2015 (12) TMI 36 - AT - Income Tax

Reopening of assessment - computation of long term capital loss - Held that - AO had originally completed the assessment u/s 143(3) of the Act and the details of computation of long term capital loss is part and parcel of the memo of income filed along with the return of income by the assessee. Even though the reopening in this case was done within the period of 4 years, we find that there is absolutely no tangible material available with the Learned AO to come to a conclusion that income has escaped assessment. It only amounts to revisiting of the existing materials already available on record. It only amounts to change of opinion on which ground reopening is not permissible as per law. We hold that the assumption of jurisdiction u/s 147 by the Learned AO, is based only on change of opinion; made without any tangible material that constituted new information, formation of belief for assumption of jurisdiction made without considering the relevant provisions of the Act and hence the reopening of assessment u/s 148 and consequential reassessment order passed u/s 147 is bad in law and accordingly the reassessment proceedings stand quashed. - Decided of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act.
2. Validity of reopening the assessment based on the extinguishment of shares and the claim of long-term capital loss.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 147 of the Income Tax Act:
The primary issue raised by the assessee was regarding the assumption of jurisdiction under Section 147 of the Income Tax Act. The assessee questioned whether the Assessing Officer (AO) was justified in reopening the assessment when the details of the long-term capital loss claim were already filed in the return of income and the original assessment was completed under Section 143(3).

The Tribunal found that the AO reopened the assessment without considering the relevant provisions of the Act, specifically Section 46(2). The Tribunal emphasized that the formation of belief by the AO must have a direct nexus with the provisions of the Act. The AO's failure to consider Section 46(2) while forming the belief that income had escaped assessment rendered the reopening invalid. The Tribunal relied on the Gujarat High Court decision in Devesh Metcast Ltd vs JCIT, which held that an erroneous interpretation of statutory provisions cannot justify reassessment.

2. Validity of Reopening the Assessment Based on Extinguishment of Shares and Claim of Long-Term Capital Loss:
The assessee held shares in companies that chose to avail the simplified exit scheme under Section 560 of the Companies Act, 1956, leading to the extinguishment of the assessee's rights in the shares without any consideration. The assessee claimed a long-term capital loss, which was initially accepted in the assessment under Section 143(3).

The AO later reopened the assessment, arguing that the extinguishment did not constitute a transfer under Section 2(47) and thus no capital loss should be computed. The Tribunal, however, found that the provisions of Section 46(2) were applicable, which deems the extinguishment of rights in shares as a transfer resulting in capital gains or losses. The Tribunal cited the Gujarat High Court decision in CIT vs Jaykrishna Harivallabhdas, which held that extinguishment of rights in shares on liquidation must be treated as a transfer for computing capital gains or losses.

The Tribunal also noted that the reopening was done within four years but without any new tangible material. The details were already on record, and the reopening amounted to a mere change of opinion, which is not permissible. The Tribunal referenced several judicial precedents, including the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which held that reopening cannot be based on a mere change of opinion.

Conclusion:
The Tribunal concluded that the AO's assumption of jurisdiction under Section 147 was invalid due to the lack of consideration of relevant statutory provisions and the absence of new tangible material. The reassessment proceedings were quashed, and the appeal of the assessee was allowed. The Tribunal's order emphasized the importance of a direct nexus between the formation of belief and the provisions of the Act, as well as the impermissibility of reopening assessments based on a change of opinion.

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