TMI Blog2015 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly the reassessment proceedings stand quashed. - Decided of assessee. - ITA No. 1039/Kol/2011 - - - Dated:- 6-11-2015 - Shri N.V. Vasudevan, Judicial Member, and Shri Shri M. Balaganesh, Accountant Member For The Appellant : Shri D. S Damble, FCA, ld.AR For The Respondent: Shri Debasish Banerjee, JCIT/ ld.DR ORDER SHRI M.BALAGANESH, AM This appeal of the assessee arises out of the order of the learned CIT(A), XIX, Kol in Appeal No. 118/CIT(A)-XIX, ACIT,Circle-32,Kol/10-11 dated 16-05-2011 for the assessment year 2006-07 against the order of assessment framed u/s. 147/143(3) of the Income Tax Act 1961 (hereinafter referred to as the Act ). 2. The assessee had raised a basic ground on assumption of jurisdiction u/s 147 of the Act apart from the merits of the additions made in the assessment. Accordingly, first the issue regarding assumption of jurisdiction is adjudicated herein. The grounds raised by the assessee on assumption of jurisdiction is reframed as under:- Whether, in the facts and circumstances of the case, the action of the Learned AO in reopening the assessment within the meaning of section 147 of the Act when the details of claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AO found that the affidavits were filed by the assessee in the capacity of a director stating that the companies does not have any assets and liabilities and also filed indemnity bonds assuring to indemnify any person for any loss arising out of this exit u/s 560 of the Companies Act, 1956. The Learned AO found that the companies had stated before Registrar of Companies that there were no liabilities in the companies on the date of application for closure. The Learned AO observed as below:- With reference to section 2(47) of the act, it is seen that the case is not one of sale, exchange or relinquishment of the shares held by the assessee. Neither is it a case where the rights of the assessee have been extinguished, since his rights as investor are indemnified by himself, in his capacity of the erstwhile director. In view of the above, I hold that there has been no transfer as such. Consequently, no capital loss is to be computed or allowed. Since the said loss was not claimed to be set off against any other current incomes, the total income is assessed at ₹ 10,20,972/-. This action of the Learned AO was upheld by the Learned CITA. Aggrieved, the assessee is in app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Devesh Metcast Ltd vs JCIT reported in (2011) 338 ITR 130 (Guj) in support of this contention. He further argued that the provisions of section 46(2) of the Act is a deeming provision and hence full effect has to be given to the same. He further argued that the assessee is entitled for capital loss as per section 46(2). As per sec 46(2), the capital gain arising out of extinguishment of capital assets pursuant to liquidation of company shall be chargeable to tax in the hands of the shareholders as company could not be in existence after liquidation. In this regard, he placed reliance on the decision of Gujarat High Court in the case of CIT vs Jaykrishna Harivallabhdas reported in (2000) 112 Taxman 683 (Guj) in support of this contention. 4.2. He further argued that the reopening is bad in law in the facts of the case as even though it is done within 4 years but still all the details were already on record before the Learned AO and hence there is no tangible material with the Learned AO which enables him to form an opinion that income has escaped assessment. It only amounts to revisiting of existing materials already available on record which is not permissible in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef is entertained on an erroneous interpretation of the relevant statutory provisions, the assessee should not be required to face the rigours of reassessment merely because the Assessing Officer entertains an honest belief. Such honest belief should be based upon the material on record and should, in fact, give rise to the belief that income has escaped assessment. In the facts of the present case as discussed hereinabove, no income can be stated to have escaped assessment so as to vest in the Assessing Officer the jurisdiction to reopen the assessment under section 147 of the Act. 20. In the light of the aforesaid discussion, it is not possible to state that any income chargeable to tax has escaped assessment as is sought to be contended on behalf of the respondent-Assessing Officer who has reopened the assessment on the ground that the unabsorbed depreciation for the assessment years 1993-94 to 1996-97 could not be set off against short-term capital gain in the year under consideration. The reopening by the Assessing Officer is based upon an erroneous interpretation of the provisions of subsection (2) of section 32 of the Act, and in fact, as discussed hereinabove, no inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements too have to be assumed to be existing, if the fiction is to be carried to its logical end. Ordinarily, section 45, to consider any transaction to be a transfer of capital asset by any of the modes referred to in section 2(47), apart from the legal fiction created therein, envisages passing of consideration from one hand to another and passing of rights, notwithstanding extinguishment in the hands of the transferor to the transferee, whether in the form of tangible gain or augmentation of the existing rights of others. It was because of this that on liquidation, return of corpus to the shareholders, who were otherwise entitled to the same as a matter of right, was not held to be transfer within the meaning of section 2(47). It was so because on extinguishment of their rights in the shares and on their receiving cash or assets in the place of rights which they held in the shares, no corresponding rights accrued to anyone for that consideration. However, once a legal fiction is created to treat the receipt of money or assets on distribution on liquidation in the hands of a shareholder, it inheres transfer of assets by extinguishment of rights by the recipient of consideration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never he transfers such asset after its receipt by him. The contention that this provision should apply to actual receipt only also could not be accepted for yet another reason, because acceptance of that would lead to an incongruous and anomalous result in that whereas even in a case where a sum is received, however, negligible or insignificant it may be, it would result in the computation of capital gains or loss, as the case may be, but in a case where nothing is disturbed on liquidation of a company, the extinction of rights would result in total loss with no consequence. So, once a conclusion is reached that extinguishment of rights in shares on liquidation of a company is deemed to be transfer for operation of section 46(2), read with section 48, it is reasonable to carry that legal fiction to its logical conclusion to make it applicable in all cases of extinguishment of such rights, whether as a result of some receipt or nil receipt, so as to treat the subjects without discrimination. A shareholder who has incurred total loss in a transaction of sale of shares would be entitled to claim set-off or carry forward as the cased may be , in respect of capital loss suffered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain preconditions and if the concept of change of opinion is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989 , the Assessing Officer has power to reopen, provided there is tangible material to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words reason to believe but also inserted the word opinion in section 147. However, on receipt of representations from the companies against omission of the words reason to believe , the Parliament reintroduced the said expression a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Apex Court held that having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment, do not warrant the initiation of a proceeding u/s 147. c) In CIT, Central I vs M/s Kanoi Industries (P) Ltd in ITA No. 108 of 2012 dated 15.6.2012 rendered by the Jurisdictional Calcutta High Court, it was held that where there was no new material or information which came to the knowledge of the AO to re-initiate proceedings and since he had derived the facts and materials placed by the assessee himself during the original assessment proceedings , that did not constitute new information. When on the same set of facts and materials Assessing Officer takes bonafide decision, it is not open for the subsequent officer to reopen the same just because he does not agree to the decision of the previous officer. In this case the Tribunal has recorded that a mere change of opinion between two officers in reopening the assessment and it is not legally permissible. We, therefore, do not find any infirmity and illegality in the impugned judgement and order dated 12th January 2012 passed by the Learned Tribunal. Since in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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