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TMI Blog2024 (8) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, but any interpretation of law from any external source cannot constitute the requisite information for the purposes of section 147 of the Act. Other than the Revenue Audit Report, there is no new material as to the fact or law. Revenue audit pointed out the discrepancy in the method of computation of the long term capital gains. Revenue audit party was obviously referring to the applicability of section 50C of the Act to the sale that took place on 21/01/2009. The report of the Revenue Audit Party on the question whether or not section 50C of the Act is applicable to the sale dated 21/01/2009 is only its interpretation and opinion on that aspect and never will it partake the character of law and, therefore, such an interpretation of Revenue Audit Party is not information of law, but it is only its interpretation of law. Interpretation of law is no basis for reopening of proceedings u/s 147 of the Act. Knowledge gained by the AO about a law from a formal source subsequent to the conclusion of the assessment proceedings, stands on a different footing than the interpretation of the existing law by the Revenue Audit Party. We, therefore, find it difficult to agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneous and the provisions under section 50C of the Act are applicable in respect of the sale transaction held on 21/01/2009. Assessee objected to the same stating that the property in question which happened to be a fixed asset, was converted into stock in trade on 02/01/2008 in respect of which the capital gains were computed with reference to the Fair Market Value (FMV) of the property as on the date of conversion and taxes were paid in the assessment year 2009-10 in which it is sold, whereas on the sale of such stock in trade on 21/01/2009, the business profit/loss were computed in the assessment year 2009-10. Assessee, therefore, pleaded that when the sale took placed on 21/01/2009, the nature of the property was not a capital asset, but it was stock in trade and, therefore, section 50C of the Act has no application. 4. Learned Assessing Officer, however, did not agree with the said submission and on the other hand, in his order dated 20/03/2015 passed under section 143(3) read with section 147 of the Act, observed that the assessee failed to explain the application of section 50C of the Act for the purpose of computation of capital gains and, therefore, taking guidance from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was wrong and the learned Assessing Officer missed the vital aspects that were required for proper assessment. 9. We have gone through the record in the light of the submissions made on either side. Insofar as the information enabling the learned Assessing Officer to propose reopening of a concluded assessment, under section 147 of the Act is concerned, Hon ble Apex Court in the cases of P.V.S. Beedies (P.) Ltd. and R.K. Malhotra, Income-tax Officer (supra), held that the audit department was the proper machinery to scrutinise assessments made by the ITO and to point out errors of law contained therein, but such a view was disapproved in a subsequent decision in the case of Indian Eastern Newspaper Society (supra) wherein it was held that the expression information is an indispensable ingredient and it shall be in respect of either fact or law, and if it is in respect of law, it must flow from a formal source. The Assessing Officer himself must interpret and determine the law applicable to the facts of the case, but any interpretation of law from any external source cannot constitute the requisite information for the purposes of section 147 of the Act. 10. Now coming to the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the issue requires verification through scrutiny proceedings by reopening the assessment also further shows that the basis for reopening is not the reason to believe, but it is only a reason to suspect as has been held by the Hon ble Rajasthan High Court in the case of Mukesh Modi vs. DCIT [2014] 45 taxmann.com 468 (Rajasthan), wherein while looking at the reasons for reopening of the assessments was for verifying or verification of the existing material, the Hon ble Court found that such an action of reopening by the learned Assessing Officer per se, founded on mere change of opinion and the same cannot satisfy the legislative intent that the learned Assessing Officer had reason to believe that any income chargeable to tax had escaped. For the sake of completeness, we deem it just and proper to refer to the relevant observations of the Hon ble High Court hereunder,- 53. While examining the matter in its entirety and on the basis of findings and conclusions recorded supra, in my considered opinion, notices issued to the assessees by the AO under Section 147/148 of the Act are not satisfying the pre-requisites for the same. There is no whisper in the notice, or iota of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were computed at Rs. 3,79,39,675/- and on that basis, the income was declared at Rs. 2,38,14,880/-. The said stock in trade was sold on 21/01/2009 at Rs. 11.53 crores, but the registration authorities valued the same at Rs. 16.12 crores for levying the stamp duty, but the assessee did not object to the same firstly because of their dire need for funds and secondly because such stamp duty was to be borne by the transferee. Assessee, however, maintains that insofar as there is no dispute as to the conversion of the property from capital asset to the stock in trade remains undisputed, the sale of stock in trade does not attract the provisions under section 50C of the Act. 16. The assessment order dated 20/03/2015 clearly speaks that the case of the assessee has been that there was no capital asset as such involved in the sale dated 21/01/2009 because one year prior thereto such capital asset ceased to exist on its conversion into stock in trade. Since no capital asset was there involved in the sale transaction, section 50C of the Act has no application. Assessee also referred to the decisions reported in the cases of CIT vs. Thiruvengadam Investments Pvt. Ltd., and Inderlok Hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sham and an attempt to device a method to avoid capital gains tax on transfer of land to firm. In the other case, Saras Metals (P.) Ltd., (supra), the main object of assessee company was to carry on business of manufacturing etc., of all kinds of ferrous and non-ferrous material and, therefore, the investment in the plot was not towards stock in trade and, therefore, any gain on sale of such property would be taxed as short term capital gain. 19. Neither of these cases are similar in facts to the case of the assessee. On the other hand, the conversion of the capital asset into stock in trade has never been in dispute. It is not the case of learned Assessing Officer or learned CIT(A) that the conversion of the capital asset into stock in trade was a sham and nominal transaction devised to evade tax, but on the other hand, such an issue attained finality in assessee s own case for the assessment year 2008-09 by order dated 05/07/2016 in ITA No. 190/Hyd/2012. Facts are like this. Assessee converted the capital asset into stock in trade on 02/01/2008 and sold a part of it on 31/03/2008. The assessment for the assessment year 2008- 09 was revised by the learned CIT(A) under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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