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TMI Blog2023 (3) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... he return of income for the A.Y. 2015-16, the petitioner was not covered by Section 112(1)(c)(iii) as it had transferred the shares of the private limited company. Accordingly, in the instant case, the assessment is being sought to be reopened in contravention of the law as it stood during the previous year 2014-15 and A.Y. 2015-16 in which the petitioner filed its tax return. In this regard, the learned counsel for the petitioner placed reliance on the decision in case of Godrej Industries Ltd. v/s. B. S. Singh, Deputy Commissioner of Income-tax, Range 10(2) [ 2015 (8) TMI 668 - BOMBAY HIGH COURT] which confirms that a retrospective amendment cannot be the basis for reopening of assessment. In any case, it may be noted that for the A.Y. 2015-16, the four years period has expired on 31st March 2020, and absence any failure to disclose facts by the assessee or any tangible new material, the reopening of assessment proceedings by the respondent is bad in law. It is a clear cut case of change of opinion inasmuch as there is no new material which is discovered by the concerned officer. The application of another section of the IT Act on the facts and circumstances of a case would only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reopening of the assessment since he had 'reason to believe' that the income chargeable to tax for A.Y. 2015-16 had escaped assessment within the meaning of section 147 of the Act and the impugned reasons dated 9th January 2022 and the impugned order dated 9th March 2022 disposing of the objections raised by the petitioner. FACTS 3. The petitioner is an investment holding company incorporated in Singapore. The ultimate holding company of the petitioner, Lehman Brothers Holdings Inc. ("LBHI") filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York on 15th September 2008. After LBHI's filing for bankruptcy, the petitioner was placed into Creditors' Voluntary Liquidation from 24th October 2008. The petitioner did not conduct any business activity and laid off the entire staff. Hence, the petitioner had no business transaction during the A.Y. 2015-16. 4. The petitioner, inter alia, held 5,70,88,801 shares of Lehman Brothers Capital Private Limited ("LBCPL") a private limited company as on 31st March 2014. During the year under consideration, this Court by an order dated 5th September 2014, allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n transaction was referred on account of it being with an associated enterprises, the capital reduction transaction was accepted at arm's length. On 24th December 2018, the respondent passed an Assessment Order under Section 143(3) of the Act whereby it noted that the petitioner has no business operations/permanent establishment in India. It also noted that there was a capital reduction and the capital gain/loss had been computed as per the provisions of the Act. 8. Mr. Mistri, the learned Senior Counsel for the petitioners submitted that the respondent had not complied with the jurisdictional condition which is a condition precedent for conducting the reassessment inasmuch as the respondent must show a failure on the part of the petitioner to disclose truly and fully all material facts necessary for the completion of his assessments, since their reassessment was conducted beyond a period of four years. According to him, all the facts on the capital reduction and the computation of capital gain /loss under Section 45 r.w.s. 48 of the Act were disclosed and there was no failure to make a full and true disclosure. The details of capital reduction along with the method of computing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Petition no.2031 of 2022 (Bombay) 2) Jindal Photo Films Ltd. v/s. Deputy Commissioner of Income Tax (1998) 234 ITR 170 (Delhi) 11. The learned counsel urged that applying a different provision of the Act for the purposes of reopening the assessment, would tantamount to a change of opinion and relied upon the decision in support of his contentions in the case of Commissioner of Income Tax, Delhi v/s. Kelvinator of India Ltd. (2010) 320 ITR 561 (S.C.). 12. It would be worthwhile to consider Sections 45 & 48 of the Act which provides the mechanism of computing the capital gain the relevant extracts of which are as under: "Section 45: of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year will be chargeable to income tax under the head 'Capital Gains'. "Section 48: The income chargeable under the heard "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 amount, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] [Provided also that where shares. Debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or in irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section:] [Provided also that no deduction shall be allowed in computing the income chargeable under the head "Capital gains' in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 (23 of 2004).] 13. The learned counsel submitted that the word "shall" has been used and accordingly, for the purpose of calculating capital gain, one has to apply Section 48 and calculate capital gain by applying the first or second proviso to Section 48 of the Act. 14. The learned counsel relied on the provisions of Section 112(1)(c) (iii) of the Act prevailing during A.Y. 2015-16. Relevant extract of Section 112(1) of the Act, is reproduced below; "(1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1985) 57 Comp Cas 700 (Bom.) wherein it was held that, "It is thus clear that the shares of a private company do not possess the character of liquidity, which means that the purchaser of shares cannot be guaranteed that he will be registered as a member of the company. Such shares cannot be sold in the market or, in other words, they cannot be said to be marketable and cannot, therefore, be said to fall within the definition of securities as a marketable security." 17. In view of the above, the share of a private limited company is not covered by the definition of securities, and thereby provision of Section 112(1)(c)(iii) was not applicable. As the petitioner was not covered under Section 112(1)(c)(iii) of the Act, it filed a return of income showing a capital gain of Rs.25,14,27,640/- and after setting off the loss for the A.Y. 2014-15 (Rs.19,59,94,085), paid taxes at 20% under Section 112(1)(c)(ii) of the Act. The petitioner has paid a higher rate of tax under sub-clause (ii) at 20% compared to sub-clause (iii) at 10%. This results in a gain for the Income Tax Department. 18. The learned counsel for the petitioner further submitted that the Finance Act 2016 amended the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of a capital asset, being unlisted securities [or shares of a company not being a company in which the public are substantially interested], calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to Section 48. onwards. from A.Y. 2013-14 onwards. the amount of income-tax on long term capital gains arising from the transfer of a capital asset, being unlisted securities [or shares of a company not being a company in which the public are substantially interested], calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to Section 48. Applicable with effect from A.Y. 2017-18 Applicable with retrospective effect 20. From the above, it can be noted that at the time of filing the return of income for the A.Y. 2015-16, the petitioner was not covered by Section 112(1)(c)(iii) as it had transferred the shares of the private limited company. Accordingly, in the instant case, the assessment is being sought to be reopened in contravention of the law as it stood during the previous year 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 2021, whilst the reopening proceedings were in progress, the said notice under Section 142(1) was not bad in law. He submitted that the information received from the ITO (IT)-3(1)(2), Mumbai for A.Y. 2014- 15, was tangible material inasmuch as it related to the computation of capital gain/loss on account of capital reduction. It is submitted that such information had bearing on the case of the assessee for A.Y. 15-16 not only in terms of the brought forward losses but also on the method of computation of capital gain/loss. 23. The learned counsel submitted that the Assessment Order under Section 143(3) dated 24th December 2018 had no discussion with regard to the income taxable under Section 112(1) (c)(iii) of the Act and consequently for want of any query or submission on the said subject, no opinion could be formed in the assessment proceedings under Section 143(3) of the Act. He consequently submitted since the applicability of Section 112(1)(c)(iii) of the IT Act was not raised, there was absence of full and true disclosure of facts by the petitioner. It was discovered that the losses brought forward from the earlier years were also claimed incorrectly by the petitioner. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that Section 112(1)(c)(iii) is a special provision which will override the general provisions provided under Section 48. Consequently the capital gains will be chargeable at the rate of 10% of the unlisted equities with retrospective effect from 1st April 2013 without giving effect to the first and second proviso of Section 48. It is submitted that the general provisions must yield to the special provisions and in that regard reliance was placed on the judgment in the case of State of Gujarat v/s. Patel Ramjibhai AIR 1979 SC 1098. The learned counsel submitted that multiple remedies are available under the provisions of the Income Tax Act to the petitioner and that even if the addition is proposed, a draft order will be required to be passed and that could be a matter of appeal before the Dispute Resolution Panel before a demand gets finalized in the case. He accordingly submitted that the petition deserves to be dismissed. CONCLUSION: 26. We have heard the learned counsel at length. We are of the view that it is a clear cut case of change of opinion inasmuch as there is no new material which is discovered by the concerned officer. The application of another section of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Office has said about the order of the Commissioner of Income-tax (Appeals) while recording reasons under Section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the Assessing Officer to initiate proceedings under Section 147 of the Act. It is also equally well settled that if a notice under Section 148 has been issued without the jurisdictional foundation under Section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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