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2016 (5) TMI 205 - DELHI HIGH COURT

2016 (5) TMI 205 - DELHI HIGH COURT - TMI - Reopening of assessment - purchase of shares - Held that:- The transaction dated 31st March, 2010 relating to transfer of investments in the three companies aggregating to ₹ 41,15,79,320/- was a subject matter of enquiry by the AO. The AO having enquired into the transaction of sale and purchase, and having examined the values at which the transactions had taken place had not raised any further issue with regard to the transactions in question. I .....

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because the transaction itself had been enquired into and the value at which the shares are transferred as well as the nature of those assets in the hands of the Assessee whether held as investments or as stock in trade - were plainly the most important aspects of the transaction. Thus, it must be accepted that the AO, after application of mind, had accepted that the shares in question were acquired by Assessee from M/s Unitech Limited at their cost price and were held as investments by the As .....

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must accept the contention that the impugned notices have been occasioned by a change of opinion. It is trite that a mere change of opinion cannot constitute a reason for re-opening the assessment. Reopening quashed - Decided in favour of assessee - W. P. (C) 12325/2015 & CM No. 32738/2015 - Dated:- 4-5-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr Salil Aggarwal, Mr Prakash Kumar and Mr Madhur For the Respondents : Mr Dileep Shivpuri, Senior Standing counsel with Mr Sanjay .....

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f re-assessment proceedings. 2. The Assessee is a Non Banking Financial Company (NBFC) and is wholly owned subsidiary of Unitech Limited, a widely held public company, which is engaged in, inter alia, the business of construction and development of real estate. 3. The Assessee filed its return of income for AY 2010-11 on 12th October, 2010 declaring an income of ₹ 35,22,210/-. The said return was picked up for scrutiny and, thereafter, an assessment order under Section 143(3) of the Act wa .....

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mber, 2014 under Section 148 of the Act, inter alia, stating that the AO has reason to believe that the Assessee's income chargeable to tax in respect of AY 2010-11 had escaped assessment within the meaning of Section 147 of the Act and proposing to initiate the re-assessment proceedings. By the said notice, the Assessee was called upon to furnish a return of income for AY 2010-11 within a period of 30 days from the date of service of the said notice. 6. The Assessee requested for the reason .....

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Limited had transferred shares in three joint venture companies, namely, Unitech Developers & Projects Limited, Unitech Hi-Tech Structures Limited and Unitech Realty Projects Limited, to the Assessee. The said shares were transferred at the cost price reflected in the books of M/s Unitech Limited, which was significantly lower than the book value of those shares calculated on the basis of the net worth of the said companies. 8. According to the AO, the book value of the shares of the aforesa .....

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book value of the shares and the cost incurred by the assessee to purchase them is income of the assessee u/s 28(iv) of the Income Tax Act, which has escaped assessment . 9. Mr Salil Aggarwal, learned counsel appearing for the Assessee referred to a questionnaire dated 23rd January, 2012 issued by the AO during the course of the assessment proceedings for AY 2010-11, which required the Assessee to furnish several details including: (i) certified copy of the audited Balance Sheet and Profit and L .....

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3 enclosing therewith various documents including copy of Ledger Account of M/s Unitech Limited, which indicated entries pertaining to purchase of the shares in question, as well as a statement indicating the details of the shares purchased. He laid emphasis on the opening words of the said letter dated 20th February, 2013 which indicated that the said letter was in compliance with the AO s demand for additional information. He contended that it was evident that the Assessee had made full disclo .....

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Ltd.: (2012) 348 ITR 485 (SC) in support of his contention that the proceedings for reassessment could not be initiated on the ground of change of opinion. 12. Next, Mr Aggarwal contended that there was no tangible material on the basis of which the AO could reasonably form a belief that the income of the Assessee had escaped assessment. He argued that the sale of shares by Unitech Ltd. at their cost price could not possibly lead to an inference that the income of the Assessee, under Section 28( .....

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or AY 2010-11 and was not in knowledge of the AO at the material time. He contended that, therefore, this information would constitute tangible material for re-opening of the assessment. 14. Mr. Shivpuri further submitted that the letter dated 20th February, 2013 relied upon on behalf of the Assessee, only indicated that the Assessee had disclosed the shares purchased by it and the value at which such purchase had been made. However, the fair value of the said shares was not disclosed and, there .....

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Act. 15. Mr Shivpuri also referred to the decision of the Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.: (2007) 291 ITR 500 (SC) and contended that at the stage of initiation of proceedings, the AO was only required to form a prima facie opinion that the Assessee's income had escaped assessment and the AO was not required to take a final decision at that stage. 16. Next, he referred to the decision of the Supreme Court in Income Tax Officer v. Selected Dalurband Coal Co. P .....

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id material was sufficient or could lead to such opinion, could not be made the subject matter of enquiry by this court. He emphasised that so long as the AO considered the material to be sufficient to form an opinion, the same could not be questioned and all that was required to be looked into was whether there was any nexus between the material discovered and the AO's opinion. He submitted that, in the present case, the AO had felt that the sale of the shares in question below their respec .....

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uly all material facts necessary for his assessment. Consequently, Explanation 1 to Section 147(1) of the Act - which provides that the production before the AO of accounts or other evidence from which material evidence could with due diligence have been discovered by the AO would not necessarily amount to disclosure for the purposes of the proviso to Section 147(1) of the Act - is not relevant for the purposes of this petition. 18. Now, turning to the facts of the present case, it cannot be dis .....

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in the books of the Assessee. A bare perusal of the Ledger Accounts produced by the Assessee indicates that the transaction relating to purchase of the shares in question is reflected in those accounts. It is also apparent that the AO had made enquiries and had called upon the Assessee to furnish further information in response to which the Assessee had filed the letter dated 20th February, 2013. The relevant extract of which is reproduced below:- "In response to your additional requirement .....

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anies to the assessee company as on 30.03.10 & 31.03.10. The detail of such transfers is although reflected in the ledger a/c of Unitech Ltd which is enclosed here-in-above and is further specified as per the detail enclosed herewith. Annex-3 Further to above, it is brought to your kind notice that at the end of the F/y 2009-10, the assessee company became the 100% holding company of Bengal Unitech Universal Townscape Ltd and it is therefore advances of ₹ 39.11 Cr was transferred to th .....

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.2010 30.03.2010 Unitech Amusement Parks Limited 250000000 Unitech Sai Private Limited 138600000 388600000 31.03.2010 Unitech Hitech Structures Limited 308320 Unitech Developers & Projects Limited 11103990 Unitech Realty Private Limited 400167010 411579320 20. It is apparent from the above that the transaction dated 31st March, 2010 relating to transfer of investments in the three companies aggregating to ₹ 41,15,79,320/- was a subject matter of enquiry by the AO. The AO having enquire .....

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is relevant - is not available, it must be presumed that the AO had satisfied himself as to the value of the transaction and also that the same were held as investments by the Assessee. This is so because the transaction itself had been enquired into and the value at which the shares are transferred as well as the nature of those assets in the hands of the Assessee - whether held as investments or as stock in trade - were plainly the most important aspects of the transaction. Thus, it must be ac .....

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ll Bench of this Court observed that there may be cases where the AO may not have raised any written queries but the issue may be so obvious and apparent that it would be contrary and opposed to human conduct to assume that the same had not been considered by the AO. 21. In this view, we are unable to accept that AO had not formed an opinion as to various aspects of the transaction in question, including its value insofar as it is relevant for assessing the Assessee's income. Consequently, w .....

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the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to .....

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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 inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there .....

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ve", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer." 22. The aforesaid view has been reiterated in several decisions thereafter. Thus the impugned notice is liable to be set aside for this reason alone. However, for the sake of completeness, it would be necessary to address the issue, whether the AO had any tangible material for forming a belief that Assessee's income h .....

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TO v. Lakhmani Mewal Das: (1976) 103 ITR 437 (SC), the words used in Section 147 of the Act are 'reason to believe' and not 'reason to suspect'. Clearly, the tangible material available with the AO should be such as to reasonably lead the AO to believe that Assessee's income had escaped assessment. Even though such opinion may be his subjective opinion, nonetheless, it cannot be arbitrary or whimsical and must be one which a person could reasonably form on the basis of some t .....

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he must - on the basis of material in his possession - reasonably form a belief that the Assessee's income had escaped assessment. 24. In Lakhmani Mewal Das (supra), the Court had explained that the material available with the AO must have a live link with formation of belief that the Assessee's income had escaped assessment. 25. Applying the aforesaid principles, in the facts of the present case, it is difficult to accept that the sale of shares by Unitech Limited at its cost price whi .....

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Assessee could lead to an inference that the Assessee had earned income under Section 28(iv) of the Act - value of any benefit or perquisite arising from business or profession - chargeable under the head profits and gains of business or profession. 26. The reliance placed by Mr Shivpuri on the decision of the Supreme Court in Selected Dalurband Coal Co. P. Ltd. (supra) is also misplaced. In that case, the AO was in the possession of a letter of the Chief Mining Officer which indicated that a jo .....

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