2023 (3) TMI 485 - HC - Income Tax

Reopening of assessment u/s 147 - capital reduction and financial statements highlighting the capital reduction in the balance sheet - capital gain transactions filed under Schedule C.G. - Capital Gains - purchase and sale of shares and the conversion of amounts in foreign currency - petitioner categorically mentioned that it had not carried on any business activity since the liquidation/bankruptcy application and also mentioned about the capital reduction - petitioner had incorrectly characterized the transaction and consequently contended that it was not covered under Section 112(1)(c)(iii) and claimed the benefit of computation under Section 48 - HELD THAT - As at the time of filing the return of income for the A.Y. 2015-16 the petitioner was not covered by Section 112(1)(c)(iii) as it had transferred the shares of the private limited company. Accordingly in the instant case the assessment is being sought to be reopened in contravention of the law as it stood during the previous year 2014-15 and A.Y. 2015-16 in which the petitioner filed its tax return. In this regard the learned counsel for the petitioner placed reliance on the decision in case of Godrej Industries Ltd. v/s. B. S. Singh Deputy Commissioner of Income-tax Range 10(2) 2015 (8) TMI 668 - BOMBAY HIGH COURT which confirms that a retrospective amendment cannot be the basis for reopening of assessment. In any case it may be noted that for the A.Y. 2015-16 the four years period has expired on 31st March 2020 and absence any failure to disclose facts by the assessee or any tangible new material the reopening of assessment proceedings by the respondent is bad in law. It is a clear cut case of change of opinion inasmuch as there is no new material which is discovered by the concerned officer. The application of another section of the IT Act on the facts and circumstances of a case would only constitute a change of opinion and can by no stretch of imagination be construed as new material by the Revenue. The entire emphasis on the petitioner not truly and fully disclosing facts is baseless inasmuch as in the present case there is only one transaction which was under consideration for the respondents. The entire transaction has been considered by the Assessing Officer and has culminated into the order under Section 143(3) of the Income Tax Act dated 24th December 2018. As apparent from the reasons there were no new tangible material in the hands of the Assessing Officer. Once the assessment is concluded it is deemed to have been concluded with application of mind by the Assessing Officer from all perspectives legal and factual. See KELVINATOR OF INDIA LIMITED. 2002 (4) TMI 37 - DELHI HIGH COURT The reopening of the assessment based on a different method of computation or application of the section is nothing else but a change of opinion which is impermissible in law - See JINDAL PHOTO FILMS LTD. 1998 (5) TMI 20 - DELHI HIGH COURT . The defense is misdirected and misconstrued and unsubstantiated. In our view appropriate application of the law and correct advise to the concerned officer can save a lot of litigation and burden on the court as well as agony to the citizens. The case law referred by the respondents also is totally meaningless and out of context and by no stretch of imagination applicable to the facts of this case and therefore we do not propose to deal with each one of them. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Whether there was a failure to disclose fully and truly all material facts necessary for the assessment.
3. Applicability of Section 112(1)(c)(iii) of the Income Tax Act, 1961.
4. Whether the reassessment was based on new tangible material or constituted a change of opinion.

Detailed Analysis:

1. Legality and Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31st March 2021, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for A.Y. 2015-16. The petitioner argued that the notice was issued without complying with the jurisdictional conditions, particularly the requirement to show a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The court noted that the original assessment had already considered all relevant facts, including the capital reduction and computation of capital gains, and concluded that the notice was invalid as it was based on a mere change of opinion without any new tangible material.

2. Failure to Disclose Fully and Truly All Material Facts:
The petitioner contended that all necessary facts were disclosed during the original assessment proceedings, including details of the capital reduction and the computation of capital gains under Section 45 read with Section 48 of the Act. The court found that the petitioner had indeed disclosed all primary facts required for the assessment and that there was no failure to disclose any material facts. The court emphasized that the reassessment was conducted beyond four years, and there was no allegation of failure to disclose material facts in the reasons for reopening or the order disposing of the objections.

3. Applicability of Section 112(1)(c)(iii) of the Income Tax Act, 1961:
The petitioner argued that the shares of a private limited company do not qualify as "securities" under Section 2(h) of the Securities Contracts (Regulation) Act, 1956, and therefore, Section 112(1)(c)(iii) was not applicable. The court agreed, noting that the shares of a private limited company are not marketable and thus do not fall within the definition of securities. The court also observed that the Finance Act 2016 and 2017 amendments to Section 112(1)(c)(iii), which included shares of a company not being a company in which the public are substantially interested, were applicable only from A.Y. 2017-18 onwards and could not be applied retrospectively to A.Y. 2015-16.

4. Reassessment Based on New Tangible Material or Change of Opinion:
The court concluded that the reassessment was based on a mere change of opinion rather than any new tangible material. The original assessment had already considered the capital reduction transaction, and the reassessment was initiated based on the same set of facts without any new information. The court cited the Full Bench decision of the Delhi High Court in CIT v. Kelvinator of India Ltd., which held that a mere change of opinion does not provide jurisdiction to initiate reassessment proceedings.

Conclusion:
The court allowed the petition, setting aside the impugned notice dated 31st March 2021, the reasons dated 9th January 2022, and the impugned order dated 9th March 2022, along with all consequential actions taken by the respondents. The court emphasized that the reassessment was impermissible in law as it was based on a change of opinion without any new tangible material. The petition was disposed of with no orders as to costs.