2017 (3) TMI 897 - HC - Income Tax

Reopening of assessment - development rights held in its earlier avatar of firm was its stock in trade and on its conversion into a private limited company under of the Companies Act is now shown as its capital asset - Held that - On conversion from a firm to a company, the petitioner continued to hold the same as capital asset. Without prejudice to the above, the petitioner also pointed out that there is no bar in a company even when converted from a firm to a company under the Companies Act to convert its stock in trade into its capital assets. The above objection was disposed of by an order dated 09.11.2016 by the Assessing Officer holding that it was not appropriately disclosed in the return of income filed by the petitioner in its avatar as a firm. However, we find this very issue was subject of inquiry during the regular assessment proceedings and the Assessing Officer was satisfied that the land admeasuring 61,506 sq. mtrs. is a capital asset in the hands of the petitioner while passing an assessment order dated 31.3.2011 for the subject assessment year under Section 143(3) of the Act. Thus prima facie the aforesaid ground would not justify the impugned notice as it is a case of change of opinion. In any case, prima facie there is no failure to disclose fully and truly all material facts necessary for assessment. In this case, prima facie, we are of the view that the Assessing Officer proceeded on an erroneous fact i.e. by placing reliance upon the Annual return filed by M/s. SVI Realtors (P) Ltd. in respect of the Annual General Meeting held on 24.7.2009. This while ignoring the share transfer forms which indicated that the transfer of shares took place in April, 2008 coupled with choosing to ignore the annual report filed by M/s. SVI Realtors (P) Ltd. with the the Registrar of Companies, Ministry of Corporate affairs and available on its website in respect of the earlier year in respect of the Annual General Meeting held on 26.4.2008. Further, prima facie we are of the view that in the present facts there was no failure on the part of the petitioners to truly and fully disclose material facts necessary for assessment. Thus the impugned notice is hit by the proviso to Section 147 of the Act. This Court in N.D. Bhatt, Inspecting Assistant Commissioner of Income Tax and Anr. vs. I.B.M.World Trade Corporation 1993 (7) TMI 7 - BOMBAY High Court has observed that the obligation of disclosing true and basic facts on the assessee during the course of assessment proceeding is only of facts of which the assessee has knowledge. Prima facie the above decision applies to this case. In the present facts, the petitioner was not aware during its assesment proceedings of the Annual Report filed by M/s. SVI Realtors Pvt. Ltd in respect of the Annual General Meeting held on 24.7.2009 indicating date of transfer as 4.10.2008. Thus prima facie the reopening notice being beyond a period of four years for the end of the relevant assessment year is hit by the proviso to Section 147 of the Act. - Decided in favour of assessee

Summary

Issues:
1. Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for A.Y. 2009-10.
2. Allegation of failure to disclose all necessary facts for assessment.
3. Grounds for reopening assessment related to development rights and subsidiary company status.
4. Objections filed by petitioner against the reasons in support of the notice.
5. Examination of objections related to development rights and subsidiary company status.
6. Assessment of whether there was a failure to disclose material facts necessary for assessment.
7. Analysis of the Assessing Officer's satisfaction and consideration of objections.
8. Dispute over the correctness of facts and understanding of the Assessing Officer.
9. Application of proviso to Section 147 of the Act regarding the reopening notice.
10. Observations on the obligation of disclosing true and basic facts by the assessee.
11. Prima facie view on the jurisdictional validity of the impugned notice.

The High Court of Bombay heard a petition challenging a notice dated 30.3.2016 under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for A.Y. 2009-10. The primary issue was the alleged failure of the assessee to fully disclose all necessary facts for assessment. The reasons for the notice included the treatment of development rights and the subsidiary company status. The petitioner filed objections to the reasons provided in the notice, arguing against the grounds for reopening. The court examined the objections related to the development rights and subsidiary company status, finding discrepancies in the Assessing Officer's understanding. It was noted that the Assessing Officer's satisfaction should consider the objections raised by the assessee. The court observed that the impugned notice was based on erroneous facts and there was no failure on the part of the petitioner to disclose material facts necessary for assessment. The court applied the proviso to Section 147 of the Act and concluded that the notice was without jurisdiction, granting interim stay accordingly. The judgment emphasized the importance of disclosing true and basic facts during assessment proceedings, highlighting the assessee's obligation in this regard.