Forbes & Co Ltd, Mumbai v. The Assistant Commissioner Of Incometax 1(1)(2), Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3580 OF 2018 Forbes & Co Ltd, Mumbai..Petitioner Versus The Assistant Commissioner of IncomeTax 1(1)(2), Mumbai & Ors...Respondents ................... •Mr. Madhur Agrawal i/by Mr. Atul Jasani for the Petitioner •Mr. Suresh Kumar for Respondent Nos. 1 and 2 ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 25, 2019. P.C.: 1.At the request of the learned counsel for the parties,the petition is heard finally. 2.This petition under Article 226 of the Constitution ofIndia challenges a notice dated 26.2.2018 issued underSection 148 of the Income Tax Act, 1961 ("the Act" for short).The impugned notice is seeking to reopen the assessmentfor the assessment year 2011-12. 3.For the subject assessment year, the petitioner filed itsrevised return of income on 30.3.2012 declaring loss of Rs.10.76 crore. During the course of scrutiny proceedings,the petitioner had filed a letter dated 6.3.2014 wherein ithad disclosed that the income earned by the petitioner onsurrender of the shares under buy back-schemes of thesubsidiary company is not chargeable to tax under Section47(iv) and 47(v) of the Act as the said transactions arebetween the parent and the wholly owned subsidiarycompany. The Assessing OfÏcer did not dispute the claimmade by the petitioner in its letter dated 6.3.2014. TheAssessing OfÏcer thereafter passed an order on 21.3.2014under Section 143(3) of the Act reducing the loss claimed bythe petitioner from Rs. 10.76 crore to 2.71 crore. 4.On 26.2.2018, the impugned notice was issued seekingto reopen the assessment for assessment year 2011-12.The reasons recorded by the Assessing OfÏcer reads asunder:-to reopen the assessment for assessment year 2011-12.The reasons recorded by the Assessing OfÏcer reads asunder:- " In this case, the assessee filed the return of income on30.3.2012 for AY 2011-12 disclosing total income at Rs. (-)10,76,84,249/-. The assessment was completed u/S. 143(3) on21.3.2014 determining total income at Rs. (-) 2,71,86,775/-.30.3.2012 for AY 2011-12 disclosing total income at Rs. (-)10,76,84,249/-. The assessment was completed u/S. 143(3) on21.3.2014 determining total income at Rs. (-) 2,71,86,775/-. Thereafter, the total income was determined at Rs. (-) 10,76,84,249/-vide order dated 8.5.2017 giving effect to CIT(A) order dated20.3.2017. From the schedule"6" Investments (unquoted) to the balancesheet dated 31.3.2011, it is seen that the assessee surrendered 9615equity shares of Volkart Fleming Shipping & Services Limited for BuyBack and 2,27,000 equity shares of Eureka Forbes Limited for buyback. On surrendering the shares for Buy Back, the assesseeearned a profit of Rs. 16,23,84,125/- [Rs. 73,69,573 (VFSSL) + Rs.15,50,14552 (Eureka Forbes Limited)]. This profit of Rs.16,23,84,125/- from sale of investment is credited to the profit andloss account. This amount was claimed exempt as per Section 47(iv)and (v) of the Act in the computation of income. The provisions of Section 46A of the I.T. Act 1961 deal withcapital gains arising on purchase by company of its own shares orother specified securities and provide for taxation of the differencebetween the cost of acquisition and the value of considerationreceived by the shareholder or the holder of other specified securitiesshall be deemed to be capital gains arising to such shareholder. The provisions of Section 46A of the I.T. Act 1961 deal withcapital gains arising on purchase by company of its own shares orother specified securities and provide for taxation of the differencebetween the cost of acquisition and the value of considerationreceived by the shareholder or the holder of other specified securitiesshall be deemed to be capital gains arising to such shareholder. The assessee has claimed exemption by virtue of provisionsof section 47(iv) and 47(v) of the Act. However, the provisions ofSection 47 are applicable to capital gains taxable under Section 45 ofthe Act. The provisions of Section 46A are special provisions whichare attracted in the case of buy back. The provisions of Section 47do not exclude the provisions of Section 46A in the circumstancesmentioned in the various clauses of Section 47. Hence, the claim ofexemption of Rs. 16,23,84,125/- arising on account of surrendering ofshares for buy back is incorrect. The issue of claim of exemption on capital gains arising onsurrendering of shares for buy back, was not examined by the assessing officer nor any submissions were made by the assessee inthis regard. Hence, this is not a case of change of opinion. Further,the assessee has failed to make disclose fully and truly all materialfacts necessary for his assessment." 5.The petitioner objected to the reasons recorded in support of notice for reopening by its letter dated22.11.2018. The Assessing OfÏcer rejected the objections byorder dated 29.11.2018 leading to filing of this petition onthe ground that the impugned notice is without jurisdiction. 6.We have heard learned counsel for the parties and onperusal of the reasons recorded in support of impugnednotice, the following facts emerge:- i. The notice has been issued beyond the period of four yearsfrom the end of relevant assessment year i.e Assessment Year2011-12 in a case where assessment was completed under Section143(3) of the Act. ii. The reasons as recorded do not indicate any failure on thepart of the petitioner to disclose fully and truly all material factsnecessary for reassessment. In fact, the basis of the notice is noton the basis of any fresh material obtained by the Assessing Officerbut on the material which was before the Assessing Officer at thetime of regular assessment proceedings leading the order underSection 143(3) of the Act. Thus, the impugned notice would be hit by first proviso toSection 147 of the Act. 7.Mr. Suresh Kumar, the learned counsel in support ofthe Revenue submits that there has been a failure on thepart of the petitioner to fully and truly disclose all materialfacts in as much as they did not bring the attention of theAssessing OfÏcer, to the provisions of Section 46A of the Actwhich would apply in the facts of this case. It is only nowthat the Assessing OfÏcer has realized that Section 46A ofthe Act would apply. Thus, there was a failure on the part ofthe petitioner to disclose fully and truly all material factswhich were necessary for assessment. 8.We note that long back in the case of CalcuttaDiscount Co. Ltd Vs. I.T.O.[1], it has been held that theobligation on the part of the assessee is to disclose fully andtruly all primary material facts which are necessary forassessment. Undisputedly, the fact that the the petitionerhad received income on surrender of shares under buy backscheme of the subsidiary company was the material primaryfacts which was disclosed before the Assessing OfÏcer duringthe course of regular assessment proceedings. Thus, there141 ITR 191 was complete disclosure of all primary material facts duringthe regular assessment proceedings, reopening is notjustified. 8.We note that long back in the case of CalcuttaDiscount Co. Ltd Vs. I.T.O.[1], it has been held that theobligation on the part of the assessee is to disclose fully andtruly all primary material facts which are necessary forassessment. Undisputedly, the fact that the the petitionerhad received income on surrender of shares under buy backscheme of the subsidiary company was the material primaryfacts which was disclosed before the Assessing OfÏcer duringthe course of regular assessment proceedings. Thus, there141 ITR 191 was complete disclosure of all primary material facts duringthe regular assessment proceedings, reopening is notjustified. 9.In the above view, it cannot be said that there was anyfailure on the part of the petitioner to disclose fully and trulyall material facts necessary for reassessment. Thus, theimpugned notice is hit by first proviso of Section 147of th Actand is without jurisdiction. Accordingly, impugned notice isquashed and set aside. Petition disposed of. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]