Sarita Shetty Vs DCIT (ITAT Bangalore)
Summary: The assessee had invested ₹21 lakh in 700 unsecured convertible bonds of Mysore Polymers and Rubber Products Private Limited in June 2011, which were converted in July 2014 into 7,000 equity shares at ₹34 per share. The Assessing Officer determined the fair market value at ₹65.85 per share and treated the differential amount of ₹25,09,500 as taxable income under section 56(2)(vii)(c) of the Income-tax Act, 1961 for assessment year 2015-16, leading to reassessment proceedings under section 147. Before the Bangalore ITAT, the assessee contended that she had specifically requested the recorded reasons for reopening by letters dated 17 April 2021 and 9 July 2021, but the reasons had not been supplied before completion of reassessment, contrary to the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19). The Assessing Officer’s factual report before the Tribunal itself stated that no evidence was available to show that the recorded reasons had been communicated or furnished to the assessee and that no correspondence enclosing those reasons was available on record. Relying on the Karnataka High Court decision in PCIT v. V. Ramaiah (2019) 103 taxmann.com 201 (Karnataka) and the Supreme Court decision in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19), the Tribunal held that the recorded reasons had not been furnished despite the assessee’s request and quashed the reassessment order. Consequently, the Tribunal did not adjudicate the remaining grounds, including the merits of the ₹25,09,500 addition under section 56(2)(vii)(c), and the appeal was partly allowed.
