TMI Blog2020 (2) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said Clause in the agreement was to be taxed under Section 28 (va) of the Income Tax Act, 1961, the respondent ought to have issued a notice within 4 years from the relevant date under Section 148 r/w. Section 147 of the Income Tax Act, 1961. After notice dated 31.03.2016 was issued after invoking the jurisdiction under Section 148 read with proviso to Section 147 of the Income Tax Act, 1961, on 08.12.2016, the petitioner was asked to explain the profit arising from the agreement and why it should be treated as business profit and not as Long Term Capital Gain as shown by the petitioner. The petitioner replied to the same on 14.12.2016. From a over all reading of the facts, it is clear that the respondent has sought to re-surrect a stale issue which had already been examined during the course of regular assessment pursuant to which assessment order was passed on 21.12.2011 but was also a subject matter of discussion pursuant to letter dated 05.02.2014 of the respondent. The last date of the assessment year 2009-10 was 31.03.2010. Therefore, the respondent was entitled to issue such a notice under Section 148 on or before 31.03.2014 i.e within 4 years for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.The petitioner had entered into agreement dated 01.04.2006 with Trent Ltd and its affiliates for sale of her shares in Landmark Ltd. In the agreement the non-compete clause reads as under:- 10.Non-competition restrictions: 10.1.4: Save for those business which is carried on by the Shareholder as at the date of this agreement, at any time hereafter and until the expiration of one year from the date it ceases to be beneficially interested in any Shares, either alone or jointly with any other person through or as manager, adviser, agent, consultant, employee or agent for or shareholder in any person, firm or company directly or indirectly carry on or be engaged or concerned or interested in the provision of retailing of books, magazines, stationary items. 3.The petitioner sold 1/25th share in Landmark and its Associates Companies to Trent Ltd and affiliates for ₹ 5,76,00,000 in the Assessment year 2006-07 (30.08.2015 10.03.2006). On 30.04.2008, the petitioner entered into an another agreement with Trent Ltd and its affiliates for sale of 21% stake in the Land Mark Group Companies. The said agreement contained non-compete clause which reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of Income Tax Act on 21.12.2011 specifying a sum of ₹ 3020/- as payable for the assessment year 2009-10. A petition was filed under Section 154 of the Income Tax Act, 1961 for rectification of mistake on 29.12.2011 before the respondent stating that TDS on interest receipts amounting to ₹ 2,132 has not been allowed. 10.The Assessing Officer wrote a letter to the petitioner on 05.02.2014 and asked for clarification on the sale of shares. In the letter, the respondent has stated as under:- Since the shares were alloted on non competitor restriction, the gain on sale of the same requires to be reconsidered as business income u/s 28(va). Hence the long term capital gains of ₹ 37,91,81,581/- requires to be taxed as business profit of the assessee. In this connection you are required to submit a clarification for the same. 11.Pursuant to the above letter, the Charted Accountant of the petitioner appeared and has explained the transaction of sale of shares stating that the consideration received for the transfer of shares was not remotely connected to any business activity or coming under ambit of Section 28(va) of the Income Tax Act, 1961. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders agreement of Trent Ltd. A company and others with the assessee who were the partners of M/s.Landmark a firm in which the Trent Ltd held 78% and the assessee held 21% of share in the firm was converted into a limited company ins pursuant to the provision of sec.565-578 of the Companies Act and in consideration of the same for which the assessee entered into non-competition restrictions (vide Sl.No.10 of the share holder agreement), the consideration was paid as share warrant and shares redeemable at pre-fixed minimum rate. Since the shares were allotted on non-competitor restriction, the gain on sale of the same requires to be considered business income u/s.28(va). Hence the long Term Capital Gain of ₹ 37,91,81,581/- requires to be taxed as business profit of the assessee. In this connection you are required to submit a clarification for the same. Your reply should reach this office on or before 06.03.2014. 14.After lapse of two years thereafter, on 31.03.2016, the above notice was issued under Section 148 of the Income Tax Act, 1961. The notice merely stated that the officer concerned has reason to believe that the income declared by petitioner char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras Suspensions Ltd. Vs. Deputy Commissioner of Income Tax, (2017) 88 Taxmann.com 256 (Madras). 18.Defending the impugned order, the learned Senior Standing Counsel for the respondent Income Tax Department submits that the petitioner having rightly opted to file an appeal before the Appellate Commissioner, cannot file Writ Petition to quash the impugned order. 19.In this connection, the learned senior Standing Counsel relies on the decision of the Hon'ble Supreme Court in Kisan Agro Mart (P.) Ltd. Vs. Income Tax officer , (2019) 109 taxmann.com 496 (SC), wherein the Hon'ble Supreme Court directed the Appellant therein to approach the concerned Appellate Commissioner as the Appellant had already availed remedy of appeal by filing a substantive appeal before the Commissioner Appeals challenging the Assessment Order. 20.The learned Senior Standing Counsel for the respondent Income Tax Department referred to the decision of the Hon'ble Supreme Court of India in S.Narayanappa Vs. Commissioner of Income-tax , (1967) 63 ITR 219 (SC), wherein the Hon'ble Supreme Court of India had earlier held that there was no necessity under any of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Annexure 2 to the memo of computation of total income which provides the particulars of computation of STCG, it is seen that on a total redemption of mutual funds worth ₹ 48,44,15,981/-= the assessee has derived a STCG of ₹ 43,71,148/-. As per the statement of income accounts held by the assessee at HSBC and CITI Bank, the total redemption value of mutual funds credited into these accounts for a sum of ₹ 79,59,41,282/-. The assessee has not offered any LTCG exempt U/s.10(38), in the memo of computation of total income. Under the circumstances, due to mismatch of turnover, it is clear that the taxable income in the form of STCG on the differential value of redemption of ₹ 31,12,25,363/- has escaped assessment within the meaning of S.147. Further, it is also seen that in computing the eligible quantum U/s.10(34) the provisions of S.94(7) and 94 (8) have not been enforced STCL in respect of Mirea Asset (₹ 7,14,922/-) Reliance medium Term Fund (₹ 30,808/-). Franklin Templeton Short Term Income (₹ 47,111/-) and Sundaram BNPP interest Fund (₹ 12,014) summing up to ₹ 8,04,855/- therefore it cannot be allowed. For the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 per equity share = ₹ 24,56,21,100/- ₹ 39,25,34,400/- On this, after claiming cost of acquisition as well as expenses in relation to transfer, the assessee arrived at a Long term Capital Gains of ₹ 37,91,81,581/-. However in the shareholders agreement between Trent Ltd and the assessee, certain Non-Competition restrictions have put on the assessee. Point No.10.1.2 states that the assessee will not disclose any information regarding the company, its business, accounts or clients to others. The next point states that she will not directly or indirectly try to entice away the clients, suppliers or employees of the company. Point No.10.1.4, which is crucial to the non-complete aspect states that the assessee shall not, Save for those business which is carried on by the shareholder as at the date of this agreement, at any time hereafter and until the expiration of one year from the date it ceases to be beneficially interested in any shares, either alone or jointly with any other person through or as manager, adviser, agent, consultant, employee or agent for a shareholder in any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, a notice under Section 142(1) of the Income Tax Act, 1961 was issued to the petitioner on 11.07.2011 to finalise the assessment. Thereafter, an Assessment Order dated 21.12.2011 was passed by the respondent under Section 143(3) of the Income Tax Act, 1961. Thereafter, the petitioner suo moto approached the respondent for rectification of mistake under Section 154 of the Income Tax Act, 1961 on 29.12.2011. However, no order was passed in the application filed by the petitioner for rectification of mistake. 29.Thus, it is clear that almost after five years, the petitioner's scrutiny Assessment was completed and thereafter clarification sought from the petitioner vide letter dated 05.02.2014. The petitioner replied to the said notice through its Chartered Accountants on 05.03.2014. 30.The petitioner filed return along with annexure. This resulted in passing of the impugned order of assessment on 29.12.2016 by the respondent. The petitioner filed a further appeal before the Appellate Commissioner. At the stage of consideration of stay application, the petitioner has approached this Court stating that the notice was issued dated 31.03.2016 under Section 148 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of regular assessment pursuant to which assessment order was passed on 21.12.2011 but was also a subject matter of discussion pursuant to letter dated 05.02.2014 of the respondent. 36.The last date of the assessment year 2009-10 was 31.03.2010. Therefore, the respondent was entitled to issue such a notice under Section 148 on or before 31.03.2014 i.e within 4 years for the purpose of Section 147 of the Act. Instead, the respondent failed to issue a notice in time and obtained permission from the Pr. Commissioner of Income Tax 5, Chennai on 30.03.2016 at the eleventh hour by giving an altogether different reason for issuing notice under Section 148 of the Income Tax Act, 1961. 37.The reasons given that the respondent had a belief that the income had escaped assessment for invoking Section 148 on 31.03.2016 is in complete variance with the reasons given in the impugned order dated 29.12.2016. It shows that the impugned order has been passed due to change of opinion of the respondent which was entertained on 05.02.2014. After missing an opportunity which came to the respondent within the period of 4 years seeking clarification from the petitioner, Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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