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2016 (5) TMI 1154 - DELHI HIGH COURT

2016 (5) TMI 1154 - DELHI HIGH COURT - [2016] 385 ITR 452 - Reopening of assessment - sale price of the shares - certain shares were held by the Assessee for a period less than 12 months - Held that:- The queries raised by the AO and the submissions made by the Assessee in response thereto amply bear out that the AO had examined the WSSPA, the revised WSSPA and the letter dated 27th December 2006 issued by SEBI to revise the public offer price for PLL shares from ₹ 152 per share to ₹ .....

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as enclosed with the Assessee's letter dated 12th August, 2009. This statement clearly discloses various dates on which subject shares were acquired by the Assessee. This indicates that certain shares had been acquired by the Assessee by way of a gift. Undisputedly, for the purposes of considering whether the same were long-term capital assets or not, the date on which the donor acquired the shares is relevant and not the date on which the Assessee aquired the shares in question. In any view of .....

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cided in favour of assessee. - W.P.(C) 1962/201 3 & CM No. 3741/2013 AND W.P.(C) 2015/2013 & CM No. 3834/2013 - Dated:- 16-5-2016 - S.MURALIDHAR & VIBHU BAKHRU JJ. For the Appellant: Mr Salil Aggarwal and Mr Ashish Kumar, Advocates. For the Respondent: Mr Zoheb Hossain, Senior Standing Counsel and Mr Deepak Anand, Junior Standing Counsel. O R D E R VIBHU BAKHRU, J 1. The Petitioners have filed these petitions assailing separate notices .....

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listed company engaged in the business of manufacturing, selling and marketing of automotive lamps, compact fluorescent lamps and other general lighting lamps. The Petitioners sold their shares in PLL in terms of a warrant subscription and share purchase agreement and the gains therefrom were assessed to tax under the Act as Capital Gains. According to the Revenue, part of the consideration received by the Petitioner - ₹ 38 per share - is non-compete fee and is assessable as business incom .....

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ble material which would provide him a reason to believe that their respective incomes for AY 2007- 08 have escaped assessment. 4. Since the material facts and the controversy involved in these two petitions are similar, the same were heard together. For the sake of brevity, the facts relating to W.P. (C) 1962/2013 are noticed hereunder. 4.1 The Petitioner, Smt. Priya Desh Gupta (hereafter 'the Assessee') held 14.68% of the paid-up equity capital of PLL at the mater .....

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ixed at ₹ 152 per share. In addition, the shareholders were also entitled to a consideration of ₹ 38 per share as noncompete fee. Since the PLL is a public listed company and the shareholding sought to be acquired by the Acquirers was in excess of the specified limit, the Acquirers were obliged to make an open offer in terms of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In terms of the aforesaid Regulations, the Acquirers furnished a draft Letter of .....

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fter 'the revised WSSPA') whereby the sale price for each share of PLL payable to the Assessee and other promoter shareholders, was revised to ₹ 190 per share; the non-compete fee of ₹ 38 per share was deleted but the covenant not to compete was retained in the revised WSSPA. 4.4 The Assessee filed her return of income for AY 2007-08 on 31st October, 2007 declaring an income of ₹ 65,75,85,234/-. In the said return, the Assessee declared long term capital gain .....

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along with Computation of Income and Audit Report for financial year 2006-07. 5. The AO examined the documents furnished by the Assessee and during the course of assessment proceedings, also called upon the Assessee to furnish further information and documents. In response to the queries raised by the AO during the assessment proceedings, the Assessee furnished further information and documents under the cover of letters dated 20th July, 2009, 12th August, 2009 and 31st August, 2009. .....

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ities Transaction Tax (STT) had not been paid in respect of sale of shares resulting in short-term capital gains to the extent of ₹ 45,51,121/- out of the declared short-term capital gains of ₹ 46,68,008/-. He, accordingly, passed an assessment order taxing the aforesaid short-term capital gains of ₹ 45,51,121/- at 30% instead of 10% as claimed by the Assessee. 7. The Assessee received a notice dated 28th March, 2012 issued under Section 148 of the Act for AY 2007-08 .....

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that as per the WSSPA dated 3rd July, 2006, the consideration payable to the Assessee for her shares of PLL was agreed at ₹ 152 per share and in addition ₹ 38 per share was to be paid as non-compete fee. The reasons further noted that during the course of assessment proceedings, the Assessee had produced the original WSSPA as well as the Letter of Offer issued by the Acquirers for acquiring a minimum of 20% of the public shareholding at the rate of ₹ 190 per share in accordanc .....

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he SEBI advisory. Although, the revised WSSPA retained the non-compete clauses, no consideration was ascribed to such provisions. 8.1 The AO concluded that since the revised WSSPA did not ascribe any consideration for the non-compete covenants, it was not a valid contract and was void. He proceeded to refer to provisions of the Indian Contract Act, 1872 and various decisions rendered by the Courts wherein it was held that agreements without consideration are void. 8.2 He, t .....

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6 and 1,200 shares were acquired by the Assessee up to 19th May, 2006 . He held that since the WSSPA was entered into on 3rd July, 2006, these shares were held for a period less than 12 months and, therefore, qualified as short-term capital assets; but, the Assessee had misled the Department into believing that all shares were held by her for more than 12 months by submitting letters claiming that the subject shares were held for more than 12 months. Reasoning and Conclusions

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re-assessment, apparently, pursuant to a letter sent by CIT(A) X who had opined that the revised WSSPA was void and the consideration of ₹ 38 per share should be attributed to non-compete clauses. This, clearly, is a matter of opinion - and a highly contested one at that - regarding agreements in question, namely WSSPA and the revised WSSPA, which were duly considered by the AO at the time of initial assessment. 10. It is also relevant to note that in the case of another promote .....

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l Gupta for AY 2007-08 was erroneous as prejudicial to the interest of the Revenue. He, accordingly, made an order under Section 263 of the Act dated 15th March, 2010 modifying the assessment order and directing the AO to treat a sum of ₹ 17,72,17,484/- as business income under Section 28(va) of the Act. The Assessee in that case, Hulas Rahul Gupta, preferred an appeal before the Income Tax Appellate Tribunal (being ITA No. 1577/Del/2010) assailing the order dated 15th March, 2010 passed u .....

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Assessee, on the other hand, contended that there was no justification for segregating the consideration paid in terms of the revised WSSPA. The Assessee further pointed out that more than 20% of the shares of PLL were acquired by the Acquirers from public at a price of ₹ 190 per share and thus, there was no reason to hold that the sale price of shares in the case of the Assessee was lower. It was further pointed out by the Assessee that there was no grievance that the AO had not examined .....

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e revised WSSPA was void as per Sections 10, 25 and 27 of the Indian Contract Act, 1872. It held that the parties were competent to enter into a contract, and fix the price for the subject shares. The Tribunal further noted that it was not the Revenue's case that the shares were sold at a price lower than that available in the market and held that the Revenue did not have the power to hold that the shares were sold by charging a non-compete fee where the revised WSSPA did not reflect so. The .....

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ed by the AO in the present case is identically worded, in certain material parts, as the written submissions filed on behalf of the Revenue before the Tribunal in the case of Hulas Rahul Gupta. The AO issued the impugned notice after the Revenue had failed in persuading the Income Tax Appellate Tribunal to accept their submissions; the impugned notice dated 28th March, 2012 was issued five days after the pronouncement of the decision by the Income Tax Appellate Tribunal in the aforementioned ca .....

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on and had made the assessment accordingly. 13. Insofar as the allegations that certain shares were held by the Assessee for a period less than 12 months is concerned, the same is disputed by the Assessee. During the course of proceedings, Mr Salil Aggarwal, learned counsel for the Assessee has handed over a statement of shareholding as enclosed with the Assessee's letter dated 12th August, 2009. This statement clearly discloses various dates on which subject shares were acquired .....

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AO in response to the queries raised by him. Thus, it cannot be accepted that the AO did not consider the same while making the assessment order. Thus, it is apparent that the present case is one where the issuance of the impugned notice is occasioned by a change of opinion, which given the scope of Section 147-148 of the Act, is impermissible. 14. In this context, it is relevant to refer to the decision of a Full Bench of this Court in CIT v. Usha International Ltd.: (2012) 348 ITR .....

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be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 15. Following the aforesaid decision, a Division Bench of this Court in Maruti Suzuki India Limited v. Deputy Commissioner Of Income Tax: [2013] 356 ITR 209 (Delhi) had explained that in cases where no query is raised, it must be held that the Assessing Officer had examined the subject matter even though there may not be any discussion in the assessment .....

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cases would have to be examined individually. It is, therefore, clear that even where no query is raised by the assessing officer and there is no discussion in the assessment order, it may yet be a case where the assessing officer would be considered to have examined the issue. However, we are not concerned with those type of cases inasmuch as in the present case the assessing officer had clearly raised a specific query with regard to bad debts/advances written off and the petitioner/assessee ha .....

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g of the assessment which had been concluded on 13.03.2006, would be nothing but a mere change of opinion. 16. A similar view was expressed by the Supreme Court in CIT v. Kelvinator of India Ltd.: [2010] 320 ITR 561 (SC), wherein it authoritatively held that a mere change of opinion cannot be a reason to reopen assessments. The relevant extract from the said decision is as under:- 6. On going through the changes, quoted above, made to section 147 of the Act, we find that, .....

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erefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of " mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has n .....

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-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act.

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was not open for his successor to re-open the assessment at a later point of time. The relevant extract of the said decision reads as under:- The facts stated above clearly disclose that the Income-tax Officer allowed the change in the method of accounting for the assessment years concerned herein knowingly. It was not a case of an inadvertent mistake which was discovered later on after completion of the assessment or oversight. Once it is found that the change in the method of accou .....

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ection 147. We find none. Indeed, this appears to be a case of mere change of opinion. The principles enunciated in Kalyanji Mavji's case [1976] 102 ITR 287 (SC) cannot save the impugned action of the Income-tax Officer. 18. Mr Zoheb Hossain, the learned counsel appearing for the Revenue contended that the Petitioners had failed to fully and truly disclose the relevant material. In our view, the said contention is not relevant as the impugned notice was issued within a period of .....

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t the aforesaid Regulations were framed pursuant to suggestions made by Justice Bhagwati Committee for protection of minority shareholders. He contended that the price of ₹ 190 per share was fixed by SEBI taking into account the noncompete fee. Be that as it may, in our view the aforesaid contentions are not relevant as the issue at hand is not whether the assessment made by AO was erroneous or not. The only question to be considered is whether the AO had formed an opinion on the basis of .....

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W.P.(C) 2015/2013 are also similar. In that case the Petitioner, Abha Gupta held 2.35% of the shareholding of PLL at the material time. She too had entered into the agreements alongwith other promoter shareholders - WSSPA and revised WSSPA - for sale of her shareholding in PLL to the Acquirers. She filed her return of income for AY 2007-08 declaring income of ₹ 10,63,49,534/-. As in the case of Priya Desh Gupta above, her return was also picked up for scrutiny and she also provided all rel .....

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