2017 (5) TMI 539 - HC - Income Tax

Reopening of assessment - slump sale transaction undisclosed - Held that - Number of questions were raised by the A.O. during the original assessment proceedings with respect to the transaction in question, more particularly whether the sale is on slump sale basis or not. The original assessment was under section 143(3) of the Act. During the course of the assessment proceedings, the assessee produced / supplied requisite documents / materials / details, including details of bank accounts, month wise sale and purchase of the petitioner, all requisite financial details, copy of the Article of Association, details qua stock hypothetical, details related to Slump Sale, copy of the Slump Sale Agreement, details of the payment received under the Slum Sale and documents relating to Slum Sale, etc. and during the course of hearing the assessee also submitted detailed explanation with respect to slump sale and only thereafter the A.O. upheld the fact that the transaction was in fact a slump sale transaction. It was specifically declared by the assessee that what was sold by the assessee was activity of manufacturing elevators. Therefore, as such it cannot be said that the assessee did not disclose true and correct facts necessary for the assessment. It is required to be noted that even the issue as to whether the transaction can be said to be sale of goodwill and/or trademark also came to be considered in detail by the A.O. and only thereafter the transaction in question was considered on slump sale basis. - Decided in favour of assessee.

Issues Involved:
1. Legality of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Compliance with procedural requirements for reopening.
3. Disclosure of true and correct facts by the assessee.
4. Validity of the claim of slump sale versus sale of goodwill and trademark.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the reopening of the assessment for A.Y. 2007-08 under Section 148 of the Income Tax Act, 1961, arguing it was beyond the permissible period of six years. The court noted that reopening beyond four years is only permissible if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the assessee had disclosed all necessary facts during the original assessment proceedings, making the reopening of the assessment beyond the period of four years illegal and contrary to Section 147 of the Act.

2. Compliance with Procedural Requirements for Reopening:
The petitioner argued that the reasons for reopening were not provided, violating the procedure established by the Supreme Court in GKN Driveshafts (India) Ltd. The court observed that the petitioner had requested the reasons for reopening but did not file the return of income pursuant to the notice under Section 148, as required. However, the court still found that the reopening was based solely on information received from the CIT(A) and not on any failure by the assessee to disclose material facts, thus making the reopening procedurally flawed.

3. Disclosure of True and Correct Facts by the Assessee:
The court examined whether the assessee had disclosed all necessary facts during the original assessment. It was found that the assessee had provided detailed information, including bank accounts, sales, financial details, and the slump sale agreement. The court concluded that the assessee had disclosed true and correct facts necessary for the assessment, and there was no suppression of material facts.

4. Validity of the Claim of Slump Sale versus Sale of Goodwill and Trademark:
The Revenue argued that the transaction was not a slump sale but rather the sale of goodwill and trademark, which should be taxed as short-term capital gain. The court noted that the original assessment had considered this issue in detail, and the transaction was upheld as a slump sale. The court found no new material facts to justify reopening the assessment on this ground.

Conclusion:
The court quashed the impugned notice under Section 148 and the reassessment proceedings, ruling that the reopening was illegal and contrary to the provisions of Section 147. The court emphasized that the assessee had disclosed all necessary facts, and the reopening was based on information already considered during the original assessment. The petition was allowed, and the rule was made absolute, with no order as to costs.

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