2015 (10) TMI 1882 - AT - Income Tax

Reopening of assessment - assessee had claimed loss by trading in its own shares - CIT(A) quashed reassessment proceedings - Held that - Reassessment proceeding was initiated for re-appraisal of the facts already on record and this was clearly a case of mere change of opinion. No fresh tangible material came to Assessing Officer s possession to justify the initiation of reassessment proceedings and the details regarding amalgamation were already on record and the quantification of long term capital gains had duly been considered by him in the original assessment. Further, it is well settled law that there should be live nexus between reasons recorded and formation of belief. In the present case the Assessing Officer formed the belief regarding escapement of income on the ground that assessee had claimed loss by trading in its own shares which was factually incorrect. Therefore, in view of the decision of the Hon ble Supreme Court in the case of Kelvinator of India Limited reported in 2010 (1) TMI 11 - SUPREME COURT OF INDIA , the reassessment proceedings were bad in law, which rightly cancelled by the ld. CIT(Appeals). We accordingly confirm the order of ld. CIT(Appeals) on these observations. - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-assessment proceedings under section 147.
2. Allowance of long term capital loss.

Analysis:

Issue 1: Validity of re-assessment proceedings under section 147
The case involved a re-assessment proceeding initiated by the Assessing Officer under section 147. The key reasons for re-assessment included the treatment of service charges, rent paid, and long term capital loss by the assessee. The Assessing Officer contended that the long term capital loss claimed by the assessee on the sale of its own shares was impermissible as the companies holding those shares had already amalgamated with the assessee prior to the relevant assessment year. The Commissioner of Income Tax (Appeals) canceled the re-assessment proceedings citing that the Assessing Officer had sufficient material during the regular assessment under section 143(3) and had not obtained any fresh evidence to justify the re-assessment. The Commissioner referred to legal precedents to support the decision, emphasizing that a mere change of opinion was not sufficient grounds for re-opening the assessment. The Revenue argued that the Assessing Officer did not consider the impact of amalgamation on the transfer of shares and that the Commissioner erred in deeming it a case of change of opinion.

Issue 2: Allowance of long term capital loss
The Assessing Officer disallowed the assessee's claim for carry forward loss of long term capital gain, specifically focusing on the long term capital loss claimed by the assessee in respect of its own shares. The Commissioner of Income Tax (Appeals) highlighted that the Assessing Officer had already considered the computation of total income and raised queries regarding the sale of shares during the original assessment. The Commissioner noted that the Assessing Officer had applied his mind to the facts on record and had not obtained any fresh material post the original assessment to warrant the disallowance of the capital loss. The Commissioner emphasized that the reassessment proceedings were initiated based on facts already on record, constituting a mere change of opinion. Legal principles were cited to support the decision, emphasizing the necessity of a live nexus between the reasons recorded and the formation of belief for reassessment. The Tribunal upheld the Commissioner's decision, confirming that the reassessment proceedings were invalid in law due to the lack of fresh tangible material justifying the re-assessment.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, confirming the cancellation of the reassessment proceedings and the allowance of the long term capital loss claimed by the assessee.