“INC” hereafter, also referred to as “AICC”) had over a period of time advanced `90 crores to Associated Journals Ltd (hereafter “AJL”), publishers of the newspaper “National Herald”, with the condition that the amounts be utilized by the latter to write off its accumulated debts and re- commence its newspaper. The books of account of AJL showed that for the period 01.04.2010 to 31.03.2011, the total outstanding debt as on 01.04.2010 was `88,86, 68,976/- and as on 15.12.2010 it was `90,21,68,980/-. In the meanwhile, an application was made for the incorporation of the charitable non-profit company “Young Indian” (“YI” hereafter) on 13.08.2010, and Form 1A with Registrar was filed for availability of the Young Indian name. On 18.11.2010, a license was issued by the appropriate authority to YI which was then incorporated on 23.11.2010; M/s. Suman Dubey and Sam Pitroda were its founder members and founder directors. On 13.12.2010, the first Managing Committee meeting took place; Mr. Rahul Gandhi was appointed as Director (non-shareholder); Mr. Motilal Vora and Mr. Oscar Fernandes were nominated as Ordinary Members; M/s. Suman Dubey and Sam Pitroda subscribed to 550 shares each. On 18.12.2010 by a Deed of Assignment, the `90 crore loan standing in INC‟s books as payable to it, from AJL from 2002 to 2011 was transferred to YI.
4. On 14.02.2011, PAN No. (AAACY4625Q) was allotted to YI by letter issued by the Income tax authorities (hereafter “revenue”). A bank account was opened by YI with Citibank the same day, since account opening is possible with a PAN No. The cheque issued by Dotex for ` 1 crore was deposited in YI‟s bank account. YI issued a cheque for ` 50 lakhs subsequently, on 26.02.2011 to AICC (as part consideration for the assignment of the `90 crore debt to it) on 26.02.2011. On the same day, AJL allotted 9,02,16,898 equity shares to YI pursuant to its EGM dated 21.01.2011 and AJL‟s Board meeting (dated 26.02.2011). YI applied for Section 12AA exemption to the revenue on 29.03.2011. The exemption was granted by the Income Tax authorities on 09.05.2011 by a certificate, with effect from FY 2010-11. The income tax returns of the three petitioners before this Court, were dealt with and assessment orders made, on various dates.
It was urged besides that the alleged depression of the value of YI‟s shares, in the returns filed by Mr. Rahul Gandhi could never be the subject matter of reassessment. The assessee contests that the allegations with respect to transaction value, being contrary to Section 56(2)(vii)(c) (ii) and in terms of Rule 11UA of the Income Tax Rules is plainly erroneous and cannot be the basis of a reassessment.
8. The ACIT, by an intimation dated 26.07.2018 rejected Mr. Rahul Gandhi‟s objections. In this letter, it was stated that a question with respect to non-furnishing of particulars does not arise. It was stated that Section 148(2) required only reasons to be recorded. Regarding the next issue, i.e. delay, it was stated that there was no delay in the issuance of the notice and that the material relied upon was not stale. Explaining that as far as the legal position on the question of issue of date of service, the revenue contends that Mr. Rahul Gandhi was served; the notice/intimation dated 31.03.2018, through e-mail which was admittedly received at 11.25 PM and also through registered post, both of which satisfied the requirements of Section 282 of the Act.
The revenue further stated that the approval given by the third respondent for the reopening of assessment was after due application of mind. It is pointed out that at the stage of reopening and recording of reasons, there was is no question of granting any hearing or opportunity to the assessee in terms of Section 151. As to the issue of valuation of shares, the revenue alleges that the contention is factually incorrect because the assessee is claimed to have acquired assets (i.e. shares of AJL) which were to be valued on the basis of the `90.21 crores asset it had. It was stated that the debt owned by the Associated Journals Ltd. (AJL) to the tune of over `90 crores was assigned to YI for only `50 lakhs. Therefore, according to the ACIT/revenue, the audited accounts of YI disclosed investment in shares in the fourth Schedule of audited balance sheet stating that the assessee was allotted 90216898 shares bearing a face value of `10/-. The Book Value of YI investment in shares was to the tune of `902168980. However, to conceal the quantum of Book Value in the shares of M/s. AJL with the corresponding FV of `90.21 crores was deliberately reduced to NIL in Note 1 of accounts. Since the assessee had urged that the value of investment was reduced to NIL in the balance sheet and book value was disclosed in Note 1 to Seventh Schedule of balance sheet for purposes of computing the Book Value of shares of YI which was held by him, the values of shares of AJL should be taken at NIL, though the book value of ` 902168980 of the company‟s shares were ignored. It is contended that besides the fact that this is factually and legally wrong, this Court ought not examine the issue as that would entail scrutiny on merits which is impermissible since the limited scope of these proceedings is to see whether reopening of assessment was valid.
9. Mrs. Sonia Gandhi is the petitioner in W.P. (C) 8482/2018. She too, like Mr. Rahul Gandhi impugns the reassessment notice; the grounds urged are similar. She acquired shares in Young Indian (YI), in 2011. Her return disclosed `17,92,092/-, consisting of income from other sources; the return of income was accepted under Section 143(1) of the Act by the AO/ACIT. Alleging that income had escaped assessment, the ACIT issued reassessment notice under Section 148- again on 31.03.2018 at 11:28 PM through email. A notice was received on 02.04.2018, through speed post; a third intimation, with scanned copy of the notice, was received electronically, with digital signature of the ACIT, on 11.04.2018. Return of income was filed on behalf of Ms. Sonia Gandhi on 11.05.2015 by e-return procedure. The copy of “reasons to believe” was furnished to the Petitioner, at her request, on 11.05.2015. The ACIT alleged that, the difference between the „fair market value‟ of the shares of YI and the cost of acquisition of the Young Indian‟s shares by Ms. Gandhi was her income in terms of Section 56(2)(vii)(c)(ii) of the Act. The “Reasons to Believe” relied on the TEP as in Mr. Rahul Gandhi‟s case, the report of DIT (Investigation) dated 11.05.2015, as well as letter dated 08.06.2015. Upon repeated requests, the revenue refused to give copies or allow inspection into the materials which resulted in the reassessment notice, impugned; however, it granted inspection of the note recording reasons. Ms. Sonia Gandhi represented against the reassessment notice; that was rejected by the ACIT on 31.07.2018.
10. In support of the petition, Ms. Sonia Gandhi states that the re-assessment notice is vitiated because the notice issued under Section 148 of the Act was barred by limitation prescribed under section 149 of the Act; likewise, sanction under section 151 of the Act accorded was a mechanical one treated as an empty formality. It is alleged, like in Rahul Gandhi‟s writ petition, the impugned notice issued is vitiated on account of violation of principles of natural justice; that notice issued under section 148 of the Act is barred by limitation prescribed under section 149 of the Act; Sanction under section 151 of the Act accorded as an empty formality; provisions of section 56(2)(vii) are not applicable to the present case; that as a matter of fact, no income which has escaped assessment; that the revenue has taken contradictory stands in the case of the Petitioner as against their stands in the case of „Young Indian‟; that there was no independent application of mind by and further, that there is no tangible material; that reassessment has been initiated on factually incorrect premise; there was no failure on her part in disclosing all material facts; the reassessment proceedings have been initiated with a premeditated mindset and a mala fide intention.
12. Mr. P. Chidambaram, learned senior counsel argued Mrs. Sonia Gandhi‟s and Mr. Oscar Fernandes‟ writ petitions; Mr. Arvind Datar, Senior Advocate argued Mr. Rahul Gandhi‟s writ petition. Mr. Tushar Mehta, the learned Additional Solicitor General appeared and opposed the writ petitions, on behalf of the revenue; the Union of India was represented on advance notice on 08.08.2018; the counsel were heard that day; the court had requested for production of the original file relating to the three petitioners on the next date. On 14.08.2018 notice was issued to the Union of India; the writ petitions were further heard and reserved for judgment, that day.
14. It is, therefore, urged that as the beneficiary under Trust is merely entitled to income or benefits and has no interest in a trust, likewise, the director in a Section 25 company is at least similar, if not on a higher pedestal and does not have any interest which needed disclosure in his or her income tax returns. The second aspect which related to the non-disclosure allegation vis-à-vis Mr. Rahul Gandhi‟s subscription to shares and their value on account of directorship in YI is that Section 147 permits reopening of assessment, if there is a reason to believe that income chargeable to tax has escaped assessment. Thus, the non-disclosure that Mr. Rahul Gandhi was a Director of second company is not circumstances or material fact necessary to complete assessment. Mr. Datar argued that when Mr. Rahul Gandhi did not earn any income or acquire any interest in the asset on account of becoming Director in YI, non-disclosure of such Directorship could not be the basis for reopening the assessment during the extended period. Reliance is placed upon CIT v. Kelvinator India Ltd. 320 ITR 561 (SC); Commissioner of Income Tax, Central-I v. Indo Arab Air Services 2015 (64) Taxmann.com 257 and United Electrical Company (P) Ltd. v. CIT 258 ITR 357 (Del). Since the alleged non-disclosure was relied upon to reopen assessment literally at the eleventh hour, there is no other basis for impugned notice, the same is invalid.
15. It is argued that the impugned re-assessment proceedings have been done in haste and with a pre-meditated mind, are not bona fide, and the AO‟s “reason to believe” as well as the “satisfaction” of the PCIT are a sham. The revenue states that it received a TEP on17.06.2014 and the investigation reports were received on 11.05.2015 and 08.06.2015. It is, therefore, inexplicable why the AO waited until the last day of limitation i.e. 31.03.2018 to record her “reason to believe” and obtain the “satisfaction” of the PCIT. The conclusion that the TEP and the investigation reports did not make out a case for re-assessment and the AO was pressured to initiate the proceedings on the very last day/hour is reasonable. The malafides is writ large on the face of the record. It is also urged, besides that there are four shareholders of YI, but re-assessment proceedings have been launched only against three shareholders. It was not an act of kindness to the fourth shareholder, because it was simply not possible to complete the malafide exercise in a place outside Delhi (where the fourth shareholder was assessed). The malafide exercise could be organised only in Delhi in one circle (to which the third shareholder‟s file was transferred from another circle in Delhi). The actions of the AO and PCIT are malafide and liable to be set aside.
16. Mr. Chidambaram argued that a proper and valid notice under Section 148, with the AO‟s digital signatures (as obligated by Centralized Communication Scheme, 2018 dated 22.02.2018 issued by the CBDT in Notification No. 8/2017 and dated 29.09.2017 Notification No. 1/2018 dated 12.02.2018), was not issued before limitation set in at midnight on 31.03.2018. Hence the proceedings are barred by limitation. It is contended that the impugned order by the AO rejecting the objections to the reasons is violative of the principles of natural justice. Upon receiving the reasons recorded (on 15.05.2018) the assessees demanded copies of the documents relied upon in the said reasons; the AO, however, rejected these requests resulting in denial of principles of natural justice. Reliance is placed in this regard, on Sabh Infrastructure Ltd. v. Assistant Commissioner of Income Tax (judgment dated 25.09.2017 of this court in W.P.(C) 1357/ 2016).
17. Learned senior counsel submitted that the revenue‟s position indicates contradictory and inconsistent stands. The basis for making valuation in the present writ petition is to treat the debt assigned of `90 crores (approximately) as an „asset” in the hands of Young Indian. However, the same debt is treated as “bogus” or a “paper entry” in the assessment of YI in which an appeal is pending. (There is a connected writ petition WP (C) No. 2399/ 2018 regarding pre-deposit of duty in that case). If the revenue urges that the sum of `90 crores is a paper entry and non-existent in the assessment of the company, YI, it cannot be an “asset” in the assessment of its shareholders. It is argued by counsel that the revenue cannot treat the debt of `90 crores as a paper entry so as to enhance YI‟s tax liability and simultaneously treat it as an asset in the hands of its shareholders and reopen their assessments.
19. Learned counsel also submitted that the AO‟s impugned orders rejecting the petitioners‟ objections to the reasons is violative of the principles of natural justice. Upon receiving the reasons recorded (on 15.05.2018) the petitioner- assessees had demanded copies of the documents relied upon in the said reasons. However, it was rejected by the AO. There was, as a result, denial of principles of natural justice. Sabh Infrastructure Ltd. vs. ACIT: [judgment dated 25.09.2017 of this Court in W.P. (C) 1357/ 2016) is relied upon].
26. Without prejudice to the above submission, learned counsel state that the application of Section 56(2)(vii)(c)(ii) read with Rule 11UA to the present case is deeply flawed for multifarious reasons. It is stated that firstly, the AO has applied the wrong version of Rule 11UA. The correct rule in force on 22.01.2011 uses the phrase “book value”. Secondly Rule 11, in its essentials, takes note of the Assets – Liabilities of the company, YI, i.e. net worth. A-L must be divided by the total number of shares (PE). The divider is, therefore, 5000, not 1100 as incorrectly employed. The multiplier (PV) is correctly taken as 1900, the number of shares held by the petitioners. Since the divider is wrong, the calculation and the result are wrong, and hence the amount of tax that has allegedly escaped tax is wrong. No re-assessment can be made on the basis of such a fundamental error and “reason to believe” based on the said fundamental error. Thirdly the debt was for ` 90.21 crore. At its worst, the value of the equity converted could be ` 90.21 crore. But the said figure was “magically” transformed to ` 407 crore and the Petitioners‟ share is valued at astronomical levels (` 154 crore in the case of Mr. Rahul Gandhi, ` 90.21 crore in the case of Ms. Sonia Gandhi and ` 90.21 crore in the case of Mr. Oscar Fernandes). This calculation is plainly wrong and bizarre. No reassessment can be made on the basis of a wrong and bizarre calculation and “reason to believe” based on the said wrong and bizarre calculation.
28. Counsel attack the satisfaction recorded by the PCIT as perverse. It is urged that the case was apparently submitted to him only late on 31.03-2018. According to the Order of the AO dated 31.07.2018 (rejecting the objections to the “reasons”), the PCIT did not take more than 20-30 minutes to record his satisfaction. There is nothing in the PCIT‟s handwritten note to show that he had applied his mind to the facts of the applicable law. In particular, there is nothing to show that he considered any of the issues inherent in this case, which were argued on behalf of the assessees; particularly there is nothing to show that the PCIT had applied his mind to a) the effect of conversion of debt into equity b) that a shareholder has no interest in the property of the company; c) that the same income cannot be taxed in the hands of two persons in the same assessment year; that the assessees received only some shares and nothing more; d) that YI is a Section 25 company that enjoyed exemption under Section 12AA on 22-1-2011 as well as on 31.03.2011 and lastly that that the invocation of Section 56(2)(vii)(c)(ii) was patently erroneous; and that there is a fifth proviso, clause (g) to the said Section, besides that the AO had applied the wrong Rule 11UA.
29. Counsel challenged the ACIT‟s order rejecting the petitioners‟ representation, stating that the AO justified the PCIT‟s satisfaction on the ground that he had been “monitoring the case after receipt of the information from the investigation wing” They urge that this clearly shows that the PCIT had involved himself in the case even before the AO formed her “reason to believe”. The natural and inescapable inference is that the AO acted under the instructions and guidance of the PCIT and did not independently form her “reason to believe”. Hence, the initiation of the re-assessment proceedings is vitiated and illegal. Reliance is placed on Commissioner of Income Tax v. Greenworld Corporation: 314 ITR 81(SC) and Commissioner of Income Tax v. S. Goyanka Lime & Chemicals Ltd. 56 taxmann.com 390 (MP).
It is submitted that contrary to the above, in the present proceedings, the case of the AO is that there was a genuine loan owed by AJL and it was this loan that was acquired by Young Indian for a consideration of ` 50 lakhs. The revenue, therefore, cannot be allowed to take contradictory positions in respect of the same transaction (namely, the loan) in respect of two proceedings (one against YI and the other against the shareholder/assessees). If the order of re-assessment dated 27.12.2017 in the YI‟s case is correct, the entire basis of the notice of re- assessment and the reasons in the present proceedings will fall to the ground.
35. It is argued that reassessment is based on tangible material and is legal. The ASG urged that the reasons recorded for issue of notice under Section 48 reveals that the AO‟s belief this case was based on credible information and documents received from investigation wing [much after completion of original assessment], documents and information/material/evidence collected by the AO during the follow up enquiry as a sequel to receipt of information from investigation wing and analysis of facts emerging therefrom and the relevant provision of the Act as well as the judicial pronouncements. Elaborating on this, it was submitted that the TEP and report of the investigation wing in which significant observations were recorded showing that the only purpose of incorporation of YI appeared to be to acquire properties of AJL having value of several hundred crores for the benefit of the assessees/shareholders through takeover of AJL. It was also pointed out that this process was completed within a short period of 3 months (on 26.02.2011) from date of incorporation of YI on 23.11.2010. The ASG submitted that findings of the assessment order of YI dated 27.12.2017 and order of cancellation of registration grated to YI under Section 12A dated 26.10.2017 (copies of which were obtained by the AO) as recorded in Para 5.1 of reason recorded that tax exemption granted to YI on 9.5.2011 was cancelled w.e.f. AY 2011-12 and income of YI was brought to tax for A.Y 2011-12 for the reason that YI had not carried out its activity as per its objects and income of YI was taxable under the Income Tax Act. In fact the order granting registration under Section 12A dated 09.05.2011, had imposed a condition that if any fraud or misrepresentation was discovered, the exemption would stand withdrawn.
38. Refuting the petitioners‟ submissions as incorrect the ASG urged that for the revenue, the conversion of debt (owed by AJL to INC (later assigned to YI)) into 99% equity of AJL‟s shares in favour of YI is not the taxable event for the assessees. Therefore, this subsequent event, which took place on 26.02.2011, was wholly irrelevant for the purposes of the assessees. The taxable event in these cases is the allotment of YI‟s shares to the assessees @ ` 100 per share on 22.01.2011 “for a consideration, which is less than the aggregate fair market value of the property” and it is the difference between the fair market value and the actual consideration paid for the shares which is sought to be assessed as “income from other sources” in accordance with Section 56(2)(vii)(c)(ii) read with the Rules. It is argued that when the right to recover the loan from AJL was assigned by INC to YI as is alleged by them on 28.12.2010 through an assignment deed [prior to which a Journal Entry was also made by AJL substituting YI in place of AICC as the lender], the value of YI‟s shares stood increased. It is well settled in law that “loan receivable” in the lender‟s balance sheet is an asset and, therefore, once YI received the right to recover the loan of ` 90.21 Cr from AJL as on 16.12.2010/28/12/2010, there was an increase in YI‟s assets as well as the value of its equity shares, which was hitherto low. Later, on 22.1.2011 when YI‟s shares were received by the assessees, on allotment and/or transfer at a face value of ` 100 per share, it was well below the fair market value of the share as stipulated under Section 56(2)(vii)(c)(ii) read with Rule 11U(j) read with Rule 11UA(1)(c)(b) as it stood then. This being the taxable event/income in the hands of the Petitioners cannot be said to lead to any double taxation since this event has not been taxed in the hands of YI or any other entity whatsoever.
39. The learned ASG argued that the assesses‟ claim that the same income was taxed in their hands and YI is contrary to facts since the assesses‟ income sought to be assessed relate to events prior to take over of AJL by YI on 26.02.2011 i.e. on allotment of share to the assessees, on 22.01.2011 whereas YI‟s income taxed under Section 28(iv), accrued to it as sequel to takeover of AJL by it on 26.02.2011. The argument that even if there was taxable income it cannot be taxed in hand of shareholder of YI has been raised due to an erroneous understanding of the revenue‟s case by the assessees and by applying a wrong taxable event.
40. Dealing next with the assessees‟ submission that there was no obligation to disclose any interest in a Section 25 company, as it cannot declare a dividend or part with property it was argued that the Income Tax Act does not distinguish between Section 25 company and other companies. So far as the Companies Act is concerned, Section 25 company can undertake even “commercial activities” and except the prohibition against the paying dividends to its shareholders and deploying its profits for its objects only, there are no other restrictions imposed upon Section 25 company and it is similar to any other company in all other respects. As a matter of fact, Section 25(2) makes it abundantly clear that except the limitations prescribed under section 25(1), all obligations of other companies are imposed on section 25 company also. Section 25 (1) (b) and (2) are relied upon to say that though such companies may not declare dividend to members, they can certainly earn profit in any of its permissible activities and is, therefore, a taxable entity. That these companies need an exemption from payment of tax under section 12A clearly reflects that the Income Tax Act treats a company under Section 25 to be a taxable entity. It is submitted that, therefore, when Mr. Rahul Gandhi was asked on 06.08.2013 by the AO to “furnish details of all sister concerns and legal entities where you have interest as a partner or director “he replied stating that “During the relevant previous year the assesse was not a partner or Director of any other legal entity.”The learned ASG submitted that by giving such information, he failed to make a true and full disclosure of a material fact i.e. his acquiring shares of YI on 22.01.2011 at the face value viz. ` 100/- per share and thereby attempted to pre-empt any further question on the issue and subsequent investigation.
a. Every outgoing Member, including the deceased outgoing member‟s nominee or legal heirs, shall be bound to offer the shares held by such outgoing member to the Managing Committee for sale and immediately upon a Shareholder ceasing to be Member pursuant to Article 4.10 or by reason of the death of the Shareholder or otherwise the Managing Committee shall automatically be constituted as the agent for sale of the said shares held by the outgoing member, at the discretion of the Managing Committee, at a value certified as mentioned in sub clause (b) hereunder. The appointment of the Managing Committee as agent of the outgoing member for sale and transfer of the shares of the outgoing member shall not be revocable except with the sanction of the Managing Committee.
Also, points out the ASG, the assessees‟ contentions that YI is a Section 25 company and its shareholders have no” pecuniary interest”, is fallacious and unsustainable as not only shares are sold at “fair market value”[and not at the face value] but the sale proceeds goes to the shareholders who sell the shares. It is submitted that the A.O., prima facie, had a justified reason to believe that at the time when fresh shares were allotted to the assessees, on 22.01.2011, the value of their shares was not ` 100/-each but was ` 8,15,708.16 per share as calculated in terms of Rule 11 UA. Such shares can be transferred at the rate of ` 8.15,708.16 per share which is “fair selling value” as per Memorandum of Association of YI and “fair market value” is stipulated under section 56(2)(vii)(c)(ii) read with Rule 11 UA.
44. It is argued that Section 56 creates a legal fiction that if an assessee “receives” any property (shares in the present case) for a consideration which is less than the aggregate fair market value of the property, such property (i.e. shares in this case) would be “income from other sources”. Further, the ASG dealt with the petitioners‟ argument that Rule 11UA was not followed correctly (i.e. that the pre-existing rule – at the time of allotment- was not taken into consideration and that the paid-up equity capital [PE] of YI, treated to be only ` 1,10,000 [based upon the paid-up capital equity of 1100 shares], is incorrect and the “PE” in the below mentioned formula as stipulated in Section 11UA should be treated as ` 5,00,000 on the basis of paid up equity share capital of 5000 shares). Counsel stated that this ground has to be considered on merits during the re-assessment proceedings and it may not be necessary for this court, in exercise of its jurisdiction under Article 226, to go into this question. Even otherwise, submitted the ASG Rule 11 UA, as applicable for AY 2011-12 before substitution w.e.f. 29.11.2012] was taken into consideration. It is urged that nevertheless, calculating PE at ` 1,10,000 is correct as per Rule 11UA [as it existed then]. Even, arguendo, if the element of “PE” in the below mentioned formula is treated to be 5,00,000 (as the assessees urge), the “fair market value” would come to `1,79,455.79 per share.
52. The assessees‟ objection in their argument with respect to alleged improper mode of communication appears to be to challenge the notice (of reassessment) as of no consequence and that since it was not compliant with the instructions, it was “no notice” and that the subsequent modes of communication, were of no avail, since they were despatched or received after 01.04.2018. This court is of the considered view that the argument is insubstantial. The object of imposing time limits is to ensure that both the assessees and the tax administrators have the same standard on which the extended period available under the law are to be judged. Therefore, if it is shown, that the AO issued and the assessee received notice, which was within the period of limitation, the form of the notice or the fact that it was through a channel not deemed “regular” is not relevant. The violation of the circulars relied on at best can bespeak of irregularity, but the fact remains that all the three assessee petitioners received email intimations about the reassessment and reopening of their AY 2010-11 assessments before the end of 31.03.2018. In these circumstances, the question regarding alleged improper mode or manner of issuance of email notices does not go to the root of the matter; the notices were issued in time, and served within the time prescribed.
56. This court notices that the provision was introduced through an amendment to the Income Tax Act with effect from 01.10.2009. No provision of the like kind existed when Bacha F. Guzdar (supra), (dealing with “fair market value” being the basis of determination of a deemed income, in the event of acquisition of unquoted shares,) was decided. As a result, it is held that the assessee‟s arguments on this aspect are unpersuasive, prima facie it cannot be said that in the light of these provisions, there was no merit in its allusion or reference in the reassessment notice.
regard by the company in general meeting.
circulation instead of at a meeting.
(1) and (3) of section 297 apply.
The reference to the monetary nature of the transaction – i.e. fair market value, certified by the auditor, means that the promoters and shareholders of the company visualize that the shares of YI – a not-for-profit company- can increase, depending on its activities and income derived by it. As a result of the above analysis, this court is of opinion that the assessees‟s argument about non- disclosure of their interest upon acquiring the shares (on account of their non taxability at that stage) is unpersuasive; however, it is open to them to urge this on the merits.
1. Short title and commencement. – (1) These rules may be called Income-tax (Second Amendment) Rules, 2010. (2) They shall come into force from the 1st day of October, 2009.
70. The entire premise of the reassessment notices in this case is that the non- disclosure of the taxing event, i.e. allotment of shares (and the absence of any declaration as to value) deprived the AO of the opportunity to look into the records. In the case of Mr. Rahul Gandhi, no doubt, the assessment originally completed, was under Section 143 (3). Had he disclosed in his returns or any related documents about the event (share acquisition) the primary fact would have been on the record; the AO‟s subsequent action in pursuing that aspect or letting go of it, after inquiry might well have justified the charge of a second and impermissible opinion on the same subject. However, that is not the case. The TEP and investigation reports – of subsequent vintage (after completion of Mr. Gandhi‟s assessment), therefore, constituted tangible material which in terms of the ruling in Commissioner of Income Tax vs. Kelvinator of India Ltd 320 ITR 561 (SC) justified reassessment. In the case of the other two assessees (Ms. Sonia Gandhi and Mr. Oscar Fernandes) the returns filed by them were processed under Section 143 (1). Such instances are not treated as “assessments”. Zuari Estate Development & Investment Co Ltd (supra) is an authority on the subject.
71. In view of the foregoing discussion and conclusions, the writ petitions have to fail. It is, however, clarified that the observations with regard to the parties‟ contentions is not conclusive and were recorded for the purpose of disposing of these petitions; the assessees‟ rights to urge them are reserved in the income tax proceedings. W.P.(C) 8293/2018; W.P.(C) 8482/2018 and W.P.(C) 8483/2018 are accordingly dismissed.

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