2016 (11) TMI 966 - HC - Income Tax

Reopening of assessment - capital gain has escaped assessment - share transaction inflated - Held that - It is an admitted position that the petitioner has not placed on record the cost of acquisition of shares of Krunal Oil Marketing. The nature of transaction of transfer of investment from Krunal Marketing s preference shares from Adani Infra preferential shares was immediately not visible from the declaration made by the petitioner. This is therefore, a case where a further scrutiny would be permissible even if the notice for reopening is issued beyond a period of four years from beyond the period of relevant assessment year. We notice that the Assessing Officer had raised certain queries regarding the series of investment by the petitioner in government or other securities. However, the question of transfer of shares of Krunal Oil Marketing Pvt. Ltd. by acquisition of preferential shares of Adani Infra was never examined by the Assessing Officer. Particularly, if we were to believe that there was no full and true disclosure with respect to acquisition of such shares of Krunal by the petitioner and the cost thereof and other relevant details, any inquiry by the Assessing Officer in this respect would not shut out the further scrutiny. - Decided against assessee

Summary

Issues:
1. Validity of notice seeking to reopen assessment for the assessment year 2009-10 beyond the statutory period.
2. Whether the reasons recorded by the Assessing Officer for reopening the assessment are valid.
3. Whether the petitioner failed to disclose true and full material facts regarding the investment in shares during the original assessment.
4. Whether the difference in the cost of acquisition and sale value of shares constitutes capital gain that escaped assessment.

Analysis:
1. The petitioner challenged a notice issued by the Assessing Officer beyond the prescribed period for reopening the assessment for the year 2009-10. The notice was based on the belief that income had escaped assessment due to the difference in the cost of acquisition and sale value of shares. The petitioner contended that there was no failure to disclose material facts within the original assessment.

2. The reasons recorded by the Assessing Officer for reopening the assessment focused on the investment in shares by the petitioner. The officer believed that the difference in the cost of acquisition and sale value of shares constituted capital gain that escaped assessment. The petitioner argued that this issue was examined during the original scrutiny assessment, and the reasons recorded lacked validity.

3. The Assessing Officer contended that the petitioner transferred investments in shares from one company to another without disclosing the cost of acquisition of shares in the original company. It was argued that the petitioner failed to disclose material facts, leading to the alleged capital gain escaping assessment. The petitioner disputed this claim, stating that the transfer of shares was a mere accounting error.

4. The High Court examined the investment accounts and noted the transfer of investments from one company to another. The Court found that further scrutiny was warranted, even beyond the statutory period, due to the lack of disclosure regarding the cost of acquisition of shares. The Court emphasized that these observations were preliminary and did not preclude the petitioner from raising contentions during reassessment.

In conclusion, the High Court dismissed the petition, allowing for further scrutiny of the transaction involving the transfer of shares and the potential capital gain that may have escaped assessment. The Court clarified that its observations were preliminary and did not prevent the petitioner from presenting arguments during reassessment proceedings.