Sonia Gandhi v. Assistant Commissioner Of Income Tax, Circle 52(1) And Ors. …

* IN THE HIGH COURT OF DELHI AT NEW DELHI Decided on: 10.09.2018 + W.P.(C) 8482/2018, C.M. APPL.32580-32582/2018 ……Petitioner SONIA GANDHI Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 52(1) AND ORS. …..Respondents …..Respondents + W.P.(C) 8483/2018, C.M. APPL.32583-32585/2018 ……Petitioner OSCAR FERNANDES Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 52(1) AND ORS. …..Respondents + W.P.(C) 8293/2018, C.M. APPL.31812-31814/2018 ……Petitioner RAHUL GANDHI Versus PRINCIPAL COMMISSIONER OF INCOME TAX-18 AND ORS. …..Respondents Through: Sh. Arvind Datar, Sr. Advocate with Ms. Kavita Jha and Sh. Vaibhav Kulkarni, Advocates, for petitioner in W.P.(C) 8293/2018. Sh. P. Chidambaram, Sr. Advocate with Ms. Kavita Jha 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. Standing Counsel, for Revenue. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A.K. CHAWLA MR. JUSTICE S. RAVINDRA BHAT % 1. These writ petitions involve common questions which urge closely similar facts and involve decision on identical questions of law. Consequently, they are disposed of by this common judgment. 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. 3. On 21.12.2010, a Board meeting of AJL calling an EGM of that company was held. Subsequently, on 24.12.2010, a loan to the tune of ` 1 crore was received through a cheque, from M/s Dotex, another company, drawn on ICICI Bank by YI. The formal stamped deed of assignment of ` 90 crore in favour of YI was executed by AICC on 28.12.2010. This event was followed, on 21.01.2011, by an EGM (of AJL) approving fresh issue of 9.021 crore shares to YI. On 22.01.2011, the second managing Committee Meeting of YI was held; Ms. Sonia Gandhi, Mr. ML Vora and Mr. Oscar Fernandes were appointed Directors. The transfer of YI Shares from its existing shareholders, was approved as follows: A fresh allotment of YI shares was made, in the following manner: 4. On 14.02.2011, PAN No. ( ) 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 A fresh allotment of YI shares was made, in the following manner: 4. On 14.02.2011, PAN No. ( ) 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. With these common basic facts, the individual circumstances and facts of the three petitioners are discussed below. 5. W.P.(C) 8293/2018 pertains to Mr. Rahul Gandhi for AY 2011-12. This assessee [hereafter referred to as “Mr. Rahul Gandhi”] filed a return of income declaring `68,12,018/- which included income from house property and from other sources. After some examination and consideration of details, the income returned was accepted by a scrutiny order dated 30.09.2013 by the Assessing Officer (AO) under Section 143(3). In these circumstances, on 31.03.2018, Mr. Rahul Gandhi received an e-mail from the ACIT, i.e. the AO [hereafter “the ACIT”] at 11.25 PM, intimating that notice under Section 148 for the relevant period, i.e. AY 2011-12 was issued. A copy of the notice was not, however, attached; the assessee –received it on 02.04.2018, through speed post. On 11.04.2018, yet another notice dated 31.03.2018, but this time containing the digital signatures of ACIT were received through e-mail by Mr. Rahul Gandhi. Acting through his Chartered Accountant, Mr. Rahul Gandhi filed a return of income on 01.05.2018 and subsequently e-filed it on 11.05.2018. A request was made to supply “Reasons to Believe” supporting each assessment. On 15.05.2018, the ACIT furnished “Reasons to Believe” alleging that the difference between the “Fair Market Value” of the shares of the Young Indian (YI) and the cost of acquisition of those shares by Mr. Rahul Gandhi was his income. In support of this position, the Revenue relied upon a letter written by its Department of Investigation dated 11.05.2015 and letter dated 08.06.2015 and a tax evasion petition (TEP) addressed to the Finance Minister by Mr. Subramanian Swamy. Mr. Rahul Gandhi requested the ACIT for copies of the documents to enable him to articulate appropriate objections. The request dated 26.05.2018 was declined on 04.06.2018. Consequently, a request for inspection of the complete records of assessment for AY 2011-12 was made on 11.06.2018 which was granted on 13.06.2018 only to the limited extent that inspection of “Reasons to Believe” recorded and the approval therefor granted under Section 151 was permitted. The request for inspection of other documents was rejected. Yet, another consequent request for permission to inspect the complete records was made on 14.06.2018 which met with similar fate on 15.06.2018. The further request made on 20.06.2018 and 26.06.2018 for permitting inspection of the entire record was rejected. In these circumstances, the petitioner, Mr. Rahul Gandhi availed of his right to represent against reassessment by a letter/representation dated 26.06.2018. The ACIT by letter dated 26.07.2018 rejected these objections. 6. The main ground on which Mr. Rahul Gandhi has approached this Court seeking intervention for quashing of reassessment notice is that no income in fact escaped assessment and that all queries which could have been raised given the returns and documents were in fact addressed adequately in the scrutiny assessment and moreover there was no tangible evidence to reassessment. 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. It is also urged that since Mr. Rahul Gandhi was a shareholder of YI - a non-profit and charitable company, he was under no obligation to disclose the value of his shares in the manner that the Revenue alleges. In this regard, it is argued that the said provision, i.e. Section 56(2)(vii) is inapplicable in the issue of fresh shares. The specific ground articulated on behalf of the petitioner Mr. Rahul Gandhi is that second proviso to Section 56(2)(vii) (c) (ii) enacts certain exceptions to the provision one of which is that if any property is received by an individual from any Trust or institution, including an institution registered under Section 12(AA), Section 56(2)(vii) could not apply. 7. It is also alleged that an order subsequently cancelling the registration granted to YI, on 26.10.2017, with retrospective effect is of no avail in view of decisions of this Court and the Allahabad High Court. The reliance placed upon the TEP is attacked as vitiated because the revenue has acted on stale grounds. It is also alleged that the AO should have made independent investigations as to whether in fact any obligation to value of underlying assets of YI in the light of the fact that it is a charitable institution is necessary before issuing the reassessment notice. The reassessment notice is thus vitiated on account of non-application of mind. 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. 11. Mr. Oscar Fernandes, the petitioner in W.P.(C) 8483/2018 too, had filed his return for AY 2011-12, for ` 8,33,730/-, consisting of income from house property and income from other sources; the return of income was accepted under section 143(1) of the Act. On 31.03.2018, like in the case of the other petitioners, he received intimation stating that he would be reassessed under Section 147/148 of the Act by an email at 11:22 PM. He received a notice by speed post, which contained a scanned copy of the earlier notice on 02.04.2018; Mr. Fernandes filed his return on 17.04.2018 and requested for a copy of the “reasons to believe”, which was provided to him. Thereafter, like Mr. Rahul Gandhi and Ms. Sonia Gandhi, he sought inspection of the record which was partly granted. He preferred objections to reassessment notice which was rejected on 03.08.. The grounds urged by Mr. Fernandes are similar to that in Ms. Sonia Gandhi‟s petition; i.e. that the re-assessment notice is illegal as it was barred by limitation prescribed under section 149 of the Act; the sanction under section 151 of the Act was mechanical; that the impugned notice is in of violation of principles of natural justice; 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 the and further, that there is no tangible material; that reassessment has been initiated on factually incorrect premise; there was no failure on Mr. Fernandes‟ part in disclosing all material facts; the reassessment proceedings were initiated with a premeditated mind set and a mala fide intention. Contention of parties 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. 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. 13. Mr. Arvind Datar, Senior Advocate appeared for Mr. Rahul Gandhi and Mr. P. Chidambaram, Sr. Advocate, appeared for Mrs. Sonia Gandhi and Mr. Oscar Fernandes, made substantially common submissions. The added arguments in the case of Mr. Rahul Gandhi were that the scrutiny assessment under Section 143(3) completed for the relevant AY 2010-11, had enquired into all facets of the income declared; the AO had even issued a questionnaire and brought to tax amounts subsequent to the enquiry. In the absence of any further or tangible material disclosing a live link between the material that ought to have been disclosed in the returns in the first instance and the escapement of income, Mr. Rahul Gandhi could not be reassessed under Sections 147/148. One of the main arguments in this regard was that YI is a charitable institution, i.e. a not-for-profit company incorporated under Section 25 of the pre-existing Companies Act (which now correspondents to Section 43 of the new Companies‟ Act, 2013) and which became beneficiary of Section 12AA for the relevant assessment/financial year. Mr. Datar‟s submission here was that by virtue of notification no. 1578 dated 08.07.1961 which was followed by other notification, the requirement of disclosure of interest under Section 299 of the Companies Act otherwise necessary for Directors was exempted in respect of not-for-profit companies. As a consequence, Directors such as Mr. Rahul Gandhi was exempted from disclosure of interest; in fact, there could not have been any interest that needed disclosure under the Income Tax Act. Such being the position in law, stressed Mr. Datar, Mr. Rahul Gandhi could not be faulted for not stating any detail with respect to the acquisition of shares in YI in the period covered by 2010-11. Mr. Datar relied upon the judgment of the Supreme Court reported as Commissioner of Wealth Tax v. Arvind Narottam (Individual) AIR 1988 SC 1824, especially the following observations: “a mere right to be considered for distribution of the income or of the corpus of the Trust Fund cannot be regarded as an 'interest' since it was not capable of valuation.” the judgment of the Supreme Court reported as Commissioner of Wealth Tax v. Arvind Narottam (Individual) AIR 1988 SC 1824, especially the following observations: “a mere right to be considered for distribution of the income or of the corpus of the Trust Fund cannot be regarded as an 'interest' since it was not capable of valuation.” 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. 18. Learned counsel submitted that the reassessment cannot lead to absurd consequences. Here, it is submitted that the debt or assets of YI is alleged to be `90 crores (approximately) i.e. effectively the total value or net worth of that company. It is a matter of elementary common sense that the value of the shares of the individual shareholders of a company cannot exceed the total value of the shares of that company. If the company has a total value/net worth of `100 crores, the total value of shareholders of that company cannot exceed `100 crores. 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 25.09.2017of this Court in W.P. (C) 1357/ 2016) is relied upon]. 20. Mr. Chidambaram, appearing for Mrs. Sonia Gandhi and Mr. Oscar Fernandes, reiterated the submissions of Mr. Rahul Gandhi and further urged that if a company holding a debt (as an asset) converts it into equity (another asset), no income accrues to the company that is taxable. It is emphasized that there has been no case where such conversion has been held to result in income that is taxable. It is submitted, that in other words shareholder has no interest in the property(assets) of the company in which he holds shares. Learned senior counsel relies on Bacha F. Guzdar v. Commissioner of Income Tax 27 ITR 1 (SC); R.C. Cooper vs. Union of India 1970 (1) SCC 248 and Bharat Hari Singhania & Ors. v Commissioner of Wealth Tax 207 ITR 1 (SC)in support of this argument. 21. It is argued that arguendo, there were income when YI converted the debt (owed by AJL) into equity, the income may be taxable in the hands of YI; it cannot be the income of AJL and the income of the petitioners, in the same assessment year. It is submitted that in the present case, the same income (allegedly arising out -of the conversion) is sought to be taxed in the same assessment year (AY 201112)in the hands of YI and its shareholder(s). 21. It is argued that arguendo, there were income when YI converted the debt (owed by AJL) into equity, the income may be taxable in the hands of YI; it cannot be the income of AJL and the income of the petitioners, in the same assessment year. It is submitted that in the present case, the same income (allegedly arising out -of the conversion) is sought to be taxed in the same assessment year (AY 201112)in the hands of YI and its shareholder(s). 22. Both counsel (for the petitioners) stated that the only section invoked to allege there was income that had escaped assessment is Section 56(2)(vii)(c)(ii). The condition is that the assessee receives from any person any property, other than immovable property for a consideration which is less than the aggregate fair market value of the property. In the present case, on 22.01.2011, the assessees received-in case of Ms. Sonia Gandhi- 1900 shares (550 from an existing shareholder and 1350 by way of fresh allotment on paying a consideration of ` 100 per share); in the case of Mr. Rahul Gandhi, 1900 shares on allotment, by paying ` 100 per share; and in the case of Mr. Oscar Fernandes, 50 shares by allotment, by paying ` 100 per share. After 22.01.2011, the assessees received nothing from any person including the company, YI. There was, resultantly no receipt in FY 2010-11 that was taxable as income in AY 2011-12. 23. It is submitted that YI did not declare a dividend to its shareholders in FY 2010-11. It did not buy back the shares from its share-holders. That company did not issue any bonus shares. In sum, there was no transaction between 22.01.2011 and 31.03.2011. Hence, the assessees received nothing from Young Indian in FY 2010-11 that could be taxable as income in AY 2011-12. 24. Mr. Chidambaram and Mr. Datar argued that in any event, the Section 56(2)(vii)(c)(ii) does not apply in view of the fifth proviso, clause (g) thereto, which reads: “Provided further that this clause shall not apply to any sum of —money or any property received .......... (g) from any trust or institution registered under section 12AA;” It is argued that YI is a Section 25 company. On 29.03.2011, it applied for exemption under Section 12AA of the Income-tax Act, which was granted to it on 09.05.2011 with effect from the year 2010-11. Resultantly, on 22.01.2011 (and even on 31.03.2011), YI was a Section 25 company entitled to exemption under Section 12AA of the Income-tax Act. By virtue of the proviso referred to above, Section 56(2)(vii)(c)(ii) cannot be invoked against the petitioner-assessees. Counsel stated that the Section 12AA exemption was purported to be cancelled by the competent authority by order dated 26.10.2017 w.e.f. AY 2010-11. It was urged that the cancellation order is illegal because an exemption cannot be cancelled by an administrative authority with retrospective effect [Assistant Commissioner of Income Tax vs. Agra Development Authority: (2018) 302 CTR 308 (All); Delhi & District Cricket Association vs. DIT (Exemption): [2015] 38 ITR(T) 326]. It is argued further that the cancellation order has been challenged before ITAT by YI. 25. Mr. Datar argued that both in law and on the facts, the petitioners could not, and did not, receive anything from YI. Therefore, they were under no obligation to declare this “non-receipt” event in the returns filed by them. Reliance is placed on Circular SRO 432 dated 18.02.1956 under section 25of the Companies Act. 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 25. Mr. Datar argued that both in law and on the facts, the petitioners could not, and did not, receive anything from YI. Therefore, they were under no obligation to declare this “non-receipt” event in the returns filed by them. Reliance is placed on Circular SRO 432 dated 18.02.1956 under section 25of the Companies Act. 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 totalnumber 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. 27. Both counsel argued that the “reason to believe” of the AO is perverse. On the facts of the present case and the applicable law, no reasonable person could have come to the conclusion that there is “reason to believe” that income has escaped assessment. It is obvious that the AO had not applied her mind to either the facts or the applicable law. Therefore, she did not have, and could not have had, the requisite “reason to believe”. Here, reliance is placed on Income Tax Officer v. Lakshmani Mewal: 103 ITR 437(SC); Commissioner of Income Tax v. Orient Craft Ltd.354 ITR 536 (Del); G.S. Engineering & Construction Corporation v. DDIT-357 ITR 335(Del) and Shipra Srivastava v. ACIT: 184 Taxman 210 (Del). 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). 30. Learned senior counsel submitted that re-assessment proceedings have been launched also against YI, in which an order of re-assessment dated 27.12.2017 has been passed. In that order, in para 8.2 it was concluded “In absence of any evidence that the AICC had actually advanced loan of ` 90.21 crore to the AJL and keeping in view the fact that quantum of the loan was tailor made to allot 99% shares of the AJL to the assessee, I am of considered view that alleged loan of ` 90.21 crore was not actually a loan but was only a paper entry and an artificially inserted step as part of a scheme of takeover of the AJL by the assessee for a song i.e. without making any payment.” 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 reassessment and the reasons in the present proceedings will fall to the ground. 31. Mr. Tushar Mehta, learned ASG for the Union emphasized the limited scope of this court‟s jurisdiction in exercise of judicial review over reassessment notices. He stated that the judicial pronouncement defining the scope of judicial review have consistently shown that firstly the High Court would not substitute its own "reasons to believe" in place of "reasons to believe" recorded by the AO; secondly the recording of "reasons to believe" by the AO is necessarily tentative and prima facie and not expected, rather desirable that the AO does not record any conclusive opinion; and thirdly that the court, in exercise of its writ jurisdiction would not go into either "sufficiency of reasons" or "correctness of reasons" and "adequacy of reasons". So long as there are reasons recorded based upon tangible material, the High Court would not interdict the proceedings at the stage of section 147. It was lastly submitted that if on an examination of the AO‟s "reasons to believe" the court finds that a second view is also possible, it would refrain from interfering at the stage of issuance of notice under Section 147 merely because a ––second view other than the view recorded by the AO is possible. The ASG relied on Acorus Unitech Wireless Pvt. Ltd. v. ACIT(2014) 362 ITR 417 which held that: "it is important to restate an accepted, but often neglected principle, that in its writ jurisdiction, the scope of proceedings before the Court while considering a notice under Section 147/148 is limited. The Court cannot enter into the merits of the subjective satisfaction of the AO, or judge the sufficiency of the reasons recorded, but rather, determine whether such opinion is based on tangible, concrete and new information that is capable of supporting such a conclusion”. ––second view other than the view recorded by the AO is possible. The ASG relied on Acorus Unitech Wireless Pvt. Ltd. v. ACIT(2014) 362 ITR 417 which held that: "it is important to restate an accepted, but often neglected principle, that in its writ jurisdiction, the scope of proceedings before the Court while considering a notice under Section 147/148 is limited. The Court cannot enter into the merits of the subjective satisfaction of the AO, or judge the sufficiency of the reasons recorded, but rather, determine whether such opinion is based on tangible, concrete and new information that is capable of supporting such a conclusion”. Counsel also relied on Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers (P) Ltd., (2008) 14 SCC to state that “reason to believe” cannot be read to mean that the AO has to finally ascertain the facts by legal evidence or conclusions. It is submitted that what is required is “reason to believe”, but not the established fact of escapement of income. In other words, at this stage, whether the materials available can prove decisively that there was escapement of income, is not a relevant circumstance at the stage of reassessment, because the AO‟s opinion is based on his subjective satisfaction and appraisal of the facts and materials available with him. Reliance is placed on Income Tax Officer v. Selected Dalurband Coal Co. (P) Ltd. (1997) 10 SCC 68 and Raymond Woollen Mills Ltd. v. ITO[(2008) 14 SCC 218 (Ref to the latter, which states that “the sufficiency or correctness of the material is not a thing to be considered at this stage.”). The ASG points out that the assesses cannot complain that there was a change of opinion since this issue was never examined in the original assessment proceedings. In fact, this issue does not arise since Mr. Rahul Gandhi had failed to disclose truly and fully that he was shareholder or had any interest in YI at the relevant time. As regards others, it is submitted that since there was no scrutiny assessments and their returns were processed under S. 143(1). Deputy Commissioner of Income Tax v Zuari Estate Development & Investment Co Ltd 2015 (15) SCC 248 has reiterated that “there being no assessment under Section 143(1), the question of change of opinion, as contended, does not arise.” 32. In the case of the assessees/shareholders of YI, this is the taxable event i.e. 22.1.2011 [date of allotment of shares] as, it is on this date that they were allotted shares of Young Indian at ` 100/- per share. As on 28.12.2010, the "assigned debt" of ` 90.21 crore is an "asset" / "receivable" of Young Indian and the value of shares allotted to each of them needed to be calculated / determined keeping the value of this asset in mind in order to compute the fair market value of the shares received by the Petitioner in terms of Section 56(2)(vii)(c)(ii).In this case, Assessing Officer (AO) is not seeking to reopen the assessment on the basis of –treating assets of Young Indian as the income of the Petitioners shareholders. The quantified asset of ` 90.21 crore is taken only to ascertain / calculate the fair market value (FMV) of the share received by the shareholders in terms of Rules 11UA. 33. It is submitted that the prima facie" reasons to believe" of the AO that the income escaped assessment in the present case are not based upon the allotment of shares by AJL to YI. The re-assessment was resorted because it was prima faciefound that "income from other sources" stipulated under Section 56 escaped assessment with respect to the fair market value of shares allotted to the assessees by YI on 22.01.2011. It is submitted that in this case 22.01.2011 was the taxable event, when shares were allotted to the assessees, at a face value of only ` 100 per share since, in terms of provisions of Section 56 read with Rule 11UA, the fair market value ought to have been determined- which worked to ` 8,15,708/16 per share while calculating the value, in terms of Rule 11UA. 33. It is submitted that the prima facie" reasons to believe" of the AO that the income escaped assessment in the present case are not based upon the allotment of shares by AJL to YI. The re-assessment was resorted because it was prima faciefound that "income from other sources" stipulated under Section 56 escaped assessment with respect to the fair market value of shares allotted to the assessees by YI on 22.01.2011. It is submitted that in this case 22.01.2011 was the taxable event, when shares were allotted to the assessees, at a face value of only ` 100 per share since, in terms of provisions of Section 56 read with Rule 11UA, the fair market value ought to have been determined- which worked to ` 8,15,708/16 per share while calculating the value, in terms of Rule 11UA. 34. The learned ASG also argued that when the debt of ` 90.21 crore was assigned by INC to YI on 28.12.2010 there were two shareholders, viz. M/s. Suman Dubey and Shri. Sam Pitroda- both holding 550 shares of the face value of ` 100 each. As these individuals were existing shareholders, though YI received the assets (in the form of "debt receivable"), the ratio in Bachha F. Guzdar (supra) protected them, as existing shareholders. Explaining that when the asset of the company increases (in the form of "debt receivable"), the ASG submitted that the fair market value of its shares also increases correspondingly and, therefore, any new allotment of shares thereafter can only be at the fair market value as determined under section 56(2)(vii)(c)(ii) read with Rule 11UA. The Petitioner/assessees became shareholders on 22.1.2011 "receiving"the shares @ ` 100 per share which was not the fair market value (as on 22.01.2011). Accordingly the fair market value was computed under section 56(2)(vii)(c)(ii) read with Rule 11UA. The said calculation of "fair market value of shares" is also made only taking into account ` 90.21 crores as the asset of YI and not computing the immovable property worth approximately ` 413.40 crores in which YI acquired beneficial interests on 26.02.2011 by virtue of conversion of debt into equity by AJL giving 99 per cent of its shares to YI. It is submitted by the ASG that the said sum of ` 90.21 Crores was considered only for computing the fair market value of the shares allotted to the assessees. They are not sought to assessed for ` 90.21 crores. 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 Sectio