TMI Blog1993 (7) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... the said 6000 Equity Shares of Rs. 100 each fully paid-up, each of them holding the number of Equity Shares set opposite their respective names in Schedule I hereto. AND WHEREAS the purchasers have at the request of the Company agreed to purchase the said 6000 Equity Shares on the terms and conditions hereinafter mentioned. NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES hereto as follows : 1. Each of the vendors shall sell and the purchasers shall purchase the number of Equity Shares in the Company set out opposite his or her name in Schedule I hereto being 6000 Equity Shares in the aggregate at the price of Rs. 392.00 P (Rupees three hundred and ninety two only) per share free from all charges or encumbrances or liens and with all rights attaching thereto. 2. The said 6000 Equity Shares agreed to be sold are fully paid-up and represent 100 per cent of the Equity Share capital of the Company and carry that percentage of the votes cast at general meeting of the company." There are clauses in this agreement stating the factual position regarding the assets and liabilities of the Company. Thereafter there are clauses whereby Vendors underto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was shown in the return and so was the dividend received thereon. It is contended therein that the assessees' interest in the Company remained undisturbed even after receiving the bonus shares and that therefore the interest in the Company i.e., percentage in the Company's equity subsisted as such for more than 36 months before the date of transfer. Therefore, according to the assessee, income was received by way of long term capital gains and the question of escapement of that income did not arise. The assessee has stated that "I have fully and truly stated in the return that my interest or stock in the company with percentage was sold away". The letter has specifically pointed out the above sentence in the ITO's order. The assessee vide letter dated 30-12-1980 inter alia, stated that the shares were held as investment and requested the Income-tax Officer not to consider the dividend as income nor capital gains as business income. The Income Tax Officer, however, reopened the assessment rejecting the assessee's objection on the ground that the assessee had "mislead the department by saying vaguely in the return that the share in the equity capital" had been sold and that "the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re accepted under section 143(1). He referred to section 143(1)(a) as it stood at the relevant time wherein it has been provided that the Income-tax Officer should make the assessment also with reference to record, if any, of past years. On this basis he submitted that the Income-tax Officer was expected to look into aforesaid details and that therefore the full disclosure had been made so that there was no case for reopening. He pointed out a letter dated 11-10-1983 from the Commissioner to the Income-tax Officer wherein it has been pointed out that bonus shares held by the assessee were for less than 36 months. He submitted that this information was got from the Commissioner from the record and that therefore the assessment must be considered to have been made under section 143(3). He also submitted that in view of the aforesaid letter of the Commissioner it must be said that the Income-tax Officer had not exercised his independent mind which was necessary as laid down in the case of Chunnilal Onkarmal (P.) Ltd. v. ITO [1983] 139 ITR 380 (MP). He also pointed out the Income-tax Officer's letter dated 6-12-1983 whereby notice dated 14-11-1983 had been cancelled and subsequently is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inting out that the assessment in the case of Mrs. Mangla Paranjape although under section 143(3) was after the assessment in the case of other assessees under section 143(1) and that therefore the contention of the assessee's counsel that those assessments were correctly made was not correct. He also contended that the provision in section 143(1) regarding the reference to past record was merely meant for items like depreciation and other matters referred to in clause (iv). In our view the assessment can be reopened if the circumstances justify and it make no difference whether they have been made under section 143(3) or 143(1). The learned departmental representative is quite right also in stating that the reference to past record in section 143(1) is for the purpose of items mentioned in sub-clause (iv). Further, section 143(1) uses the word "may" and so it gives an option to the Income-tax Officer to make the assessment inter alia by referring to the record of past assessments. Therefore the reopening cannot be ruled out on that ground. Consequently the reliance by the learned counsel on the fact that for assessment year 1977-78 the disclosure had been made regarding the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned the date of the issue of bonus shares. Now, the assessee had claimed benefit of section 54 and that benefit is available only in case of capital gains resulting in sale of long term capital assets. Therefore in order to decide whether any asset, in each of the assessees assets, which were sold, were long-term asset or not, it was necessary for the assessee to disclose in the return the date of the issue of the bonus shares. The assessee has not done this. It has relied upon certain arguments. Those should have been made after making all the crucial disclosure regarding the date of the issue of bonus shares. Those arguments or even belief, however bona fide, would not absolve the assessee from the duty to disclose that crucial fact viz., the date of issue of bonus shares. Although the assessee might have called his shareholdings as a percentage of interest in a bona fide manner, since he was claiming benefit under section 54E of the Income-tax Act, which read with section 2(29A) refers to shares, the balance of reasoning is in favour of the view that the assessee should have disclosed the dates of issue of bonus shares in his return for the assessment year in question. The du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision under the Stamp Act and it was mentioned in the instrument of transfer that the transferor had certain rights in respect of immovable property. He also submitted that the number of shares held by the members of the Co-op. Housing Society was the same irrespective of the area of that immovable property which was not the case in the case of a Company where the nature of the rights differ with the number of shares held. 9. The assessee's counsel rejoined by stating that the agreement has to be read as a whole in order to ascertain the true nature of the transaction. He submitted that the cases cited by the learned departmental representative regarding the rights of shareholders were distinguishable because they did not take into account the administrative rights which were also transferred in this case because the entire holding had been transferred. 10. We have already held that the reopening in this case was justified. The next question is regarding the merits of the assessee's case. That case needs to be clearly spelt out. The contention is that by reason of the fact that all the shares in the Company which were held by the assessee group were transferred to another gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of consideration. 11. We have given anxious thought to this argument but we find that though attractive at the first impression, it suffers from certain infirmities. It is the total collection of shares which gives the control and it is the Company which owned the undertaking. We cannot therefore overlook the fact that it was the shares which was the subject matter of transfer. The fact that control over the Company was transferred is only a consequence of the transfer of the shares. That control does not have a separate existence from the ownership of the shares. The extent and nature of the control varies with the extent of the shareholding. The most complete control over the management and affairs of the Company goes with the complete ownership of all the shares of the Company. The ownership of small number of shares would give only the voting rights in that proportion and complete control over the management only means the totality of an the voting rights of the shares, nothing more and nothing less. Therefore the transfer of control cannot outweigh the fact of tranfer of shares. It is the ownership of the shares which is the basis for the control over the Company. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in addition to being transfer of shares incorporated within itself the conveyance of property in substance and effect. On this basis the learned counsel argued that it was not form but substance which was material and so we must hold that it was not the shares but the interest of the assessee in the Company which was transferred. He had also argued that the transfer of shares was only a way of transferring the interest. This argument, again like the earlier one, at first appears to be reasonable but not so when examined closely. In the above case before the High Court the interest of property was a consequence of the ownership of the shares. Thus the former was separate from the latter. While the petitioner contended that it had transferred only the shares, the High Court held that it had also transferred the interest in the immovable property. In the present case, however, it is the contention of the assessee that it was interest in the Company and not the shares which were transferred. Moreover in that case the shares were only five in number of the value of Rs. 50 each while the consideration for the transfer was Rs. 9,46,900. It is in these circumstances that the Court held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-owner of the company which is similar to the position of a trustee in the case of a specific trust in whom the property of the trust is legally vested though the beneficiaries are the de facto owners of the property. In this sense, the shareholders of the company constitute its proprietors. In this connection, Palmer's Company Law, 21st Edition at page 21 reads as under : "A share is a thing in action of proprietary character. A shareholder is a co-owner of the company---not of its assets which, in view of the nature of the company as a legal person, are vested in the company and the extent of his rights and duties as co-owner is measured by the amount of his shareholding, so that all the shareholders of the company constitute its proprietors and the amount due from all of them to the company is equal to the issued capital of the company." 3. Normally 'share' denotes right of participation in capital of the company. It also denotes other rights in the management of the company. When a company capitalises its accumulated profits and issues bonus shares to its shareholders, it does not entail release of any of the company's assets. The company merely increases its capital whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Director or Directors representing them on the Board of Directors of the Company give effect to and comply with (including by exercise of their voting rights) the provisions of this Agreement. Consequently some of the assessees who are holding the posts of Managing Director or Technical Director have lost their jobs and the consideration received also covers compensation for loss of employment which is in the capital field. 8. M/s Paranjape Engineering and Foundry Company P. Ltd. is manufacturing engineering goods and is a going concern. As per clause 3, its profitability and financial worth is reflected by the profits and losses account and the Balance-sheet as on 31-5-1977 and also the unaudited results of the company for the period from 1-6-1977 to 31-8-1977 prepared and initialled by Shri S.D. Paranjape, the Managing Director of the company. This clause reveals that it is the business undertaking as reflected by financial statements which was transferred as a going concern on a platter so to say. For otherwise, there is no relevance nor is it necessary for furnishing financial worth statement and profitability statement of the concern as was done in this case. 9. Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffrey [1988] 13 AC 294 at page 301 : "that you must took at the whole instrument inasmuch as there may be inaccuracy and inconsistency, you must, if you can, ascertain what is the meaning of the instrument taken as a whole in order to give effect, if it be possible to do so, to the intention of the framer of it." 17. Thus, reading the agreement as a whole, it will be clear that the main purpose and intention of the vendors was to transfer the undertaking or 100 per cent controlling interest in the company as they were holding 100 per cent shares of the company. The enbloc price fixed per share was Rs. 392 which is higher than the prevailing market value of the shares and whose break up value has been arrived at Rs. 290 per share. Since the company is a going concern the break up value is not proper valuation according to well-known authorities of Supreme Court and Bombay High Court. 18. The Supreme Court in the case of Ramnarain Sons (P.) Ltd. v. CIT [1961] 41 ITR 534 considered the transaction of purchase of shares and acquisition of managing agency and held that both the assets were of capital nature. It held that if the intention was to obtain control over the managing age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mugneerarm's case, the whole of the concern was sold for slump price and no portion of the price was attributable to stock in trade. The Supreme Court held that the business is sold as a going concern and the excess may not be the business profit but will be capital gains chargeable to tax. This decision of the Supreme Court has been explained with approval in the Board's Circular No. 23-D (LXXVIII-6) of 1965 reproduced at page 483 of J. P. Bhatnagar's Direct Taxes Circulars, Vol. 1. Further the agreement as such does not specify the price for bonus shares but the price for the shares enbloc inclusive of the bonus shares. Palmer's Company Law, 21st Edition at page 885 reads as under : "A bonus or a rights issue of shares or debentures, both for the purposes of short and long term gains, is not treated as involving any disposal and thus does not attract tax, but on a subsequent sale the original shares and the new holding are treated as the same asset acquired as the original shares were acquired." 20. In the facts and circumstances of the case, therefore, the entire capital gains arising on the transaction is in the nature of long term capital gains and inasmuch as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned brother relied heavily on the judgment of the Gujarat High Court in the case of Chunilal Khushaldas which was only concerned with the question of sale of bonus shares and it has held that the bonus shares are acquired only when issued and they are held from the date of issue and not from the date of issue of original shares. It is necessary to highlight the facts of that case. In that case the bonus shares were issued on 5-9-1961 and they were sold on 12-9-1961 within a week's time. There is no dispute about the rationale of that decision. The point is whether that decision is relevant and applicable to the case of the assessees where 160 per cent of the shareholdings were transferred enbloc or the entire undertaking has been sold as a going concern. Following respectfully the judgment of the Madras High Court, I am of the opinion that it is not open to the Assessing Officer especially when the bonus shares were not sold separately to go into the question of determination of short term capital gains arising on sale of bonus shares by applying the principle of averaging laid down by the Supreme Court in the case of Dalmia Investment Co. Ltd. In the global context of the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... look into the immediate past record that is for the assessment year 1977-78 wherein details of acquisition of bonus shares were already reported by the assessee. If he had merely looked into or seen the statements, he would have certainly come to the conclusion without applying "due diligence" of the mind that bonus shares have been issued for the assessment year 1977-78 and which were sold in the assessment year 1978-79. In that case, he could have come to the conclusion that the case could not be completed under section 143(1) accepting the income returned. Simply because, 143(1) assessment contemplates adjustment of certain items specified in clause (iv) thereof for which purpose alone the ITO has to look into past record does not mean that it is open to the ITO to complete initial or first assessment under section 143(1) in respect of items covered by clause (iv) of section 143(1) and later on take recourse to reassessment under section 147(a) in respect of items not covered by clause (iv) of section 143(1). The only option to the ITO is to complete under section 143(1) or 143(3) and not under sections 143(1) and 147(a). 25. The relevant portion of the letter of the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve that the income had escaped assessment and it is purely a judicious application of mind to the facts of the case and not to be dictated by any superior authority. Since the assessees all belong to the same group and the facts and circumstances regarding allotment of bonus shares in assessment year 1977-78 and sale of shares in the assessment year 1978-79 are all the same, it is no longer open to the ITO to take a different view in the reassessment proceedings after once having applied his mind and accepted the claim of exemption under section 54E arising out of the transfer of shares including the bonus shares. If there is no warrant for reassessment proceedings as stated earlier, the question of going into the merits of quantum of income assessed by applying the principles of costing laid down by the Supreme Court also does not arise. In this view of the matter, therefore, I am of the opinion that reassessment proceedings were not valid in law and therefore, fit to be cancelled. 26. The percentage of interest of the shareholder in company remained the same even after declaration of bonus shares. When bonus shares are issued capitalising accumulated profits, on one hand it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been highlighted supra. The mere fact that parties to the transaction might have aimed to gain a fiscal advantage therefrom would not detract from the genuineness of the transaction. In this connection, it is apt to reproduce the relevant passage contained at page 440 in the book on "Principles of Statutory Interpretation", 4th Edition by Justice Guru Prasanna Singh. "A transaction which by the acts done is of the nature of a trading transaction and is genuine and not sham does not cease, in the absence of statutory provision providing otherwise, to be an adventure or concern in the nature of trade merely because those taking part in it have their eyes fixed on the fiscal advantage of avoiding income-tax." 28. In view of the aforesaid reasons stated by me, I do not agree with any of the observations, statements, conclusions and decision of my learned brother contained in paragraphs 11, 12 and 13 of his order. On the other hand, in view of the global nature of transaction involving the transfer of the whole undertaking as a going concern it is 100 per cent of controlling interest in a controlled company which was transferred by transferring the aggregate of 100 per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of sale dated 28-11-1977 resulted in long-term capital gains or short-term capital gains? 3. Whether in the facts and circumstances of the case, there was failure on the part of the assessee to disclose fully and truly all the material facts for assessment in the original returns filed for assessment year 1978-79 or not? 4. Whether in the facts and circumstances of the case, the reassessments under section 147(a) are justified in law or not?" I have heard this case at length and I record my opinion on those points along with my reasons below. 2. I shall first take up the first point of difference of opinion, namely, whether the transaction was a transfer of all the shares or it was a transaction to obtain the control over the company but not of the shares. The assessees were the holders of the shares of one company called Paranjape Engg. Foundry Co. Ltd. On 30-10-1976, this company issued bonus shares in the ratio of one bonus share for one original share. On or about 28-11-1977, the assessees herein agreed to sell their shares to another group called Thirani group. To effect this sale, an agreement was entered into on 28-11-1977 between the assessees called vendors on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany or which is confusing and shall not trade in a manner as would give an impression to the outsiders that such business has or had any concern or connection with the business of the Company." There are several other clauses with which I am not directly concerned. 3. The assessments in these cases were originally completed under section 143(1) and later reopened under section 147 of the Income-tax Act to bring to tax what according to the Revenue authorities is a short-term capital gain arising on the sale of bonus shares included in the sale of the above shares, which had escaped assessment. According to the Income-tax Officer, the assessees had not disclosed full facts, particularly the fact relating to the date of issue of the bonus shares, and since all the shares were sold along with the bonus shares a short-term capital gain arose on the sale of the bonus shares which should have been quantified and brought to tax, whereas, according to the assessee, since the entire shareholding was sold as a slump sale, such sale resulted only in a long-term capital gain and since the entire sale proceeds were invested in specified assets within a stipulated time-frame, even the long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose that date. Since that was a material fact and since that material fact was not disclosed rendering the bringing to tax of short-term capital gains thereon impossible, the reopening of the assessment was valid in law and on facts. He also placed reliance upon the decision of the Gujarat High Court in Chunnilal Khushaldas' case for the view that the bonus shares should be taken as an asset separate and distinct from the original shares and on the sale of the bonus shares there was short-term capital gain. Another point that was made before the Commissioner (Appeals) but was rejected by him was that when the entire share-holding was sold, there was a transfer of the controlling interest but there was no transaction of sale. Thus, the assessments made by the Income-tax Officer were upheld by the Commissioner (Appeals). 6. Insofar as the conclusion of the Bench on the first point of difference of opinion is concerned, the learned Judicial Member took the view for elaborate reasons given in his order that the transfer of shares amounted to sale of shares although in the process transfer of control was also involved and reflected and that it was not the shares that were transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the reopening of assessment was bad in law, that there was no short term capital gain and that bonus shares could not be regarded as independent of other transactions for the exclusive purpose of considering them as short term capital asset and since the proceeds thereof were invested in exempted assets as provided for in section 54E of the Income-tax Act, the entire capital gain was exempt from tax. In the course of discussion, he dealt with another issue raised before the Tribunal, viz., whether the reopening of assessment was at the instance of higher authorities or by the Income-tax Officer suo moto. On the strength of the evidence what was placed before the Tribunal, he construed it as amounting to issuing directions by the higher authorities to the lower authorities to reopen the assessment and, therefore, there was no application of mind by the Income-tax Officer independent of the instructions given by the superior authorities. This was held to be an additional reason to hold that the reopening of assessment was bad in law. These are in sum the main features of the conclusions reached by the learned Accountant Member in contrast to the conclusions reached by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case, the assessee purchased 42,000 shares of a company in order to acquire a controlling interest in that company, by paying Rs. 100 per share while the market value of the shares was only Rs. 76 per share. The question arose as to what was the value of the shares thus purchased and whether any controlling interest was purchased treating the difference between the market value and the purchase value as attributable to the controlling interest. The Income-tax Appellate Tribunal held that the excess paid by the assessee over the market value represented the value of the controlling interest and consequently did not constitute the cost of acquisition of the shares. On a reference, the Madhya Pradesh High Court held, disagreeing with the view expressed by the Tribunal, that the controlling interest in a company is always an incidence arising from the holding of a particular number of shares of the company; it cannot be separately acquired or transferred, meaning that it is not an asset capable of being acquired or transferred. It flows from the fact that a number of shares are held by a person. If, for acquiring that number of shares, a person is required to pay more than the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for example the case of a company which had sold all its shares to another company, purchased an immovable asset, say a land or a building, just a few weeks before the date of sale of its shares. Can it be said that that asset was not a short term capital asset all because all the shares were sold? As I have pointed out earlier, the company being a distinct legal personality from its shareholders, the shareholders do not own any particular asset and all the assets are owned by the company in its capacity as a juristic person having the legal sanction to sue and be sued. When the assets are held by the company and not by the shareholders and when the company is the owner of the assets, the rights of the shareholders being confined only to the receipt of, dividends as and when declared and to receive their capital in the course of winding up as contributories after satisfying the requirements of creditors, the owner of the assets, viz., the company, will have to be regarded, and is regarded under the Companies Act, as the owner of the assets and, therefore, the period for the purpose of determining whether an asset is a long-term capital asset or a short-term capital asset has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready held that the bonus shares are distinct from the original shares and there is a plethora of case law on this point which I think I need not now refer to, because it is settled law that bonus shares are different from original shares except that for the acquisition of bonus shares neither any payment is involved nor the company issuing the bonus shares releases any of its assets. It is only conversion of the general reserves of a particular company into bonus shares by allotting them to the shareholders in a particular ratio. Cases have arisen as to how they should be valued for the purposes of income-tax and again it is a settled law that they should be valued by spreading the value of original shares among original shares and bonus shares. In other words, by issuing bonus shares, the value of the original shares will come down. The agreement of sale dated 28-11-1977, which was referred to copiously and clause by clause by the learned Accountant Member in his order, does not refer anywhere to the sale of bonus shares independent of original shares. It speaks of the sale of the entire shareholding which included the bonus shares also. If bonus shares and original shares can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference of opinion is whether there is a failure on the part of the assessee to disclose fully and truly all the material facts for assessment in the original return filed for assessment year 1978-79 or not. The prima facie view I got on going through the material on record is that there was a failure on the part of the assessee to disclose the material facts. I formed that view notwithstanding the facts that the factum of issue of bonus shares as well as the dividends received on the bonus shares were both declared into the returns and that was enough to hold that the assessee had done his part to the entire satisfaction of the legal requirements. But, when I came to know in the course of arguments and on verification of facts on the record that the assessee had not disclosed the date of issue of the bonus shares, I felt that my prima facie view acquired strength. In a case where the issue concerned was computation of capital gains, nothing could be more important for disclosure than the date of issue of the shares. 14. It is now an admitted fact that neither in the return nor at any point of time thereafter was the date of issue of bonus shares disclosed, although the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was for the purpose of bringing to tax the short term capital gains arising on the sale of the bonus shares, the date of issue of the bonus shares assumes significance and becomes a relevant fact the non-disclosure of which can, in my opinion, be said to be non-disclosure fully and truly of all the material facts. Very forceful arguments were addressed to me during the hearing that when the issue of bonus shares was within the knowledge of the Income-tax Officer, there was no further necessity for the assessee to inform the Income-tax Officer about what he already knew. This argument does not take into account the vital question of the date of issue of the bonus shares. The fact that the Income-tax Officer could have discovered this date of issue by questioning the assessee, is not as much relevant for the purpose of this reference to me as whether there is a full and true disclosure of all material facts by the assessee on his own. 16. The learned Accountant Member made some references to the relevance of the issue of bonus shares in para 21 of his differing order in which he said that when the undertaking as a whole was sold and the consideration was paid for 100 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not anywhere say that bonus shares would not be considered as separate assets from the date of their issue. Neither the fact of the disclosure of the issue of bonus shares nor the fact of the disclosure of the dividends received therefrom nor the production of the agreement dated 28-11-1977 would, in my opinion, satisfy the requirement of disclosing fully and truly all material facts when the most important point, viz., the date of issue of bonus shares was not disclosed. The non-disclosure may be intentional or unintentional, but that is not the issue. The issue is whether the disclosure of the date of issue of bonus shares is material or not. In my opinion, it is material and its non-disclosure would amount to failure on the part of the assessee to fully and truly disclose all the material facts. 17. In this context, I may have to refer to two decisions, one by the Madhya Pradesh High Court, Indore Bench, in the case of Chunnilal Onkarmal (P.) Ltd. and the other by the Patna High Court, Ranchi Bench, in the case of Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352. Both these decisions have a bearing upon the view expressed by the learned Accountant Member on the validity of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had disclosed all the material facts and when the income-tax Officer was satisfied by applying his mind and completed the original assessment being aware of the fact that there was an issue of bonus shares, there was no escapement of income and the reassessment proceedings were not warranted in law inasmuch as the reopening was only due to change of opinion. Thereafter, the letter written by the Commissioner of Income-tax dated 11-10-1983 to the Income-tax Officer came on the record and it was reproduced in para 25 of the Accountant Member's order, which read : "Re: Evasion of tax by Paranjape group of PEFCO Foundry and Chemicals Co. Ltd. ..................................................... ...................................................... ...................................................... 2. In the relevant period, the shareholders cleverly avoided mentioning the number of equity shares sold on 22-11-1977. Instead they mentioned a percentage of the equity capital sold by them e.g., Smt. Y.D. Paranjape stated that 6.6 per cent of the share of equity capital was sold by her. This statement is technically correct but suppresses the vital information about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve reason to believe that income chargeable to tax had escaped assessment. He can from that belief on the basis of information gathered from any source. There is no bar that the information received from a superior authority should not be made use of. The Income-tax Officer has got a very vast machinery to help him to gather information about the activities of assessees under his charge and the information can come to him from several sources, may be from examination of accounts of other assessees, may be form decisions of High Courts and the Supreme Court, may be from information gathered by the information collecting agencies working within the department like Survey etc., or from the higher authorities when they happen to examine the assessments of the assessees or other related, connected assessees. It is impossible to define the parameters of the information. What is, therefore, to be seen is whether the Income-tax Officer in this case received information as a consequence of which held the belief that income chargeable to tax had escaped assessment or was he directed to make an assessment irrespective of his belief as in the case of Patna High Court reported in 176 ITR at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a requirement in the return and when it was not disclosed, it does amount to failure to disclose fully and truly all material facts and there was a breach of the obligation under law by putting a lid upon the comprehension of this legal requirement. 21. In ITO v. Sudhir Kumar Bhose [1972] 84 ITR 60 (Cal.), the facts were, the Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, to the assessee proposing to make a reassessment for the reason that in the return filed by the assessee for the concerned assessment year, Part VII, i.e., particulars of capital gains, was not filled in. The assessee filed a writ petition challenging the notice. A Single Judge accepted the petition and quashed the notice holding that the assessee had disclosed the particulars in respect of a transaction of house property at the hearing before the Income-tax Officer and the Income-tax Officer had never made a complaint that the assessee had failed to disclose the purchase price or fair market price of the property. On appeal, it was contended that the assessee believed bona fide that no capital, gain was involved in the transaction and, therefore, he did not fill in Part V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Officer took his own time and did not complete the assessment immediately. He made his own enquiries and then only started the proceedings, while the Income-tax Officer who made the assessment originally did not make any enquiries about the issue of bonus shares, as the assessment order passed by him does not show anything about such an enquiry. These facts are also relevant to show that the reassessment proceedings could not be held to be invalid for want of application of mind by the Income-tax Officer in reopening the assessments. The departmental representative further argued that the learned Accountant Member's observation that the Income-tax Officer should have verified the past record to find out whether the bonus shares were issued or not and at what point of time, was not a proper observation, because it went beyond the scope of section 143(1) under which provision the assessment was originally completed. I find merit in this submission, departmental representative further pointed out that even the agreement of sale, on which reliance was placed by the assessee, was not produced at the original assessment stage but it was produced only during the reassessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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