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2015 (4) TMI 411 - BOMBAY HIGH COURT

2015 (4) TMI 411 - BOMBAY HIGH COURT - [2015] 375 ITR 308 (Bom) - Reopening of assessment - Assessee had gifted the shares without any consideration - Held that:- All that the Revenue desires is verification of certain details and pertaining to the gift. That is not founded on the belief that any income which is chargeable to tax has escaped assessment and hence, such verification is necessary. That belief is not recorded and which alone would enable the Assessing Officer to proceed. Thus, the r .....

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idual persons out of love and affection, which does not prevail in the case of companies. In the case of companies, the financial transaction exists to earn profit and the transaction of the so called gift made by the Assessee is only for the purpose of avoiding capital gains tax.

This is a stand taken in the affidavit in reply but what we find is that the gift without any consideration and as noted in the reasons recorded and supplied has not been termed as one which attracts any tax .....

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ther the computation is on the market rate on the date of such transfer. This, to our mind, would not in any manner enable the Revenue/Respondents to resort to section 147 of the IT Act. The reasons as recorded cannot then be substituted or supplemented by filing an affidavit in the Court. Thus, additional reasons cannot be supplied and on affidavit. The notice under section 148(1) is quashed and set aside. - Decided in favour of assessee. - WRIT PETITION NO. 2314 OF 2015 - Dated:- 7-4-2015 - C. .....

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des, we make the Rule returnable forthwith. 3) By this Writ Petition under Article 226 of the Constitution of India, the Petitioner prays for issuance of writ of certiorari or any other appropriate writ, order or direction calling for the records of the Petitioner's case pertaining to the notice dated 24th January, 2014 issued by Respondent No. 2 invoking section 148 of the Income Tax Act, 1961 (for short the IT Act ) and the order dated 21st January, 2015 (Annexure 'B') and, further .....

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assessment year 201011, return of income was filed on 15th September, 2010 declaring a business loss of ₹ 1,61,793/under section 28 of the IT Act and booking loss amounting to ₹ 1,22,95,221/under section 115JB of the IT Act. 6) The relevant and material aspect of this return is that in it ₹ 1,21,33,429/was shown as book value of the shares transferred by way of gift. The case of the Petitioner was that in terms of memorandum of association of the Petitioner, it gifted 9,39,980 .....

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;s case is that the book value of these shares was added back to the total income and not claimed as deduction while computing the income chargeable under the head profits and gains from business or profession . The Petitioner is relying upon point No.23 of column 'A' of Schedule BP at page 13 of the return of income. This return was initially processed under section 143(1) of the IT Act. The Assessing Officer accepted the loss computed by the Petitioner in the return. There was a commun .....

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corded and which led to the issuance of the notice. On 22nd April, 2014, a communication was addressed by the second Respondent to the Petitioner, under which, the reasons were communicated. Annexure 'G' is a copy of this letter. The claim of the Petitioner is that no opportunity to raise objections came to be provided and a notice under section 143(2) of the IT Act dated 2nd May, 2014, calling upon the Petitioner to furnish information and attend the office of the second Respondent, was .....

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mstances, it prayed that the proceedings be dropped. The Petitioner submitted that without these objections being dealt with, a notice under section 142(1) of the IT Act dated 20th November, 2014 was issued, calling upon the Petitioner to submit books of account and other documents. That is in support of the return of income. Some information was also called for. 9) Subsequently on 21st January, 2015, the impugned order came to be passed rejecting the objections. 10) Mr. Pardiwallalearned Senior .....

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hich is at page 89 of the paper book, are nothing but a reiteration of the position emerging from the return. It is clear from the reasons supplied that the return of income filed by the Assessee for the assessment year 200910 was verified. In that, long term capital gains from investment in shares amounting to ₹ 1,54,81,620/and dividend income of ₹ 9,74,420/was disclosed. However, for the assessment year 201011, the Assessee has shown long term capital gain of ₹ 33,48,191/and .....

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also wants to verify whether the value of these shares has been computed on the market rate as on the date of such transfer. Mr. Pardiwalla submits that this cannot be termed as reasons for the belief and enabling reopening of the assessment. A mere communication and asking for some clarification so also proposing verification of what has been already supplied and is on record cannot be enough to resort to the powers under section 147 of the IT Act. Mr. Pardiwalla submits that the principal cond .....

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elieve that any income chargeable to tax has escaped assessment for the Respondents themselves refer to section 47(iii) of the IT Act. In the circumstances, the attempt of the Revenue should not be sustained. 11) Mr. Pardiwalla places strong reliance upon two Division Bench Judgments of this Court in the case of Commissioner of Income Tax vs. Smt. Maniben Valji Shah reported in (2006) 283 ITR 453 and Prashant S. Joshi and Anr. vs. Income Tax Officer reported in (2010) 324 ITR 154. Our attention .....

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sfied, then, at the threshold the notice be quashed. 12) On the other hand, Mr. Vimal Guptalearned Senior Counsel appearing for the Department/Respondents would submit that there is no merit in this Writ Petition. In the affidavit in reply as also prior thereto in the communications referred in the Writ Petition, it has been pointed out that no regular assessment order was made under section 143(3) of the IT Act. Intimation issued under section 143(1) cannot be treated as an order of assessment. .....

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9 and 31st March, 2010, it was noticed that the long term investment of M/s. Nivi Trading Limited had reduced. The Assessee debited an amount of ₹ 1,21,33,429/as gift in its profit and loss account. Thus, these facts cumulatively prove that the Assessee has transferred the capital asset without any consideration and hence avoided the resultant capital gains culminating in escapement of income. Thereafter, the procedural formalities and of obtaining approval, recording of satisfaction were .....

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ld not have been accepted and have been rightly rejected or disallowed. The so called gift made by the Petitioner is nothing but a transaction for the purpose of avoiding the capital gains tax. It is common ground that the transferee M/s. Nerka Chemicals Private Limited is also a private limited company. Thus, this transfer was nothing but avoiding paying a tax on the income which is chargeable as such. That is why the assessment was reopened. 14) Mr. Gupta relied strongly upon the language of s .....

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e, a return of income was furnished by the Assessee but no assessment has been made and it is noticed by the Assessing Officer that the Assessee has understated the income. Therefore, the reopening of the assessment was fully permissible. Mr. Gupta therefore justified the issuance of notice and by relying upon the law laid down by the Hon'ble Supreme Court in the case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported in (2007) 291 ITR 500. He would t .....

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t, which has been relied upon by Mr. Gupta [Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra)], the Hon'ble Supreme Court was concerned with a case where a private limited company filed its return of income for assessment year 200102. That was filed on 30th October, 2001 declaring loss at a certain figure. The return was processed under section 143(1) of the IT Act and the loss returned was accepted. A notice under section 148 of the IT Act was issued on the ground that claim of bad debts as ex .....

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see before the Gujarat High Court. The said Writ Petition was allowed by a Division Bench of that High Court and that is why the Revenue approached the Hon'ble Supreme Court in Appeal. 17) The argument of both sides and the reliance upon case law have been noted in the Judgment of the Hon'ble Supreme Court up to paragraph 8. In para 9, section 143(1) as stood before and after amendment with effect from June 1, 1999 and sections 147 and 148 (after amendment) of the IT Act have been reprod .....

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ms which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allo .....

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), required that where adjustments were made under the first proviso to section 143(1) (a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till June 1, 1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the .....

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ng adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accept .....

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between June 1, 1994 and May 31, 1999, and under section 264 between October 1, 1991, and May 31, 1999. It is to be noted that the expressions intimation and assessment order have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes the computation of income , sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in .....

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g of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the Departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J.) in Apogee International Limited v. Union of India [1996] 220 ITR 248 (Delhi). It may be noted above that under .....

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. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. 18) The Hon'ble Sup .....

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n cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. Thus, at that stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issuance of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. The .....

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ispute that a return of income was filed by the Petitioner/Assessee. The return of income so filed could have been subjected to verification and scrutiny and in terms of the applicable law and sections in the Income Tax Act, 1961 itself. However, if this notice has been issued in the present case and on the footing that the income chargeable to tax has escaped assessment during the course of the assessment proceedings, then, we would not go by the stand taken by the Revenue and on affidavit and .....

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te 24.01.2014 To, The Principal Officer, M/s. Nivi Trading Ltd. 4th Floor, Ready Money Terrace, 167, Dr. A. B. Road, Mumbai - 400018. PAN: AAACN2703L Whereas I have reason to believe that your income in respect of which you are assessable chargeable to tax for the A. Y. 20102011 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. I, therefore, propose to assess for the said assessment year and I hereby require you to deliver to me within 30 days from the date of .....

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or A. Y. 200910 that it had shown LTCG from investments in shares amounting to ₹ 1,54,81,620/and had shown dividend of ₹ 9,74,420/. During the A. Y. 201011, assessee had shown LTCG of ₹ 33,48,191/and dividend income of ₹ 14,44,763/and shown ₹ 1,21,33,429/as gift. Hence, it is seen that assessee had gifted these shares without any consideration. This fact needs to be verified as per section 47(iii) of the I. T. Act. Also it has to be verified whether the value of the .....

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e are of the opinion that in the present case, the contents of the notice as reproduced above and the reasons recorded, the objections and the order rejecting them are enough to turn down the first submission of Mr. Gupta. 22) Insofar as the second aspect is concerned and which has really arisen for our determination and consideration, we find that the return of income was filed. There was a processing and verification thereof. In the return of income and on the own showing of the Respondents, o .....

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eflecting in the return, were set out and with the explanations. This is nothing but a version given by the Petitioner that no income accrued or has arisen from the transfer of shares since that has been made voluntarily and without any consideration. The Assessee pointed out in its objections and on merits that the voluntary transfer of shares without any consideration would qualify as gift and it would be treated as exempt transfer. It relied upon clause (iii) of section 47 of the IT Act. Apar .....

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of the principles and emerging from a reading of the Judgment of this Court. In the case of Smt. Maniben Valji Shah (supra) this Court emphasised that the important words in section 147 of the IT Act are has reason to believe and they are stronger than the words is satisfied . The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. While the Court cannot investigate .....

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ly entertain the belief, then, the exercise undertaken by the Income Tax Officer can be interfered with. 23) In the said case as well the notice was issued under the said provision for reopening of the assessment because the return of income showed certain income declared. However, a capital gain of the assessee revealed purchase of a flat, for which no details were filed along with the details of income, namely, the purchase agreement, source of funds and therefore, in absence thereof, the asse .....

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the officer was wanting to know the details with regard to the source of funds with regard to purchase of the said flat for a sum of ₹ 2,50,000/. Obviously in the above, there is no question of the Assessing Officer having any basis to reasonably entertain the belief that any part of the income of the assessee had escaped assessment and that such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts. ….. 24) Thus, .....

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of section 148 of the IT Act enables issuance of notice before the assessment, reassessment or recomputation under section 147 of the IT Act, but that is dealing with the service of the notice. The principal condition for issuance of notice is to be found in section 147 of the IT Act and that is on the reason to belief that any income chargeable to tax has escaped assessment for any assessment year, then, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or rea .....

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ed on the belief that any income which is chargeable to tax has escaped assessment and hence, such verification is necessary. That belief is not recorded and which alone would enable the Assessing Officer to proceed. Thus, the reasons must be founded on the satisfaction of the Assessing Officer that income chargeable to tax has escaped assessment. Once that is not to be found, then, we are not in a position to sustain the impugned notice. Having reproduced the same and contents thereof being cle .....

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