Telangana High Court: Escientia Advanced Sciences Pvt. Ltd. v. ACIT [W.P. No.16627 of 2023]
During the relevant A.Y., petitioner issued equity shares to its Mauritius based shareholder and received share premium. It reported the transaction through Form PAS-3 filed with the ROC and reflected it in its audited financial statements. The IT Dept., however, proceeded on the premise that the company had sold shares to ELS and treated the share premium as income that had escaped assessment. It subsequently issued a notice proposing reassessment and passed an order holding that the case was fit for issuance of a reassessment notice. Before Hon’ble Court, petitioner challenged the action, contending that there had been no sale or transfer of existing shares.
The Bench found that the reassessment proceedings rested on an incorrect factual premise and noted that the Form PAS-3 returns, audited financial statements established that the transaction involved a fresh allotment of shares. The Bench further noted that the provision treating excessive share premium as income applied to premium received from a resident, whereas ELS was a non-resident entity. The Revenue also failed to identify any other provision under which the amount could be brought to tax. Further, the Bench held that the Department had never put this ground to the company during the show-cause stage. Introducing the allegation later, without giving Petitioner an opportunity to respond, violated the principles of natural justice. Therefore, the Bench quashed the impugned notices and order, holding that the share premium received on the fresh issue of equity shares could not be treated as taxable income.
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