2016 (5) TMI 205 - HC - Income Tax

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. It plainly follows from the above that AO had satisfied himself as to the entire transaction of purchase of shares including the consideration thereof which was duly reflected in the statement furnished by the Assessee. Although the working relating to the books value of the shares - assuming that that 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 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 Assessee. It has been held in a number of decisions that once it is shown that the AO had enquired into the transactions, it must be assumed that he had examined the relevant aspects even though the same have not been expressly referred to in the assessment order. 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, we 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

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings were initiated based on a change of opinion.
3. Whether there was tangible material to justify the belief that income had escaped assessment.

Detailed Analysis:

1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:

The Assessee, a Non-Banking Financial Company (NBFC), challenged the notice dated 11th December 2014 issued under Section 148 of the Income Tax Act, 1961, initiating reassessment proceedings for Assessment Year (AY) 2010-11. The notice was issued on the grounds that the Assessee's income chargeable to tax had escaped assessment.

The court noted that the notice was issued within four years from the end of the relevant AY, and thus, the first proviso to Section 147(1) was not attracted. Consequently, it was not necessary to establish that the income chargeable to tax had escaped assessment due to the Assessee's failure to disclose fully and truly all material facts necessary for assessment.

2. Whether the Reassessment Proceedings Were Initiated Based on a Change of Opinion:

The Assessee argued that the reassessment proceedings were initiated based on a change of opinion, which is not permissible. The Assessee had disclosed all relevant details during the original assessment proceedings, including the transactions of purchase of shares from Unitech Limited at cost price, which were examined by the Assessing Officer (AO).

The court observed that the transaction of purchase of shares was subject to inquiry by the AO during the original assessment proceedings. The AO had called for details of transactions with related parties, and the Assessee had provided the necessary information, including Ledger Accounts and details of shares purchased. The AO had satisfied himself regarding the transaction and its value, as evidenced by the absence of any further queries or issues raised in the assessment order.

The court referred to the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that a mere change of opinion cannot constitute a reason for reopening the assessment. The court concluded that the reassessment proceedings were indeed initiated based on a change of opinion, and thus, the impugned notice was liable to be set aside.

3. Whether There Was Tangible Material to Justify the Belief that Income Had Escaped Assessment:

The AO's belief that the Assessee's income had escaped assessment was based on the observation that shares were transferred at a value significantly lower than their book value. The AO considered the difference between the book value and the cost price as income under Section 28(iv) of the Act.

The court emphasized that the AO's belief must be based on tangible material that reasonably leads to the conclusion that income had escaped assessment. The material must have a live link with the formation of the belief. In this case, the court found it difficult to accept that the sale of shares at cost price could lead to the inference that income had escaped assessment, especially since the shares were held as investments and not as stock in trade.

The court distinguished the present case from the Supreme Court's decision in Selected Dalurband Coal Co. P. Ltd., where the material available with the AO had a clear nexus with the belief that income had escaped assessment. In the present case, there was no such logical link between the material and the belief formed by the AO.

Conclusion:

The court quashed the impugned notice and the proceedings initiated pursuant to it, allowing the petition. The court held that the reassessment proceedings were initiated based on a change of opinion, and there was no tangible material to justify the belief that income had escaped assessment. The parties were left to bear their own costs.

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