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TMI Blog2013 (12) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, has raised a preliminary ground wherein validity of reopening of assessment under section 147, has been challenged besides other grounds on merits. 3. The relevant facts, apropos the issue of reopening under section 147 of the Act, are that the assessee is a non-residential banking company having its headquarters in Paris, France. In India, it is involved in normal banking activities which include financing of foreign trade and foreign exchange transactions. The return of income was filed on November 30, 2000, showing total loss of Rs. 30,07,480. Even the profit, as per section 115JA, was shown at nil. The said return of income was selected for scrutiny and the assessment was passed under section 143(3), at an income of Rs.6,19,01,373, vide order dated March 26, 2003 under section 143(3). Thereafter, at the fag end of the sixth year from the end of the relevant assessment year, the assessee's case was reopened under section 147, by issuance of notice dated March 29, 2007, passed under section 148, after recording the following reasons : "March 29, 2007 Return of income showing total loss of Rs. 3,00,07,480 was filed on November 30, 2000. Profit as per secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 48 of the Income tax Act. It is true that section 48 provides mode of computation of capital gain on which vide Explanation (v) of section 48 indexation has to be allowed on account of 'cost inflation index' as per notification in the Official Gazette. However it is further provided in the second proviso to section 48 that where long-term capital gain arises from the transfer of a longterm capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effects as if for the words 'cost of acquisition' and 'cost of any improvement', the words 'indexed cost of acquisition' and 'indexed cost of any improvement' had respectively been submitted. From the plain reading of the said second proviso of section 48, it is thus amply clear that non-resident foreign companies are not entitled to the indexed cost on the improvements and acquisitions. Accordingly the income of the assessee has been under assessed by allowing the benefit of cost indexation and the same was the principal reason for reopening of assessment. With regard to other iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the Tribunal on this issue which has been taken note of the Commissioner (Appeals) in his order. Therefore, the first ground for reopening the case in the reasons recorded is not maintainable. 8. Regarding the second ground that the amount of profit on sale of shares of Rs. 90,86,453, is not identifiable in the profit and loss account, he submitted that this presumption is wholly erroneous which is evident from the fact that in the computation of total income, the assessee has shown income as per the profit and loss account and from such profit, sale of share has been added back. In support, he drew our attention to the copy of computation of income given at pages 2 to 4 of the paper book filed along with the return of income and submitted that the total sale consideration of the shares was Rs. 92,43,363, and the cost of acquisition was at Rs. 1,56,910, and the same is deducted from the sale consideration and the net amount comes to Rs. 90,86,453 (Rs. 92,43,363 (ƒ_") Rs. 1,56,910 = Rs.90,86,453). Thus, this presumption of the Assessing Officer and the grounds for re-opening the case is untenable on facts. 9. Regarding the third ground which relates to non-availabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reproduced in para 3 above, it is seen that nowhere the Assessing Officer has ascribed any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. This is one of the main conditions precedent for acquiring the jurisdiction under section 147, once the case is reopened beyond the period of four years in case of assessment having been completed under section 143(3). Once this preliminary condition is not satisfied the entire initiation and conclusion of proceedings becomes bad-in-law. On this count alone, the entire proceedings under section 147 initiated vide notice dated March 29, 2007, under section 148 has become void ab initio. Even otherwise also, on perusal of the "reasons recorded", it is observed that the Assessing Officer has mainly taken three grounds to entertain his "reasons to believe" that income chargeable to tax has escaped assessment. 12. In so far as ground (a) raised by the Assessing Officer that loss on sale of investment of Rs. 6,15,66,000, is a capital loss and is not allowable as deduction, is untenable in law in view of the judgment of the hon'ble Supreme Court and the High Court. The Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly deducted the indexed cost of acquisition, it is seen from the assessment order that the Assessing Officer proceeded on the premise that the first proviso to section 48, deals with capital gain arising to all kind of non-residents and the second proviso to section 48 excludes such indexation in the case of non-resident. Such interpretation by the Assessing Officer is apparently not correct. For better appreciation statutory provisions under section 48 along with the first and the second proviso is reproduced herein below : "Mode of computation ".-The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the asset and the cost of any improvement thereto : Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first proviso. In this case, undisputed fact that the assessee has purchased shares in Indian currency and even the Assessing Officer has not made any allegation that the assessee has used foreign cur- rency. Thus, neither the first proviso nor the second proviso is applicable in the case of the assessee and we fully agree with the contentions raised by learned senior counsel that this ground is wholly misconceived by the Assessing Officer who has gone by the erroneous interpretation of the sta- tutory provisions. Accordingly, this ground also fails to clothe the Assess- ing Officer to entertain "reason to believe". 16. Thus, on all the three counts, of which "reasons" have been recorded we hold that the Assessing Officer could not have entertained the "reason to believe" to reopen the assessment under section 147 and, accordingly, the "reasons recorded" by the Assessing Officer do not meet the requirement of law and no jurisdiction can be conferred based on such "reasons". Therefore, the entire proceedings based on such "reasons recorded" are void ab initio and, consequently, the entire assessment order is hereby quashed. All other additions on the merits have become purely acad ..... 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