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2016 (12) TMI 118 - BOMBAY HIGH COURT

2016 (12) TMI 118 - BOMBAY HIGH COURT - TMI - Validity of reopening of assessment - Held tat:- There is no justification in issuing the impugned notice and the power of issuance of such notice would not arise by virtue of Section 150(1) read with Explanation 2 of Section 153 of the Act. In the circumstances, we find that the petitioner is entitled to the relief claimed in the petition. - Decided in favour of assessee - WRIT PETITION NO. 327 OF 2004 - Dated:- 21-11-2016 - M. S. SANKLECHA & A. .....

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l material times with its principal place of business at 95, Queen's Road, Mumbai and with three other branches at one each at Juhu(Mumbai), Pune and Ahmedabad. With effect from 31st March, 1990 two partners of the petitioner firm retired. By a deed of retirement dated 25th May, 1990 the two retiring partners were allotted the branch at Ahmedabad with all its assets and liabilities at book value as their share in the business and as more particularly set out in the petition. During the cours .....

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he provisions of Section 45(4) of the Act ought not to be applied on the footing that the allotment of the said branch amounted to distribution of a capital asset by way of transfer thereof. 3. In the instant case the firm having been reconstituted, continued to carry on business at the two establishments in Mumbai and one at Pune. The firm furnished its written submissions and inter alia contended that the Ahmedabad branch along with its assets and liabilities having been allotted to retiring p .....

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ssing Officer however made an addition by way of capital gain in a sum of ₹ 52,27,282/- consisting of ₹ 37,27,282/- towards transfer of capital assets and a sum of ₹ 15,00,000/- towards transfer of goodwill. 4. Being aggrieved by the order of the Assessing Officer, an appeal was preferred before the Commissioner of Income Tax (Appeals) [CIT (A)], who vide order dated 26th October, 1995 upheld the Assessing Officer's order. Being aggrieved by the order of the CIT (A), the fi .....

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of the Act. In effect, the Tribunal held that upon retirement of partners and allotment of the Ahmedabad branch, there was no transfer within the aforesaid definition of Section 2(47) of the Act and therefore the addition of capital gain of ₹ 52,27,282/- was directed to be deleted. 5. In the course of passing the order the tribunal in paragraph 8 of the order observed as follows : 8. …. …. Even otherwise, it is a settled law that if while interpreting a provision two views a .....

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usiness hours on 31.3.1990 closed at 8 pm on 31.3.1990 i.e. during the financial year 1989-90 relevant to assessment year 1990- 91. Therefore, the issue of capital gains, if any, on retirement of partners from the firm would not arise in the year under appeal i.e. assessment year 1991-92. In view of above, we find no justification to sustain the addition of ₹ 52,27,282/- made by the A.O. as capital gains in the year under consideration. The same is deleted. (Emphasis supplied) 6. In view o .....

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of appellate proceedings before ITAT, Mumbai in respect of assessee's appeal on the said case, the ITAT has held that the issue of capital gain, if any, on retirement of partner from the firm would not arise in the year under appeal i.e. A.Y. 1991-92 because the retail shops are normally closed around 8 O'clock. Thus, the business hour on 31/3/1990 was closed at 8.00 p.m. i.e. during the F.Y. 1989-90 relevant to A.Y. 1990-91. Therefore, addition of ₹ 52,27,282/- is to be made in A. .....

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1990 would have ended at 8 pm viz. the date on which the aforesaid two partners retired, the addition of ₹ 52,27,282/- is not to be made in the assessment year 1991-92. Although in the reasons provided to the assessee, it was stated that necessary approval was for issuance of the notice had been solicited, this aspect is not now relevant since in an affidavit in reply the approval is stated to have been accorded on 18th July, 2003 i.e. prior to issuance of notice dated 21st July, 2003. 8. .....

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1st July, 2003. 9. Mr. Jhaveri further pointed out that under Section 149 of the Act notice under Section 148 could not be issued beyond the period of 7 years (at the relevant time) from the end of the relevant assessment year even if the income escaping assessment exceeds ₹ 1 lakh. In the present case the notice was beyond time by 8 years and 4 months from the end of the normal period of four years. He invited our attention to Section 150(1). Mr. Jhaveri submitted that in order to give an .....

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by way of appeal, reference or revision. It is the case of the petitioner that in the instant case the order of the Tribunal does not contain any 'finding' or 'direction' as contemplated in Section 150(1). 10. Inviting our attention to the order of the Tribunal Mr. Jhaveri referred to paragraph 8 wherein the Tribunal had arrived at a finding that there was no transfer, in the instant case, pertaining to the allotment of the branch at Ahmedabad to the retiring partners. The Tribun .....

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e Assessment Year 1990-91, the business of the petitioner firm would have come to a close at 8 pm. on 31st March, 1990 and therefore issue of any capital gain accruing on retirement of partners would not arise in the year under appeal which was AY 1991-92. The Tribunal was of the view that there was no justification to sustain the addition of ₹ 52,27,282/- by the Assessing Officer as capital gain in the year under consideration. The addition therefore came to be deleted. 11. During the cou .....

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y find that the income belongs to another year but that is not a finding 'necessary' for the disposal of the appeal at hand. Similarly it was further observed that the expression direction can only be construed by the appellate authority or revisional authority given under Section mentioned therein. 12. On the other hand, Mr. Suresh Kumar appearing for the Revenue in support of the notice contended that the aforesaid observation of the Tribunal in paragraph 8 amounted to a finding within .....

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sel, we had enquired of Mr. Suresh Kumar as to whether the sanction which had been sought and as contemplated in the reasons had in fact be obtained. Mr. Suresh Kumar had at that stage filed an additional affidavit dated 23rd August, 2016 of one Neerja Sharma annexing thereto a copy of the sanction dated 18th July, 2003. Perusal of the sanction reveals that on 18th July, 2003 satisfaction was recorded by the Commissioner of Income Tax in the following words:- Yes I am satisfied in view of the pr .....

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be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. The aforesaid explanation clarifies that where an order referred to in clause (ii) of sub-section (3) results in exclusion of income from the total income of the assessee for an assessment year, then assessment of such income for another assessment year would be deemed to have been made in consequence of, or to give effect to any finding or direction contained in the said order. .....

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ssessment year 1990-91 based on the aforesaid observation of the Tribunal in paragraph 8. This is the basis of the notice being issued. In our view, the observation in paragraph 8 adverted to above is neither finding nor a direction which would have justified in issuance of the impugned notice. 16. In the facts of that case the Commissioner of Income Tax had observed that the Assessing Officer was free to look into and consider the disallowance under Section 148 of the Act for the relevant asses .....

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proceedings. In the present case as well we find that the basis for issuing the notice is the understanding of the Revenue that by virtue of Section 150(1) read with Explanation 2 of Section 153 of the Act it would entitle them to reopen the assessment even though it would appear to be beyond time by about 8 years and 4 months. 17. We are not persuaded by the submissions of the Revenue inasmuch as the facts of the case in Murlidhar Bhagwan Das (supra) are very akin in the facts of the present ca .....

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venue had filed Income Tax Appeal bearing (L) No.552 of 2003 pursuant to the order passed by the Tribunal on 7.6.2001. However, said appeal stood rejected on account of this Court having declined to condone delay of 302 days in filing that appeal. Mr. Jhaveri relied upon a copy of the said Income Tax Appeal (L) No.552 of 2003 and the order dated 26th February, 2007 passed by this Court in Notice of Motion No.1635 of 2003 in Income Tax Appeal (L) No.552 of 2003 declining to condone the delay. Eve .....

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, is not applicable . 19. Although the appeal is disposed of not on merit, we find no substance in reliance placed by the respondent's revenue upon so called finding of the revenue. The finding of the Tribunal is that there was no transfer. This finding is one which was required for the disposal of the Appeal the Tribunal was seized of. The observation that income may have accrued during another year was not a finding required for disposal of the appeal and hence it falls beyond the scope of .....

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