TMI Blog2015 (4) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or which is chargeable to tax and therefore there is any income which has escaped assessment. In other words, the amount of ₹ 1,21,33,429/shown as gift has not been termed as an income and which is chargeable to tax and which has escaped assessment. All that is required from the Assessee is a verification and in terms of section 47(iii) of the IT Act and for enabling it, the Assessee was called upon to appear before the AO. Thus, it is for verification of the value of these shares and whether 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred to one M/s. Nerka Chemicals Private Limited. There was a transfer agreement dated 26th February, 2010. The book value of the said shares was ₹ 1,21,33,429/. As a consequence of the gift, this sum was debited to the Profit and Loss Account for the year ended 31st March, 2010. However, the Petitioner'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 communication dated 24th February, 2011. However, no regular assessment order was made under section 143(3) of the IT Act. Subsequently, on 28th January, 2014, a notice under section 148 of the IT Act proposing to reassess the income of the Petitioner, for the assessment year 201011, was issued alleging that income has escaped assessment within the meaning of section 147 of the IT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dividend income of ₹ 14,44,763/. It also showed a sum of ₹ 1,21,33,429/as gift. Mr. Pardiwalla states that this is nothing but reiteration of the figures and the statements made in the return of income. Mr. Pardiwalla then submits that the Department/Revenue proceeded on the footing that the Assessee had gifted these shares without any consideration. All that the reasons supplied indicate is that the Revenue wants to verify this fact and in terms of section 47(iii) of the IT Act. It 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then, the balance sheet of the Petitioner was scrutinised. On scrutiny and perusal thereof and which is of the year ended 31st March, 2009 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 completed and the assessment was reopened. In response to this notice under section 148 of the IT Act, the Petitioner, by its letter dated 3rd February, 2014, requested the Assessing Officer to treat the original return of income filed as a return of income filed under section 147 of the IT Act and also made a request to the Assessing Officer to provide the reasons for reopening the assessment. 13) Mr. Gupta would therefore submit that the objections raised by the Petitioner to the reopening could not have been accepted and have been rightly rejected or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued on the ground that claim of bad debts as expenditure was not acceptable. The return of income was filed under protest declaring a loss at the same figure as in the original return by the Assessee. He sought for the copy of the reasons recorded and they were supplied to the Assessee in November, 2004. The Assessee raised various objections, both on jurisdiction and the merits of the reasons recorded. These objections were disposed of and because they were rejected that the notice under section 148 of the IT Act was challenged by the Assessee 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 reproduced together with the Explanations. In paras 12 and 13, the Hon'ble Supreme Court has held as under: 12 What were permissible under the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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 accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 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 diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eable to tax, if he has reason to believe that income chargeable to tax has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression 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 substantive satisfaction in that case of the Assessing Officer was therefore wrongly interfered with by the Gujarat High Court is the view taken by the Hon'ble Supreme Court. All these legal principles are undisputed. They go to show, as Mr. Gupta emphasises, that there should be a reason to believe that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 these shares have been computed on the market rate as on the date of such transfer. Hence, I have reason to believe that income chargeable to tax amounting to ₹ 1,21,33,429/as per provision u/s. 147 of the Act has escaped assessment in this case for A. Y. 201011. Issue Notice u/s. 148 of the I. T. Act. Dated: 24/01/2014 (TANVI S. SAVANT) IncomeTax Officer 7(1)(1), Mumbai. 21) In the light of this factual position, it would not be proper for us to permit the Revenue to take a contrary stand. We 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 determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on the facts and law could reasonably 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 assessment was proposed to be reopened. It is in that regard that this Court has held as under: ..... Having heard Shri Desai, learned senior counsel for the appellant, as well as Shri Bhujale, learned counsel for the respondent, it is an admitted position that the assessee had invested a sum of ₹ 2,50,000 for the purpose of purchasing the flat and what was sought to be investigated was the source of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clear, it is not possible to agree with Mr. Gupta that this Court should not interfere at the threshold. We find additionally that in the affidavit in reply the Revenue has stated that the concept of gift prevails between two individual 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. 26) 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 or which is chargeable to tax and therefore there is any income which has escaped assessment. In other words, the amount of ₹ 1,21,33,429/shown as gift has not been termed as an income and which is chargeable to tax and which has escaped assessment. All that is required from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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