Brief of the Case
ITAT Mumbai held in the case of DCIT v. Rama Capital and Financial Services Ltd. that without any substantive ground reopening cannot be done on the basis of change of opinion. It Further held that without any supporting material, the A.O. cannot substitute market value.
Summary of the Case
In the present facts of the case there are two issues which are as follows:
Issue of reassessment
Assessment was reopened u/s 147 to bring to tax claim of finance charges by the assessee, to disallow interest claimed by assessee for diversion of interest bearing activities and loss claimed on sale of shares and debentures. Notice u/s. 148 was issued on 30.03.2007. In response to the notice issued, assessee filed a copy of return of income the same as declared in the original return of income filed. The assessee also requested to disclose the reasons for reopening of the assessment. Subsequently, the financial charges and loss claim on sale of shares and debentures was disallowed. The ld. CIT(A) held that the reopening is simply a change of opinion without any new information received in that particular year from the date of original assessment to the date of this assessment order, as held by the Apex Court in the case of Kelvinator of India Ltd. 320 ITR 561(SC). Accordingly, this is simply change of opinion & hence the original assessment cannot be reopened on such grounds.
Accordingly, the decision was in the favour of the assessee.
The Hon’ble tribunal held that the order of the A.O, nowhere speaks about having a new material or any tangible material to reopen the case. Further, it was observed that it is well settled proposition that reopening cannot be done on the basis of change of opinion by relying on the decision of Hon’ble Supreme Court in the case of Kelvinator of India Ltd. 320 ITR 561(SC). Therefore, the appeal filed by the revenue was dismissed on this issue.
Issue of selling of shares at Re. 1
The facts were that the assessee company sold the shares of Rs.7,99,800/- of M/s. Rainbow Agri Industries Ltd., at a face value of Rs.1/-. The A.O. was not satisfied with the selling price and determined value of each share at Rs. 3.50/- on the basis of market value. However, the learned CIT(A) accepted the sale price at Rs.1.00 per share.
The Hon’ble Tribunal considered the case of Rupee Finance & Management (P) Ltd. Vs. ACIT 7(2), Mumbai (22 SOT 174) where the question was Whether under section 48 starting point for computation of capital gains is amount of full value of consideration received or accruing as a result of transfer of capital asset and expression ‘full consideration’ cannot be construed as having reference to market value of assets transferred but refers to price bargained for by parties and it cannot refer to adequacy of consideration. It was held that where assessee companies transferred shares to a group company under an arrangement at cost for which they purchased those shares and there was no material to show that assessee had received more than what had been disclosed in books, difference between ‘fair market value’ and cost at which shares were transferred could not be brought to tax under head ‘Capital gains’.
Further, the Hon’ble Tribunal relied on the Judgment of K.P.Varghese Vs. ITO (1981) 131 ITR 597, where it was held that The burden may be discharged by the revenue by establishing facts and circumstance from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is understatement of concealment of the consideration in respect of the transfer. Therefore, section 52(2) had no application to the present case and the ITO could have no reason to believe that any part of the income of the assessee had escaped assessment so as to justify the issue of a notice under section 148.
By applying the ratio of the above cases in the present case, the Hon’ble Tribunal held that the A.O. determined fair market value at Rs. 3.50/- without bringing any material on record to show that the assessee received more than the agreed consideration. Therefore, without any supporting material, the A.O. cannot substitute market value. Accordingly, this issue was also decided in the favour of the Assessee.