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TMI Blog2021 (10) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... d the shareholders be paid consideration of Rs. 0.20 per share. The reduction of capital was approved by the High Court of Madras vide order dated 26th March 2012. 5. It is the case of the Petitioner that the Petitioner was holding 90% of the share capital of the subsidiary Ponds Exports Limited. In the return of income for Assessment Year 2012-13, the Petitioner had claimed long term capital loss on account of capital reduction in shares of the subsidiary. In the Profit & Loss Account, loss suffered on account of capital reduction was shown separately under the head "exceptional items". The amount received from the subsidiary on account of capital reduction was shown separately in the notes of account under the head "related party disclosure". 6. The return of income of the Petitioner for Assessment Year 2012-13 was selected for scrutiny assessment under Section 143(3) of the Income Tax Act, 1961 ("the Act"). During the assessment, the Petitioner vide letter dated 2nd December 2015 filed its final statement and computation of income wherein details regarding loss suffered on account of reduction of capital was disclosed. It was brought to the notice of Respondent No. 1 by the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed by the assessee in their return of income." Thereafter, it has been concluded that the assessee has not incurred any Long Term Capital Loss during the year against equity shares of Ponds Exports Limited. The Long Term Capital Loss should have been disallowed while completing the assessment under Section 143(3) of the Act. Omission to do so has resulted in under assessment of Long Term Capital Gains by Rs. 20,52,22,019/-. 11. On 16th August 2019 and 21st August 2019, the Petitioner filed letters with Respondent No. 1 requesting Respondent No. 1 to give 15 days time to file objections against the reopening under Section 148 of the Act for Assessment Year 2012-13. Thereafter, the Petitioner filed objections on 29th August 2019 against the reopening under Section 148 of the Act and submitted that reopening is based on change of opinion and full and true disclosure had been made by the Petitioner regarding the long term capital loss claimed in the return of income. It has been submitted in the said objections that the claim made for long term capital loss on reduction of capital is supported by many authorities and therefore, the reopening under Section 148 of the Act is ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable first proviso to Section 147 of the Act where the reassessment has been initiated beyond the period of four years from the end of relevant assessment year. Under the first proviso, it is provided that the statement of income chargeable to tax should be due to failure on the part of assessee to disclose truly and fully all material facts and this requirement must be satisfied. He has submitted that the Petitioner had made full disclosure of the material fact that it had claimed capital loss on account of capital reduction undertaken by Ponds Exports Limited. A detailed capital loss working was filed during the assessment proceedings vide submission dated 2nd December 2015. A detailed note on capital loss claim was also filed vide the submission dated 2nd December 2015. There was thus, no failure on the part of the Petitioner to disclose truly and fully all material facts. 15. Mr. Thakkar has further submitted that reading of the notice under Section 148 of the Act shows that it has been issued on a mere change of opinion by the Tax Authorities. He has placed reliance upon several decisions of the Supreme Court and this Court. He has relied upon the recent decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosure had not been made by the Petitioner, as the Petitioner had failed to disclose that the Petitioner held 100% shares in the subsidiary Ponds Exports Limited and since the Petitioner held 100% shares in the subsidiary as per provisions of Section 47(iv) of the Act, there is no transfer under the Act and therefore, there cannot be any loss under the head "capital gains". He has submitted that the share holding of the Petitioner remained unchanged during Financial Year 2011-2012, its right in Ponds Exports Limited remained undisturbed and the Petitioner's annual reports for Financial Year 2010-2011 and 2011-2012 expose the Petitioner inasmuch as they show that Ponds Exports Limited was a 100% subsidiary of the Petitioner Company. He has submitted that in view of the Petitioner's failure to fully and truly disclosed this material fact, the Respondent No. 1 had issued the notice under Section 148 of the Act for reassessing the assessment for Financial Year 2012-2013. 19. Mr. Suresh Kumar has submitted that mere production of books of accounts or other evidence from which the Assessing Officer could have with due diligence, inferred material facts, does not amount to disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, inferred from the above discussion that the assessee has failed to disclose fully and truly all material facts necessary for its assessment for the A.Y. 2012-13. Therefore, the issue could not be verified by the Assessing Officer during the course of assessment proceedings.". 21. It is further apparent from the reasons for the reopening of the assessment that the Respondent No. 1 merely stated that the assessee has failed to disclose fully and truly all the material facts necessary for its assessment for Assessment Year 2012-13. 22. It is settled law that as per Section 147 of the Act and proviso thereto, where the assessment is sought to be reopened after the expiry of a period of four years from the end of the relevant assessment year, the Assessing Officer has to mention what was the tangible material to come to the conclusion that there is an escapement of income from assessment and that there has been a failure to truly and fully disclose material fact. He cannot exercise power to reopen unless he discloses what was the material fact which was not fully and truly disclosed by the assessee. If we consider the reasons for reopening, except stating that in the Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to examine the precise scope of disclosure which the section demands. The words used are "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year ". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his Possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise-the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e--to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn? It may be pointed out that the Explanation to the sub- section has nothing to do with " inferences " and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose " inferences "-to draw the proper inferences being the duty impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... davit in Reply to the Petition. It has been held in First Source Solutions Limited V/s. The Assistant Commissioner of Income Tax - 12 (2) (1) and Anr. Writ Petition No.2762 of 2019 dated 31.08.2021 that the reasons for reopening an assessment has to be tested/examined only on the basis of the reasons recorded at the time of issuing a notice under Section 148 of the Act seeking to reopen an assessment. These reasons cannot be improved upon and/ or supplemented much less substituted by affidavit and/or oral submissions. 28. In the present case, the deponent of the Affidavit in Reply Neeraj Kumar Agarwal, the Assistant Commissioner of Income Tax-1(1)(1), Mumbai has sought to improve upon the reasons for reopening the assessment recorded at the time of issuance of notice under Section 148 of the Act and which is clearly impermissible according to the decision of this Court in First Source Solutions Limited (supra). 29. In the Petition, the Petitioner has in paragraph 6 stated that the Petitioner was holding 90% of the share capital of Ponds Exports Limited and accordingly, in the return of income for Assessment Year 2012-13, the Petitioner had claimed long term capital loss on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopen the assessment based on the very same material with a view to take another view. In the present case, the Assessing Officer had taken a view that the assessee had incurred long term capital loss during the year against the equity shares of Ponds Exports Limited on account of capital reduction of Ponds Exports Limited wherein the face value of the shares of Ponds Exports Limited was reduced from Rs. 10/- to Re. 1/each and thus, there was an extinguishment of the proportionate right in the shares held by the Petitioner. This resulted in long term capital loss on account of capital reduction. The Assessing Officer had based its assessment on the accounts books and arrived at conclusion that the Petitioner had incurred long term capital loss and had allowed such long term capital loss while completing the assessment under Section 143(3) of the Act. 32. Respondent No. 1 in the reopening of the assessment on account of change of opinion placed reliance on the same account books to opine that the Petitioner assessee had not incurred any long term capital loss during the year against the equity shares of Ponds Exports Limited and there had been no transfer of shares during the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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