Loonchand Dhanraj HUF Vs ACIT (Gujarat High Court)
Summary: The Gujarat High Court allowed the writ petition filed by Loonchand Dhanraj HUF and quashed the notice dated 29.03.2019 issued under Section 148 of the Income-tax Act, 1961 for Assessment Year (AY) 2012-13, along with the order dated 04.10.2019 disposing of the petitioner’s objections to reopening the assessment. The Court held that the reassessment was founded on the self-same issue concerning shares of Prissm Remedies Pvt. Ltd. which had already been examined during the original scrutiny assessment and therefore amounted to a mere change of opinion.
The petitioner had filed its return of income for AY 2012-13 on 22.09.2012 declaring total income of Rs.21,32,370/- and subsequently filed a revised return on 31.03.2014. The return disclosed details of shares in Prissm Remedies Pvt. Ltd. under “Income From Short Term Capital Gain”, while the audit report disclosed 3,10,000 equity shares invested in that company and 3,10,000 equity shares sold during the same year.
The return was subjected to scrutiny assessment under Section 143(3) of the Act. A notice under Section 142(1) read with Section 129 was issued on 09.10.2014, specifically calling upon the petitioner to furnish information concerning the purchase and sale of shares and securities of Prissm Remedies Pvt. Ltd. The Assessing Officer subsequently sought further details concerning the transactions, valuation of shares, premium issued, minutes of Board meetings, valuation reports and Board resolutions relating to bonus shares.
The petitioner furnished detailed documentary material, including its bank statement, share certificates, Form No. 2 for allotment of shares, Board Resolution concerning issue of bonus shares, valuation based on book value and valuation based on net worth. After considering the replies and material, the Assessing Officer passed the assessment order under Section 143(3) on 09.03.2015. Section 143(3) scrutiny assessment material on TaxGuru
Subsequently, the Assessing Officer issued the impugned notice dated 29.03.2019 under Section 148, seeking to reopen the assessment. The petitioner requested the reasons recorded for reopening and was supplied those reasons by letter dated 22.04.2019. TaxGuru material on Section 148 reassessment notices
Before the High Court, the petitioner argued that the reopening constituted a mere change of opinion because the issue concerning undervaluation of the shares had already been examined during the scrutiny assessment. It was submitted that there was no fresh tangible material which could justify reopening the concluded assessment.
The Revenue opposed the petition. Its Senior Standing Counsel submitted that information had been received from the Deputy Director of Income Tax (Investigation), Unit 1, Ahmedabad, according to which the petitioner had purchased shares for Rs.3,41,00,000/- on 05.01.2012 from Prissm Remedies Pvt. Ltd. and sold the shares for Rs.34,10,000/-. The Revenue contended that the shares had subsequently been split in the ratio of 1:10, reducing their value from Rs.110/- to Rs.11/- per share. According to the Revenue, the petitioner could not take the original purchase price of Rs.110/- per share against the sale price after the split. Consequently, the loss of Rs.3,06,60,000/- claimed by the petitioner and adjusted against long-term capital gain of Rs.8,86,47,303/- was alleged to be non-genuine and bogus.
The Revenue further contended that the information received from the DDIT constituted new tangible material and that the Assessing Officer had independently applied his mind to that information before forming a belief that the loss arising from the share split was not genuine and that income chargeable to tax had escaped assessment because of failure to disclose fully and truly all material facts.
Upon examining the record, however, the High Court found that the petitioner had disclosed the share transactions and that the very transaction had been specifically scrutinised during the original assessment proceedings. The notice issued under Section 142(1) had expressly required the petitioner to explain the purchase and sale transactions in Prissm Remedies Pvt. Ltd., including the apparently higher purchase price and substantially lower sale price. The petitioner had also been required to furnish share rates, details of unquoted shares and explanations for the sale at a lower cost, together with supporting evidence.
The Court noted that the petitioner had furnished the requested details and explained the working of valuation of the shares. After considering the documentary evidence and explanation, the assessment order dated 09.03.2015 was passed under Section 143(3).
The Court then examined the reasons for reopening dated 12.04.2019 and found that the reopening was premised on the same issue relating to the shares of Prissm Remedies Pvt. Ltd. The reasons referred to information that the shares had been split in the ratio of 1:10, thereby reducing their value from Rs.110/- to Rs.11/- per share.
The Court held that, for the self-same reasons already examined during the scrutiny assessment proceedings, the Assessing Officer had resorted to reopening. It therefore concluded that the reopening was “nothing but a mere change of opinion”. The Court stated that such reopening is impermissible unless it is shown that the Revenue possesses fresh tangible material demonstrating that income chargeable to tax escaped assessment and that there had been suppression of material facts by the petitioner.
Accordingly, the Gujarat High Court held that the writ petition succeeded and quashed and set aside both the impugned notice dated 29.03.2019 issued under Section 148 and the impugned order dated 04.10.2019 disposing of the petitioner’s objections. The Rule was made absolute.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. By this writ petition, the petitioner has prayed for quashing and setting aside the notice dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961 (for short “the Act”) and the order dated 04.10.2019 disposing of the objections raised by the petitioner for reopening the assessment.
2. It is the case of the petitioner that for the Assessment Year (AY) 2012-13, it had filed its return of income on 22.09.2012 declaring total income of Rs.21,32,370/-. Further Revised Return of Income was filed on 31.03.2014. In Computation of income, there is mention of shares details in Prissm Remedies Pvt. Ltd. under the head “Income From Short Term Capital Gain” and the audit report contains the Non-current investment details in schedule “E” in which 3,10,000 Equity shares invested in Prissm Remedies Pvt. Ltd. and 3,10,000 Equity shares are sold during same year is clearly mentioned. During the assessment proceedings under section 143(3) of the Act, the notice under section 142(1) read with section 129 of the Act was issued on 09.10.2014, calling upon the petitioner to furnish the information relating to the transaction of sale and purchase made in share and securities of Prissm Remedies Pvt. Ltd. The respondent has issued a letter dated 03.12.2014 requiring necessary details of transaction of sale and purchase of share of Prissm Remedies Pvt. Ltd. in paragraph Nos. 2(i) to 2(iv) and 2(vii).
3. In response, the petitioner filed a reply dated 08.12.2014 disclosing complete details of transactions of shares of Prissm Remedies Pvt. Ltd. Again the respondent issued a letter dated 31.12 2014 for more details of valuation of share and premium issued of Prissm Remedies Pvt. Ltd. The respondent vide letter dated 13.02.2015 called upon to produce the minutes of meeting of Board of Directors, valuation report for determination of valuation of shares and Board Resolutions for issuance of bonus shares. Accordingly, the petitioner filed a detailed reply by the letter dated 16.02.2015 enclosing copy of the bank statement of the HUDF bank, Xerox copy of shares certificates, Form No.2 for allotment of shares with Board Resolution regarding issue of bonus shares, copy of valuation of book value of shares, copy of shares valuation on net worth basis. After considering all the replies, the assessment order dated 09.03.2015 under section 143(3) of the Act was passed.
4. Subsequently, the respondent issued a notice dated 29.03.2019 under section 148 of the Act seeking reopening of the assessment alleging that the income has escaped assessment for the AY 2012-13 and asked the petitioner to file the return. The petitioner replied by a letter dated 03.04.2019 requesting the respondent to give a copy of the reasons recorded therein. Thereafter, vide letter dated 22.04.2019, the respondent had supplied the reasons for re-opening.
5. Learned advocate Mr.Mehta has submitted that the reopening of the assessment is nothing but a mere change of opinion, as the issue with regard to the undervaluation of shares was already examined in the scrutiny assessment and upon satisfactory explanation tendered by the petitioner, the assessment order dated 09.03.2015 was passed under Section 143(3) of the Act. Thus, it is submitted that there was no fresh tangible material available, which would have impressed upon the Assessing Officer, to reopen the assessment.
6. Opposing the aforementioned submissions, learned Senior Standing Counsel Mr.Patel, has submitted that the assessment was reopened on the ground that the information was received from the Deputy Director of Income Tax (Investigation), Unit 1, Ahmedabad (for short “the DDIT”) that the petitioner had purchased the shares of Rs.3,41,00,000/- on 05.01.2012 from Prissm Remedies Pvt. Ltd. and the said shares had been sold for Rs.34,10,000/-. He has submitted that it was found that the shares were split in the ratio 1:10 and the value of the shares got reduced from Rs.110/- to Rs.11/- of each share and, therefore, the petitioner, while computing capital gain, cannot take initial purchase price of each split shares against sale price. It is submitted that the purchase price of shares, after splitting, is Rs.11/- and not Rs.110/- and hence, the loss shown by the petitioner upon splitting of shares is not genuine. He has submitted that the loss of Rs.3,06,60,000/- claimed by the petitioner in the return in AY 2012-13 and adjusted against long term capital gain of Rs.8,86,47,303/- is not genuine and bogus to avoid tax on long term capital gain.
7. Learned Senior Standing Counsel Mr.Patel has submitted that the Assessing Officer upon receipt of this information and after due independent application of mind on the material upon the information so received, had reason to believe that such loss claimed by the splitting was not genuine and income chargeable to the extent of Rs.3,06,60,000/- has escaped assessment due to failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. He has submitted that there is a new tangible material in the form of information received from the DDIT, that such loss claimed by the petitioner is pursuant to stock splitting. Upon receipt of such information, the respondent independently applied his mind and has recorded reason to believe that the purchase price ought to have been taken at Rs.11/- based on such stock split and not Rs.110/- per share. Therefore the loss of Rs.3,06,60,000/- has escaped assessment. Thus, it is urged that the writ petition may not entertained.
8. We have heard the learned advocates appearing for the respective parties and also perused the documents, as pointed out by them.
9. The facts, which are established from the record, are that the petitioner filed his return of income on 22.09.2012 for the Assessment Year (AY) 2012–13 declaring its total income of Rs.21,32,370/-. Further, revised return of income was filed on 31.03.2014.
10. It is not in dispute that in the declared income, the petitioner has disclosed share details of Prissm Remedies Pvt. Ltd. and selling of equity shares invested in such entity. The return of income was subjected to scrutiny assessment proceedings under Section 143(3) of the Act and accordingly, a notice under Section 142(1) read with Section 129 of the Act was issued to the petitioner on 09.10.2014.
11. On perusal of the aforesaid notice, we find that the petitioner is specifically called upon to explain the transaction of sale and purchase made in shares and securities of Prissm Remedies Pvt. Ltd. The petitioner was called upon to produce the copy of invoices issued by the broker and corresponding entries showing in the Demat account. It was specifically alleged by the Assessing Officer that the computation statement of total income reflects that the purchase of the shares has been made on higher price cost, whereas the sale has been made on a very lower side. Accordingly, the petitioner was asked to furnish the rates of shares of Prissm Remedies Pvt. Ltd. between 05.01.2012 to 20.03.2012. The petitioner was also asked to furnish the details of unquoted shares held by it during the last two years and the next two subsequent years, and the capital gain/loss shown/offered by it. Further explanation was also sought to explain the sale of such shares at a lower cost with supporting evidence and accordingly, the petitioner furnished all the details to the Assessing Officer. The petitioner also explained the working of valuation of shares of Prissm Remedies Pvt. Ltd.
12. After the detailed documentary evidence and explanation was tendered, the assessment order dated 09.03.2015 was passed under Section 143(3) of the Act. After passing of such order, the petitioner was issued the notice under Section 148 of the Act seeking reopening of the assessment order dated 29.03.2019. The petitioner was also supplied the reasons for reopening. It is noticed by us upon the perusal of the reasons dated 12.04.2019 that the reopening of the assessment is premised on the same issue relating to the shares of Prissm Remedies Pvt. Ltd. It was alleged that upon information received by the office of the DDIT, it was noticed by the Department that the shares were split to 1:10 and thereby the value of such shares was brought down from Rs.110/- to Rs. 11/- for each share.
13. Thus, for the self-same reasons, which were already examined in the scrutiny assessment proceedings, the reopening of the assessment is resorted to by the Assessing Officer, which is nothing but a mere change of opinion. Hence, as per settled legal precedent, such an exercise of reopening assessment is impermissible unless it is shown that the revenue is in possession of fresh tangible material showing that the income chargeable to tax has escaped assessment and there has been suppression of material facts by the petitioner.
14. In this view of the matter, the writ petition succeeds. The impugned show-cause notice dated 29.03.2019 and the impugned order dated 04.10.2019 are hereby quashed and set aside. Rule made absolute.
