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2016 (1) TMI 946 - GUJARAT HIGH COURT

2016 (1) TMI 946 - GUJARAT HIGH COURT - TMI - Reopening of assessment - capital gain addition - Held that:- Under sub-clause (iii) of section 47 of the Act, therefore, nothing would apply to any transfer of capital assets under a gift or will or irrevocable trust. It is not the case of the Assessing Officer that the present case is not one of transfer of asset under a gift. In terms of sub-clause (iii) of section 47 of the Act, thus such transfer would not be governed by section 45 of the Act. F .....

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s, the case on hand would be governed by the main body of sub-clause (iii) of section 47 of the Act and consequently, the provision of section 45 of the Act pertaining to capital gain would not apply.

Also proviso to section 48 would not apply in the case on hand. Firstly section 48 of the Act itself provides for mode of computation of income chargeable as capital gain. Sub-clause (iii) of section 47 of the Act excludes application of section 45 of the Act in case of certain transfers .....

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subclause (iii) of section 47 of the Act, and therefore, mode of computation provided under section 48 of the Act would simply not apply. Thus The reasons recorded by the Assessing Officer to form belief that the income chargeable to tax had escaped assessment lack validity. - Decided in favour of assessee - SPECIAL CIVIL APPLICATION NO. 20492 of 2015 - Dated:- 18-1-2016 - MR. AKIL KURESHI AND MR. MOHINDER PAL, JJ. FOR THE PETITIONER : Mr.S.N. SOPARKAR, SENIOR ADVOCATE WITH Mr.B.S. SOPARKAR, ADV .....

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declaring loss of ₹ 2.69 lacs (rounded off). Such return was accepted without scrutiny. Thus, no scrutiny assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' for short) came to be framed in that case. 3. The Assessing Officer, in order to re-open such assessment, issued the impugned notice dated 24.02.2015 at the request of the petitioner. He also supplied reasons recoded by him for issuing notice. Such reasons read read as under: .. .. It is seen that the assess .....

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notice of re-opening. However, such objections were rejected by the Assessing Officer by order dated 07.10.2015. Hence the petition. 5. Inviting our attention to the reasons recorded by the Assessing Officer counsel for the petitioner submitted that the reasons lack validity. On the basis of such reasons the Assessing Officer could not have formed a belief that the income chargeable to tax had escaped assessment. He submitted that the petitionercompany had transferred total of 4,82,410 shares t .....

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M. Mehta for the Department opposed the petition contending that return of the assessee was accepted under section 143(1) of the Act without scrutiny. There was no opinion formed by the Assessing Officer on the tax liability of the income in question as held by the Supreme Court in case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd., reported in 291 ITR 500 (SC). It is not necessary at this stage for the Assessing Officer to establish conclusively that the incom .....

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tant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) reversed the judgment of the High Court, by which the High Court had allowed the writ petition, in which the assessee had challenged validity of the notice for re-opening of an assessment which was originally accepted under section 143(1) of the Act. 6.1 Counsel drew our attention to the reasons recorded by the Assessing Officer to contend that 5,30,410 shares of the assesseecompany which were transferred without an .....

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essment would be much wider compared to the case where scrutiny assessment has been framed. This would be so since there would be no opinion formed by the Assessing Officer while accepting return under section 143(1) of the Act without scrutiny. Consequently, therefore, the question of change of opinion would not arise. This is in sum and substance held by the Supreme Cort in the case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. (supra). It is on this ground t .....

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ve. Of course, this formation of belief by the Assessing Officer must be prima facie and at the stage when the Court is testing validity of such a notice; it would not be necessary for the Assessing Officer to conclusively establish that the income chargeable to tax had escaped assessment. 8. In the case of Inductotherm (India) P. Ltd. Vs. M. Gopalan, Deputy Commissioner of Income Tax (supra) Division Bench of this Court, in the context of reopening of assessment which was framed without scrutin .....

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ompute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped .....

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sh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer. 17. If we accept such proposition, the petitioner's apprehension that the Assessing Officer would arbitrarily exercise powers under section 147 of the Act to circumvent the scrutiny proceedings which could not be framed in view of notice under section 143(2) having become time barred, would be taken care of. To reiterate, even f .....

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tion whose market value on the date of transfer was ₹ 7.63 crores (rounded off). This transfer had taken place in favour of M/s Nerka Chemicals Pvt Ltd without consideration under transfer deed dated 26.02.2010. In view of such facts, the Assessing Officer has reason to believe that the income chargeable to tax in excess of ₹ 1,00,000/- had escaped assessment. 10. For multiple reasons we are convinced that these reasons lack validity. The first and foremost, reasons themselves record .....

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ransaction in question did not invite any tax liability on the petitioner. Section 45 of the Act, as is well known, pertains to capital gains. Subsection (1) thereof in particular provides for charging of tax on any profit or gain from transfer of capital assets as deemed income of the assessee for the previous year in which transfer took place. Section 47 of the Act pertains to transaction not regarded as transfer. Subclause (iii), which is relevant for our purpose reads as under: 47. Nothing c .....

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guidelines issued by the Central Government in this behalf. Under sub-clause (iii) of section 47 of the Act, therefore, nothing would apply to any transfer of capital assets under a gift or will or irrevocable trust. It is not the case of the Assessing Officer that the present case is not one of transfer of asset under a gift. In terms of sub-clause (iii) of section 47 of the Act, thus such transfer would not be governed by section 45 of the Act. For apparent reasons, the proviso to subsection ( .....

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main body of sub-clause (iii) of section 47 of the Act and consequently, the provision of section 45 of the Act pertaining to capital gain would not apply. 12. An attempt was made by the Assessing Officer to apply further to proviso to section 48 of the Act. Section 48 of the Act pertains to mode of computation. It essentially provides that the income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result .....

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