2020 (10) TMI 40 - HC - Income Tax

Reopening of assessment u/s 147 - transfer of shares was a colourable device for evading payment of tax on capital gains - notice issued beyond four years from the end of the assessment year in question - change of opinion - HELD THAT - While any profits or gains arising out of transfer of a capital asset shall be deemed to be the income of the previous year in which the transfer took place chargeable to income tax under the head 'capital gains', section 47(iii) makes it very clear that any transfer of a capital asset under a gift or will or an irrevocable trust shall not be liable to income tax under the head 'capital gains'. Evidently, the proviso is not applicable to the present case. While initially contention of the petitioner that such transfer of shares was a gift without consideration was accepted, subsequently the above view was revised to treat the transfer of shares not as a gift and to tax the said transaction on the market value of the shares; this is nothing but change of opinion. It is quite apparent that petitioner had placed before the assessing officer during the assessment proceedings all the primary facts wherefrom he made the inference. Now it is not open to the assessing officer to take a second view on the same set of facts treating the earlier view as erroneous. This is not permissible. We find that Tribunal in the case of Jayneer Infrapower and Multiventures Private Limited 2019 (3) TMI 686 - ITAT MUMBAI examined such transaction of transfer of shares which was held to be a colourable device by the CIT(Appeals) and liable to be taxed on the market value of the shares. Tribunal recorded a categorical finding of fact that such transfer of shares without consideration was a gift which is valid, permissible and genuine. Referring to section 47(iii) Tribunal held that transfer of shares by way of gift is exempt from the provision of capital gains and concluded that transfer made as a gift without consideration is not taxable under the provisions of capital gains. Thus, the very foundation on which the impugned notice was issued no longer survives. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under section 148 of the Income Tax Act, 1961.
2. Validity of the reasons for reopening the assessment.
3. Alleged failure of the petitioner to disclose fully and truly all material facts.
4. Whether the reopening of the assessment is a result of a change of opinion.
5. Applicability of section 47(iii) of the Income Tax Act regarding the transfer of shares as a gift.

Issue-wise Detailed Analysis:

1. Legality of the notice issued under section 148 of the Income Tax Act, 1961:
The petitioner sought to quash the notice dated 22.03.2019 issued under section 148 of the Income Tax Act, 1961, which aimed to reopen the assessment for the assessment year 2012-13. The court noted that the notice was issued beyond four years from the end of the relevant assessment year. As per section 151(1), such a notice requires satisfaction from a higher authority that it is a fit case for issuance. The court found that the notice lacked jurisdiction as it was based on a change of opinion rather than new material facts.

2. Validity of the reasons for reopening the assessment:
The reasons recorded for reopening the assessment were based on the view that the transfer of shares at nil consideration was a colorable device to evade capital gains tax. The court observed that the petitioner had disclosed all relevant materials during the original assessment, and the assessing officer had accepted the transfer of shares as a gift. The court held that the reasons for reopening lacked validity as they were based on a subsequent change of opinion rather than new material facts.

3. Alleged failure of the petitioner to disclose fully and truly all material facts:
The court examined whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. It was found that the petitioner had provided all relevant details regarding the transfer of shares during the original assessment proceedings. The court concluded that the petitioner had made a true and full disclosure of primary facts, and the assessing officer had drawn the correct inference from these facts during the original assessment.

4. Whether the reopening of the assessment is a result of a change of opinion:
The court noted that the initial acceptance of the transfer of shares as a gift was subsequently revised to treat the transfer as a colorable device to evade tax. This revision was based on the same set of facts that were already disclosed during the original assessment. The court held that this constituted a change of opinion, which is not permissible as a ground for reopening a concluded assessment. The court emphasized that once an inference is drawn from primary facts, a subsequent change of opinion cannot justify reopening the assessment.

5. Applicability of section 47(iii) of the Income Tax Act regarding the transfer of shares as a gift:
The court discussed the provisions of section 47(iii), which exempts transfers of capital assets under a gift from capital gains tax. It was noted that the petitioner had transferred shares as a gift, which is permissible under section 47(iii). The court referred to the decision of the Income Tax Appellate Tribunal in a similar case, which held that such transfers are exempt from capital gains tax. The court concluded that the transfer of shares by way of gift is not taxable under the provisions of capital gains.

Conclusion:
The court set aside and quashed the impugned notice dated 22.03.2019 and the order dated 09.09.2019 rejecting the objections to the reopening of the assessment. The writ petition was allowed without any order as to costs. The court emphasized that the reopening of the assessment was based on a change of opinion and lacked jurisdiction. The transfer of shares as a gift was valid and exempt from capital gains tax under section 47(iii).