TMI Blog2001 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... nancing and trading in shares, has challenged the notice dated May 28, 2001 (annexure A), issued by the Additional Commissioner of Income-tax, Special Range-1, Surat, under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), stating that the said officer had reason to believe that the income chargeable to tax for the assessment year 1994-95 has escaped assessment within the meaning of section 147 of the Act and, therefore, the petitioner has been called upon to file a return of the petitioner's income for the said assessment year. The notice further states that the same has been issued after obtaining necessary satisfaction of the Commissioner of Income-tax, Surat. On November 30, 1994, the petitioner filed its return of income for the accounting year April 1, 1993 to March 31, 1994, particularly in the following terms (annexure B to the petition) -------------------------------------------------------------------------------- Income from business : Net profit as per profit and loss account Rs. 1,55,30,579 Net income from business Rs. 1,47,10,414 Short-term capital gain/(loss) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts showed the computation of the long-term capital loss of Rs. 1,41,47,576. All the above documents clearly show that the cost of acquisition in the hands of the amalgamating company was very much shown but the petitioner adopted as its cost price, the market rate of Rs. 91.25 per share of Garden Silk Mills Ltd. prevailing on the Bombay Stock Exchange as on March 31, 1988. The Assessing Officer also made full inquiry on the point of capital loss of Rs. 1,41,47,576 since he was conducting a scrutiny assessment. The Assessing Officer passed the assessment order dated September 23, 1997, computing total loss of Rs. 1,43,79,170. The petitioner has challenged the impugned notice under section 148 on the ground that the notice is issued beyond a period of four years; such a notice can be issued beyond a period of four years only if the petitioner had failed to disclose fully and truly all material facts necessary for its assessment while filing the return for the relevant year, i.e., assessment year 1994-95. The petitioner has contended that the regular assessment for the said assessment year was made under section 143(3) of the Act, after calling for and scrutinising all the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of the capital gain. Instead, the petitioner has taken the market rate prevailing on the date of amalgamation as the cost of acquisition of the shares which is contrary to the provisions of sections 49(2) of the Act. Nowhere in the chart (annexure D to the petition) was it mentioned that the original shares were acquired in the financial year 1987-88. Thus, the cost of shares and the year of acquisition was not worked out by the petitioner as per the provisions of sections 47(vii) and 49(2) of the Act. The Additional Commissioner of Income-tax (Assessment), Special Range 1, Surat, then concluded the reasons as under: "In the assessment finalised under section 143(3) of the Act, the capital loss on sale of such shares was claimed at Rs. 1,41,47,543 and the same was allowed on account of failure on the part of the assessee to furnish full and true details, resulting into escapement of income. Therefore, I have reason to believe that income to the above extent has escaped assessment within the meaning of section 147 read with section 148 on account of failure on the part of the assessee to furnish true and complete details. Accordingly, notice under section 148 read w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apex court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191; AIR 1961 SC 372. On the other hand, Mr. Mihir Joshi, learned counsel for the Revenue, has vehemently opposed the petition and submitted that in exercise of writ jurisdiction under article 226 of the Constitution, a writ of certiorari or a writ of prohibition is to be issued only in fit cases. The assessee had deliberately supplied erroneous computation of capital loss and had inflated the extent of capital loss from Rs. 5,62,972 to Rs. 1,43,79,170. The assessee had never disclosed that the shares in question, i.e., 3,75,150 shares of Vareli Textiles, were purchased by the assessee on April 6, 1987. Instead the assessee had shown the date of acquisition of shares as 1989-90. Merely by stating in exhibit D that the original cost of acquisition of shares of the amalgamating company was Rs. 75,40,515 and that the cost of 1,87,575 new shares of Garden Silk (in exchange for its holding of 3,75,150 shares of Vareli Textiles) was taken at the market rate of Rs. 91.25 per share of Garden Silk prevailing at the Bombay Stock Exchange on March 31, 1988, the assessee did not disclose fully and correctly all the material facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm capital asset, the aforesaid provision about the cost of acquisition of the asset shall mean the indexed cost of acquisition which means an amount which bears to the cost of acquisition the same proportion as the Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index. Section 49(2) reads as under: "49. (2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company." The Revenue has pointed out that for computing the cost of acquisition of the shares in question, the assessee was required to compute the cost of acquisition of 3,75,150 shares in Vareli Textiles Industries Ltd. (amalgamating company) which the assessee purchased on April 6, 1987, from Kashah Investments Ltd., its group company, for Rs. 75,40,515. On that basis, the indexed cost of acquisition worked out to 75,40,515 x 244/172 = Rs. 1,06,97,010. Upon subsequent amalgamation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 25,92,883 ------------------------------------------------------------------------- In the aforesaid manner, the assessee's capital loss was inflated by Rs. 1,35,84,574 (i.e., Rs. 1,41,47,546 less Rs. 5,62,972) and the assessee adjusted the said long-term capital loss (Rs. 1,41,47,546) against the net profit of Rs. 1,55,30,529 (Rs. 1.55 crores approximately) and with another capital loss Of Rs. 5,43,422, the assessee's tax liability was reduced to nil. The court, therefore, finds considerable substance in the submission made by learned counsel for the Revenue that when the assessee misled the Revenue so brazenly by relying on the market price of the shares of the amalgamated company (Garden Silk) as on March 31, 1988, the assessee cannot be permitted to take advantage of its own wrong and that too by invoking the discretionary jurisdiction of this court under article 226 of the Constitution. An attempt is, however, made by learned counsel for the assessee that in another statement at exhibit D which was also produced before the Assessing Officer, the assessee had mentioned that the original cost of acquisition of shares of amalgamating company was Rs. 75,10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act for taking another view. A perusal of the provisions of section 49(2) are too crystal clear to admit of any doubt. No Assessing Officer acting honestly and bona fide would have ever assessed the capital loss suffered by the petitioner on the basis of the market price of the shares in the amalgamated company (Garden Silk) as on March 31, 1988--the basis for computation of capital loss all along adopted by the petitioner. We are unable to accept the contention urged on behalf of the assessee that whatever may be the reasons which might have weighed with the Assessing Officer in accepting the computation made by the petitioner for computing the capital loss at Rs. 1.07 crores (approx.) as against Rs. 5.6 lakhs (approx.) which is the capital loss proposed to be assessed by the respondent in the impugned notice under section 148 of the Act, this court must interfere with the impugned notice under section 148 of the Act only on the ground that in one of the statements sent by the petitioner to the Assessing Officer during the scrutiny assessment under section 143(3) of the Act, the assessee had indicated that the shares in the amalgamating company were acquired at a cost of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtraordinary prerogative and discretionary writ jurisdiction under article 226 of the Constitution this court would be loath to interfere with the impugned notice under section 148 of the Act when the assessee had all along adopted the market price of the shares of the amalgamated company (Garden Silk) for working out the capital loss at Rs. 1.07 crores (approx.), as against the capital loss which could have been worked out at only Rs. 5.6 lakhs (approx.) on the basis of the cost of acquisition of shares in the amalgamating company (Vareli Textiles) as on April 6, 1987 (which date was not disclosed earlier), as per the provisions of section 49(2) of the Act, which computation made by the assessee could never have been accepted by any officer acting bona fide. We are of the view that from the material presently available on record with the respondent, the respondent could form a belief that by not disclosing April 6, 1987, as the date of acquisition of 3,75,150 shares in Vareli Textiles (amalgamating company) and by showing 1989-90 as the year of acquisition of the said shareholding in question, the petitioner had failed to make a true and full disclosure of all material facts nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation. His omission to bring to the assessing authority's attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount 'omission to disclose fully and truly all material facts necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed." As already stated hereinabove, there is nothing on record to show that the assessee had indicated that the shares in the amalgamating company were acquired by the petitioner on April 6, 1987. On the contrary, an attempt was made to show that the petitioner has acquired the shares in question in the year 1989-90, i.e., after the date of amalgamation of the Vareli Textiles (the amalgamating company) into the Garden Silks (the -amalgamated company) Therefore, there was omission to disclose fully and truly all material facts necessary for the assessment as pointed out in paragraphs 8 to 11 herein above. We would also like to refer to the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gains" is a loss and the assessee has income assessable under any other head of income, the assessee is not entitled to set off such loss against income from any other head. Section 74 of the Act provides for treatment of losses under the head "Capital gains". In the present case, neither side has placed on record as to whether the long-term capital loss computed for the assessment year 1994-95 has been set off or not in any of the subsequent years, because carry forward of such loss is permissible only for a period of eight years as provided in section 74(2) of the Act. As can be seen from the reasons recorded, the respondent does not dispute that the petitioner-assessee has given complete details for the purpose of working out the long-term capital loss and the basis adopted by the petitioner in taking Rs. 91.25 per share as the cost of acquisition. But there is a catch. The relevant extract from the reasons recorded reads as under: "It is seen from the statement of capital gain that the assessee has shown a loss of Rs. 1,41,47,576 on account of sale of 1,87,575 shares of 'Garden Silk Mills Limited' for Rs. 1,01,34,038. It is seen that the assessees has adopted the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,42,81,584." The proviso to section 147 of the Act: "Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year." Therefore, as can be seen the proviso can be worked when a completed assessment is sought to be reopened after the expiry of four years from the end of the relevant assessment year, provided any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The concept of "by reason of failure" has to be understood in the context of the fact that the proviso is an exception to the main section. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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