Aroni Commercials Ltd v. Deputy Commissioner Of Income Tax 2(1)]1

Digitallysigned byMEERAMEERAMAHESHMAHESHJADHAVJADHAVDate:2022.01.1015:41:37+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO.3983 OF 2021 The Great Eastern Shipping Co. Ltd. V/s. ….Petitioner National Faceless Assessment Centre/National e-Assessment Centre & Ors. …Respondents ---- Mr. P. J. Pardiwalla, Senior Advocate a/w Mr. Jitendra Jain i/b Mr. AtulJasani for PetitionerMr. Sham Walve for Respondents - Revenue ---- CORAM : K.R. SHRIRAM &R. N. LADDHA, JJ DATED : 3rd JANUARY 2022 P.C. : 1Petitioner received a notice dated 17[th] March 2020 under Section 148of the Income Tax Act 1961 (the Act) seeking to reopen the assessment forA.Y.-2015-2016. Petitioner replied to the said notice vide its letter dated 7[th]February 2021. The objections are rejected by an order dated 17[th] May2021. Both the notice dated 17[th] March 2020 and the order on objectiondated 17[th] May 2021 are impugned in this petition. Petitioner, inter alia, isengaged in the business of shipping, property development, financialoperations, dealing in mutual funds and granting of loans and advances.Petitioner is regularly assessed to Income Tax. According to petitioner, noticeissued under Section 148 is without jurisdiction for the following reasons:(i) The issue on which reopening of the concluded assessment is sought wasexamined in detail during the course of the regular assessment proceedings for the year under consideration and hence the impugned proceedings arebased on a mere change of opinion and a review of the original order passedunder Section 143(3) of the Act. (ii) There is no new tangible material which has come to the knowledge ofrespondents after the completion of the regular assessment proceedings, buton the contrary, it is an admitted position that the impugned proceedingsare based on material already on record at the time of completion of theoriginal assessment proceedings. Therefore, the impugned proceedings arewithout jurisdiction. (iii) On a true and proper interpretation of Section 47 read with Section47A of the Act, no prudent person could have formed a belief that anyincome has escaped assessment. (iv) The reasons as initially furnished to petitioner and the purportedreasons as reproduced in the order rejecting the objections and provided topetitioner thereafter are materially different and therefore the proceedingsare illegal. Further, the purported reasons furnished are undated andunsigned. (v)The purported reasons as furnished do not bear the date, signatureand approval of the authority specified under Section 151 of the Act andalternatively and without prejudice the approving authority has sanctionedthe impugned proceedings without application of mind to the reasonsrecorded and the assessment records of petitioner. (vi) The issue is fully covered by several decisions of the Hon’ble Supreme Court and of this Hon’ble Court and other Hon’ble High Courts wherein theview has been taken that if the jurisdictional conditions are not satisfied, theassessment cannot be reopened. (v)The purported reasons as furnished do not bear the date, signatureand approval of the authority specified under Section 151 of the Act andalternatively and without prejudice the approving authority has sanctionedthe impugned proceedings without application of mind to the reasonsrecorded and the assessment records of petitioner. (vi) The issue is fully covered by several decisions of the Hon’ble Supreme Court and of this Hon’ble Court and other Hon’ble High Courts wherein theview has been taken that if the jurisdictional conditions are not satisfied, theassessment cannot be reopened. 2Mr. Walve for respondents submitted that the issue as to why longterm capital loss of Rs.17,23,10,825/- should not be disallowed astransaction was not regarded as transfer within the meaning of Section47(iv) and (v) of the Act, since the preference shares were acquired fromthe flagship company Greatship India Ltd. has not been proved by theAssessing Officer during the original assessment proceedings as is clear fromthe assessment order dated 29[th] December 2017, in which the AssessingOfficer had clearly listed the items which has been proved and that does notinclude the capital loss issue. Mr. Walve submitted that, therefore, thejurisdictional Assessing Officer had sufficient reason to reopen theconcluded assessment. On the submissions made by Mr. Walve, it is settledlaw that once a query is raised during the assessment proceedings and theassessee has replied to it, it follows that the query raised was a subject ofconsideration of the Assessing Officer while completing the assessment. It isnot necessary that an assessment order should contain reference and/ordiscussion to disclose its satisfaction in respect of the query raised. It is alsosettled law that change of opinion does not constitute justification and/orreasons to believe that income chargeable to tax has escaped assessment.[Aroni Commercials Ltd. Vs. Deputy Commissioner of Income Tax 2(1)]1 1 (2014) 44 taxmann.com 304 (Bombay) After issuance of notice under Section 148 in response to petitioner’s requestto furnish them the reasons recorded prior to issuance of notice underSection 148, petitioner received a notice under sub Section (1) of Section142 dated 28[th] September 2020 by which, petitioner was called upon tofurnish explanation as to why long term loss of Rs.17,23,10,825/- shouldnot be disallowed as the transaction not regarded as transfer within themeaning of Section 47(iv) and (v) of the Act since the preference shareswere acquired from the flagship company Greatship India Ltd. 3Petitioner thereafter filed its objections and submitted that the noticeissued under Section 148 was bad, illegal and without jurisdiction because(a) the assessment for the year under consideration was completed underSection 143(3) of the Act vide order dated 29[th] December 2017, aftermaking detailed inquiries and after obtaining several details from petitioner,(b) the details of the transfer of preference shares were duly furnished inthe return of income and explained during the course of assessmentproceedings, and (c) reassessment has been resorted due to change ofopinion of the same set of fact which was not permissible in law. Petitioneronce again filed detailed objections which were disposed by an order dated17[th] May 2021 which is also impugned in this petition. According tojurisdictional Assessing Officer, from the statement of long term capital lossfiled by petitioner, it was seen that petitioner had purchased 1,45,00,000preference shares of Great Ship India Ltd. for a consideration ofRs.43,50,00,000/- during the F.Y.-2008-2009. Petitioner sold these preference shares during A.Y.-2015-2016 for a consideration ofRs.59,30,50,000/-. After indexing the cost at Rs.76,53,60,825/- claimedlong term capital loss of Rs.17,23,10,825/-. According to jurisdictionalAssessing Officer, in petitioner’s case redemption of preference shares cannotbe treated as transfer in terms of Section 47(iv) and (v) of the Act.Jurisdictional Assessing Officer also rejected petitioner’s contentions thatthere was change of opinion. 4Section 2(47)(ii) of the Act defines transfer in relation to capital assetincludes the extinguishment of any rights therein. In the second set ofreasons provided to petitioner, respondents accept that the Apex Court inAnarkali Sarabhai Vs. CIT (1996) 224 ITR 422 (SC) and Kartikeya SarabhaiVs. CIT (1997) 228 ITR 163 (SC) has held that redemption of preferenceshares has to be considered as transfer within the meaning of Section 2(47)of the Act, and loss on redemption thereof is an allowable long term capitalloss. Respondent has, however, carved out exception to petitioner becauseaccording to respondents, in petitioner’s case redemption of preferenceshares cannot be treated as transfer in terms of Section 47(iv) and (v) of theAct. 5On a plain reading of Section 47(iv) read with Section 47A of the Act,it is apparent that Section postulates that the capital asset which is thesubject matter of transfer continues to remain in existence even after thetransfer of capital asset. On the redemption of preference shares, the sharesare cancelled and the capital asset is extinguished and ceased to exist and, therefore, in our view, the provisions of Section 47(iv) are not applicable tothe transaction of redemption of preference shares. Transfer for the purposeof Section 47(iv) of the Act would mean transfer otherwise than by way ofextinguishment of asset and rights therein. 6Having considered the reasons, there is also no tangible materialcoming into existence after conclusion of regular assessment proceedingsand before recording of the reasons on the issues stated in the reasonsrecorded for reopening the case. The reasons itself suggest that there is nonew tangible material post the assessment proceedings and reassessment isstated to be made on the material already on record and considered at thetime of passing the original assessment order under Section 143(3) of theAct. In fact, by its letter dated 7[th] August 2017, petitioner had placed onrecord during the regular assessment proceedings a statement giving detailsof the long term capital loss incurred on the redemption of preferenceshares of Greatship India Ltd. during the year ended 31[st] March 2015 andthe factum of Greatship India Ltd being a wholly owned subsidiary. The factthat Greatship India Ltd was wholly own subsidiary was expressly stated inthe balance sheet filed by petitioner and also in the letter dated 19[th]September 2017 addressed by the Assessing Officer. Therefore, it cannot bestated that any new fact or material has come to light to alter this position. 7One more point which is required to be mentioned is, it is trite thatonly the reasons as furnished to assess can be looked into for testing thevalidity of reassessment proceedings. In this case, one set of reasons was 7One more point which is required to be mentioned is, it is trite thatonly the reasons as furnished to assess can be looked into for testing thevalidity of reassessment proceedings. In this case, one set of reasons was provided to petitioner and when objected to by petitioner, respondentsjustify the reopening by producing an undated and unsigned reasons whichwas never furnished to petitioner at any point of time prior thereto. We haveconsidered both the reasons and we do observe that the reasons asfurnished to petitioner vide letter dated 28[th] September 2020 and thereasons as reproduced in the order dated 17[th] May 2021 rejectingpetitioner’s objections, are different. In the first set of reasons as furnishedwith letter dated 28[th] September 2020, it is stated that the long term capitalloss cannot be disallowed as the transaction is not regarded as transferwithin the meaning of Section 47(iv) and 47(v) since preference shareswere acquired from Greatship India Ltd. Of course, the reasons also does notrecord that any income has escaped the assessment because it does not statethe loss has arisen because of redemption of preference capital but indicatethat the loss has arisen since preference shares were acquired from theflagship company. A capital loss can never arise on the acquisition of sharesbut only on the transfer or sale of shares. In the second set of reasons asreproduced in the order rejecting the objections, it is stated that petitionerhas sold preference shares resulting into long term capital loss. As noted inthe earlier part of this order, petitioner has not sold the preference sharesbut the shares were redeemed by Greatship India Ltd. and since onredemption there was a transfer of shares due to “extinguishment of rightstherein” the capital loss was claimed in the return of income. In our view,without appreciating or understanding the correct facts notice has been issued under Section 148 of the Act and that itself is enough for us toconclude that the jurisdictional conditions are not satisfied before theissuance of notice under Section 148 of the Act. 8For the reasons as noted earlier, in our view, the impugned notice and the order have to be quashed and set aside. Petition is, therefore, allowed in terms of prayer clause (a), which reads as under: “(a) this Hon’ble Court may be pleased to issue a writ of certiorari or awrit in the nature of certiorari or any other appropriate writ, order ordirection under Article 226 of the Constitution of India calling for therecords of the Petitioner’s case and after examining the legality andvalidity thereof quash and set aside the notice dated 17[th] March 2020(Exhibit H) issued by respondents under Section 148 of the Actseeking to reopen the assessment for the assessment year 2015-2016and order rejecting objections dated 17[th] May 2021 (Exhibit Q).” 9Petition disposed. (R. N. LADDHA, J) (K.R. SHRIRAM, J.)