Shridhar B. Shukla v. Assistant Commissioner Of Income Tax Circle-7, Pune And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.1727 OF 2014 Shridhar B. Shukla....Petitioner.VS.Assistant Commissioner of Income Tax Circle-7, Pune and ors....Respondents. Mr. Mihir C. Naniwadekar for the Petitioner.Mr. Tejveer Singh for the Respondents. CORAM : MOHIT S. SHAH, C.J. AND M.S. SANKLECHA, J. DATE : 20 FEBRUARY 2014 PC: Rule, returnable forthwith. By consent of the parties the petition is taken up for final hearing. 2)Challenge in this petition is to: a) the notice dated 22 March 2013 issued under Section 148 of the Income Tax Act, 1961 (“the Act”) seeking to reopen the assessment proceeding for assessment year 2006-07 andb)the order dated 12 January 2014 of the Assessing Officer disposing of the petitioner's objection to the reopening of assessment proceeding for assessment year 2006-07. 3)On 27 July 2006, the petitioner filed his return of income disclosing the total income of Rs.7.5 crores. On 28 February 2008, the Assessing Officer by an order under Section 143(3) of the Act assessed the petitioner to Rs.7.06 crores for the assessment year 2006-07. 4)Thereafter, on 22 March 2013 the Assessing Officer issued the impugned notice under Section-148 of the Act seeking to reassess the petitioner's income for assessment year 2006-07. Thereafter in response to the petitioner's request the Assessing Officer on 4 December 2013 furnished to the petitioner reasons recorded before issuing a notice dated 22 March 2013 under Section 148 of the Act. The reasons as recorded read as under: “Reasons recorded for reopening in the case ofShri. Shridhar Bhalchandra Shukla for A.Y.2006-07 Assessment in this case has been made on 28-02-2008 for A.Y. 2006-07 at an income of Rs.7,06,26,050.The AO has disallowance on account of HRA exemption. Assessee has shown long term capital gain on sale of shares of Persistant Systems Pvt. Ltd. Necessary confirmation has also been given by the company during the Assessment proceedings. Assessee has sold the following shares the details of which are as under: By perusing the above chart it is clear that the assessee has sold the shares in the scheme of Buyback on 06-01-06 @ Rs.251 per share. This share price is therefore the Fair market value of shares as per assessee's own admission/ But the assessee has sold the shares of same company to PSPL ESOP Management Trust and Trust of the same company last 20 days before that date i.e. on 16-12-05. The notice to the shareholders as per Companies Act ought to have been issued 21 days before the Board meeting authorizing buyback of shares. Thus it would be clear that assessee it appears was aware that the company was contemplating buyback of shares @ 251 per share. Thus the assessee has sold shares @ 143 when it appears he was aware that the buyback offer was @ 251. Thus there is suppression in sale price of shares of Pvt. Ltd. of Rs.108 per shares and the value of suppressed sale proceeds of 291420 shares comes to Rs.3,14,73,360. Therefore the A.O. Gravely erred in non taking these suppressed sale receipts of Rs.3,14,73,360. I have reasons to believe that income of Rs.3,14,73,360/- has escaped assessment. Issue notice u/s.148. Approval from CIT-IV for reopening the case has been received vide his letter dated 22-3/2-13. Issue notice u/s.148. Notice u/s 148 issued to the assessee on 22.3.2013.” 5)In response to the above reasons the petitioner by his letter dated 19 December 2013 objected to the same by pointing out that the notice to reopen the assessment is based on mere change of opinion amounting to review. It was pointed out that all the material on which the assessment is sought to be reopened was available during the proceeding leading to the assessment order dated 28 February 2008 for assessment year 2006-07. In view of the above, it was submitted that the reopening of the assessment for assessment year 2006-07 is not in order. Notice u/s 148 issued to the assessee on 22.3.2013.” 5)In response to the above reasons the petitioner by his letter dated 19 December 2013 objected to the same by pointing out that the notice to reopen the assessment is based on mere change of opinion amounting to review. It was pointed out that all the material on which the assessment is sought to be reopened was available during the proceeding leading to the assessment order dated 28 February 2008 for assessment year 2006-07. In view of the above, it was submitted that the reopening of the assessment for assessment year 2006-07 is not in order. 6)On 12 January 2014, the Assessing Officer disposed of the objections of the petitioner by holding that the reopening by a notice dated 22 March 2013 under Section-148 of the Act is valid and not on account of change of opinion. In support the order dated 12 February 2014 rejecting the objections it was recorded as under:- “During the year under assessment the assessee has sold the following shares the details of which are given as under: On perusal of the chart as above and the facts of this case the Assessing Officer has noticed that the assessee has sold shares in scheme of Buyback on 06-01-2006 @ Rs.251 per share. This share price is therefore the Fair market value of shares as per assessee's own admission. But the assessee has sold the shares of same company to PSPL ESOP Management Trust a Trust of the same company just 20 days before that date i.e. 16-12-2005. The notice to the shareholder as per companies Act ought to have been issued 21 days before the Board meeting authorizing buyback of shares. Thus, it would be clear that assessed it appears was aware that the company was contemplating buyback of shares @ 251 per share. Thus the assessee has sold shares @ 143 when it appears he was aware that the buyback offer was @ 251. Thus, there is suppression in sale price of shares of Rs.108 per shares and the value of suppressed sale proceeds of 291420 shares comes to Rs.3,14,73,360. Therefore, there is an under Assessment of income amounting to Rs.3,14,73,360/-.” 7)Mr. Naniwadekar learned Counsel for the petitioner in support of the petition submits as under : a)The assessment sought to be reopened by impugned notice dated 22 march 2013 is beyond the end of four years from the end of the assessment year 2006-07.This can only be done if there is a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The assessment order dated 28 February 2008 for assessment year 2006-07 was passed under Section 143(3) of the Act after considering the same material which forms the basis of the impugned notice dated 22 March 2013. This is evident from the fact that in the impugned notice dated 22 March 2013 there is no allegation in the reasons for reopening or even in the order dated 13 January 2014 rejecting the petitioner's objection that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. Thus the jurisdictional requirement to reopen the assessment is not satisfied. b)The impugned notice dated 22 March 2013 is ex facie unsustainable as the underlying basis is to substitute the words “full value of consideration received” by the words “fair value” under Section 48 of the Act. It is under Section 48 of the Act that the capital gains are computed .Therefore, the impugned notice is not sustainable. c)The fact that the petitioner had sold 291420 of shares on 16 December 2005 to PSPL ESOP Management Trust at a price of Rs.143/- per share and on 6 January 2006, 393580 shares of Persistent Systems Limited were sold to the company in its scheme of buyback at the rate of Rs.251/- per share. In fact, attention was invited to enquiry b)The impugned notice dated 22 March 2013 is ex facie unsustainable as the underlying basis is to substitute the words “full value of consideration received” by the words “fair value” under Section 48 of the Act. It is under Section 48 of the Act that the capital gains are computed .Therefore, the impugned notice is not sustainable. c)The fact that the petitioner had sold 291420 of shares on 16 December 2005 to PSPL ESOP Management Trust at a price of Rs.143/- per share and on 6 January 2006, 393580 shares of Persistent Systems Limited were sold to the company in its scheme of buyback at the rate of Rs.251/- per share. In fact, attention was invited to enquiry made with regard to sale of shares during the course of assessment proceeding under Section 143(3)of the Act. In particular, the petitioner was asked for details of capital gain on shares. It is the petitioner's case that during the assessment proceeding not only the details of capital gain on shares were given but petitioner had also submitted the letter of confirmation dated 11 February 2008 from the buyers of the shares namely PSPL ESOP Management Trust and the company i.e. Persistant Systems Limited indicating the purchase of shares and the price at which the same were purchased. All the aforesaid material was therefore, subject of consideration by the Assessing officer before passing the assessment order. Therefore, the impugned notice is on account of mere change of opinion. 8)Mr. Tejveer Singh, learned counsel for the revenue supports the impugned notice dated 22 March 2013 as well as order dated 12 January 2014 rejecting the petitioner's objection to reopening of the assessment. The learned Counsel reiterates the reasons set out in the order dated 12 July 2014. 9)We have considered the rival submissions. In this case the notice has been issued on 22 March 2013 seeking to reopen the assessment for assessment year 2006-07. Therefore, undisputedly the impugned notice dated 22 March 2013 is beyond a period of 4 years from the end of the assessment year. It is trite law that when an assessment is sought to be reopened beyond a period of 4 years from the end of the relevant assessment year not only must there be reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped assessment but there must also be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. There is no allegation either in the reasons for reopening of the assessment or any finding in the impugned order dated 14 January 2014 that there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. The reasons for reopening as well as the impugned order dated 12 January 2014 proceed on the basis that the petitioner ought to have known that the company was contemplating buyback of its shares at Rs.251/- per share and that this not sharing of information amount to suppression. This is merely an opinion/inference drawn not from any tangible material such as notice etc. but merely on the suspicion that the petitioner ought to have known. There is no tangible material to indicate that the petitioner had knowledge on the date when it sold 291 lacs shares to PSPL ESOP Management Trust at Rs.143/- per share that there was to be a scheme of buyback of share at Rs.251/- per share in the future. The aforesaid allegation of suppression is made without any factual basis in support of the same. 10)Besides on the aforesaid material a view had been taken by the Assessing Officer at the time of passing the assessment order dated 28 February 2008 and a different view is taken while issuing the impugned notice. This is not permissible. Moreover, during the course of assessment proceedings under Section 143(3) of the Act specific queries were made with regard to capital gain attributable to sale of shares to which the petitioner responded by giving information. Besides the reasons as recorded for reopening assessment also indicate that confirmation letters from the company had been filed during the assessment proceeding. 11)Therefore, we find that the present proceeding seeking to reopen an assessment for assessment year 2006-07 is without jurisdiction as there has been true and full disclosure of all material particulars necessary for assessment by the petitioner during the assessment proceeding leading to the assessment order dated 20 February 2008 for assessment year 2006-07. On the disclosed facts the Assessing Officer during the original assessment proceeding had taken a view and the same is now being sought to be challenged by issuing the impugned notice. This is impermissible. In the above circumstances, we see no reason to examine/consider the petition's submission on merits that in view of Section-148 of the Act, the impugned notice dated 26 March 2013 is ex-facie unsustainable. 12)In view of the aforesaid reasons, the notice dated 22 March 2013 under Section 148 of the Act as well as the order dated 12 January 2014 of the Assessing Officer rejecting the petitioner's objection for reopening of the assessment are quashed and set aside. 13) Accordingly the petition is allowed with no order as to costs. CHIEF JUSTICE (M.S. SANKLECHA, J.)