Wp/3390/2018 Of The Swastik Safe Deposite And Investments Ltd v. The Assistant Commissioner Of Income Tax-(8)(3)(1) Mumbai And 2 Ors

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3390 OF 2018 The Swastik Safe Deposit And Investments Ltd. … Petitioner V/s. The Assistant Commissioner of, Income-tax-(8)(3)(1), Mumbai and ors.… Respondents --- Mr.Jehangir Mistri, Senior Counsel with Mr.Madhur Agrawal i/byMr.Atul Jasani for the Petitioner.Mr.N.C.Mohanty for Respondent Nos.1 and 2. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : FEBRUARY 14, 2019. P.C.:- 1.Heard learned counsel for the parties for final disposal of the petition. 2.Petitioner has challenged a notice of reopening ofassessment dated 24[th] March, 2018. Priya Soparkar 216 wp 3390-18-o Petitioner is a company registered under the CompaniesAct, 1956. One M/s Sayoy Finance and Investments PrivateLimited (hereinafter referred to as “Savoy Finance”) had soldcertain shares of one M/s Piramal Healthcare Limited for a totalconsideration of Rs.322.36 crores (rounded off). Savoy Financemerged with the petitioner company-The Swastik Safe Depositand Investments Limited (hereinafter referred to “Swastik Safe”),the effective date of merger being 1[st] April, 2010. 4.The petitioner-Swastik Safe filed the return of income forthe assessment year 2011-12 on 28[th] September, 2011 declaringtotal income of Rs.57.87 lakhs, which mainly consisted of shortterm capital gain on sale of shares. This return was acceptedwithout scrutiny in terms of Section 143(1) of the Income TaxAct, 1961 (“the Act” for short). To reopen such assessment, theAssessing Officer issued impugned notice. In order to do so, hehad recorded following reasons:- Information was received from the officeof ITO 8(1)(3) Mumbai, wherein it was foundthat M/s Savoy Finance and InvestmentPrivate Limited being a Non Filer of Return ofIncome for A.Y. 2011-12 had entered in Saleof Share; On further verification of ITS details ofM/s. Savoy Finance and Investment PrivateLimited for F.Y. 2010-11 relevant to A.Y.2011-12 it is seen that M/s Savoy Financeand Investment Private Limited has soldshares of M/s Piramal Health forRs.322,36,60,636/- during A.Y.2011-12.Further it is found that M/s. Savoy Financeand Investment Private Limited has beenamalgamated with M/s Swastik Safe Deposit& Investment Limited w.e.f. 01.04.2010. The return of income of the assesseewas generated from the ITD system. Onperusal of the same it was observed fromSchedule C.G. parting to the return ofincome filed by M/s Swastik Safe Deposit &Investment Limited that the assessee has onlyoffered a sum of Rs.83,34,78,806/- as the fullvalue of consideration against which capitalgain of Rs.57,87,762/- has been offered. Considering the above fact I havereasons to believe that the share of M/sPiramal Health of Rs.322,36,60,636/- sold byM/s Savoy Finance and Investment PrivateLimited which is amalgamated in the assesseecompany i.e. the Swastik Safe Deposit &Investment Limited has escaped assessment inthe hand of the assessee company i.e. theSwastik Safe Deposit & Investment Limitedfor A.Y. 2011-12, within the meaning ofsection 147 of the I.T.Act, 1961. Permission for issuance of notice u/s. 416 wp 3390-18-o 148 as per the provisions of Sec.151(2) ofthe I.T.Act, 1961 is solicited.” 5.Perusal of the reasons would show that according to theAssessing Officer, Savoy Finance had sold shares of PiramalHealthcare for Rs.322.36 crores during assessment year 2011-12. Savoy Finance had an amalgamated with Swastik Safe. In thereturn of income filed by the Swatik Safe, only a sum of Rs.83.34crores as a full sale consideration of shares was shown, declaringcapital gain of Rs.57.87 lakhs. The Assessing Officer thereforeheld a belief that the sum of Rs.322.36 crores upon sale ofshares of Piramal Healthcare by Savoy Finance had escapedassessment. Permission for issuance of notice u/s. 416 wp 3390-18-o 148 as per the provisions of Sec.151(2) ofthe I.T.Act, 1961 is solicited.” 5.Perusal of the reasons would show that according to theAssessing Officer, Savoy Finance had sold shares of PiramalHealthcare for Rs.322.36 crores during assessment year 2011-12. Savoy Finance had an amalgamated with Swastik Safe. In thereturn of income filed by the Swatik Safe, only a sum of Rs.83.34crores as a full sale consideration of shares was shown, declaringcapital gain of Rs.57.87 lakhs. The Assessing Officer thereforeheld a belief that the sum of Rs.322.36 crores upon sale ofshares of Piramal Healthcare by Savoy Finance had escapedassessment. 6.The petitioner filed detailed objections to the notice ofreopening of assessment under a communication dated 9[th]October, 2018 and followed it up with another set of objectionsdated 26[th] October, 2018. Alongwith these objections thepetitioner had produced several documents. The crux of thepetitioner's objection to the notice of reopening of assessment Priya Soparkar 516 wp 3390-18-o was that there is no income chargeable to tax which had escapedassessment. The petitioner did not dispute that the said sum ofRs.322.36 crores was not reflected in the return filed for the saidassessment year. However, on the basis of the documentsproduced alongwith the objections the petitioner contended thatthe shares in question were held by Piramal Healthcare forseveral years and therefore, in terms of Section 10(38) of the Act,there would be no liability of capital gain tax. The AssessingOfficer disposed of the objections by detailed order dated 2[nd]November, 2018, upon which this petition has been filed. 7.Appearing for the petitioner counsel Shri Mistri raisedfollowing contentions:- (i)That even in a case where return of the assessee had beenaccepted without scrutiny, the Assessing Officer must have areason to believe that income chargeable to tax had escapedassessment. Reliance in this respect was made on the decision ofthis Court in case Prashant S. Joshi and anr. Vs. Income-TaxOfficer and another[1]and one dated 20[th] July, 2016 in Writ 1(2010) 324 ITR 154 (Bom) Petition No.1155 of 2016 in case of General Electoral TrustVs. Income Tax Officer 20(1)(2) Mumbai and ors. (ii)The notice of reopening of assessment could not be issuedfor carrying out fishing inquiry. (iii)In the present case the assessee had brought to the noticeof the Assessing Officer reliable evidence to show that PiramalHealthcare had held the shares in question for long over a periodover one year and that therefore, sale of such shares would notattract capital gain tax. Assessing Officer did not consider thisobjection in light of the documents produced. (iv)He submitted that merely because in the return filed thepetitioner did not mention the factum of sale of shares, wouldnot enable the Assessing Officer to reopen the assessment ifnecessary conditions were not fulfilled. 8.On the other hand, learned counsel Shri Mohanty opposedthe petitioner contending that:- (i) At the stage of issuance of notice, the Assessing Officer isnot required to establish beyond doubt that invariably theadditions would be sustained. Priya Soparkar 716 wp 3390-18-o (ii)The Court while examining the reasons recorded by theAssessing Officer would not go into sufficiency of such reasons.Reliance was placed on the decision of the Supreme Court in Raymond Woollen Mills Ltd. Vs. Income-Tax Officer and ors.[1]and on the observations made by the Supreme Court in case ofRajesh Jhaveri Stock Brokers P. Ltd.(supra). 8.On the other hand, learned counsel Shri Mohanty opposedthe petitioner contending that:- (i) At the stage of issuance of notice, the Assessing Officer isnot required to establish beyond doubt that invariably theadditions would be sustained. Priya Soparkar 716 wp 3390-18-o (ii)The Court while examining the reasons recorded by theAssessing Officer would not go into sufficiency of such reasons.Reliance was placed on the decision of the Supreme Court in Raymond Woollen Mills Ltd. Vs. Income-Tax Officer and ors.[1]and on the observations made by the Supreme Court in case ofRajesh Jhaveri Stock Brokers P. Ltd.(supra). (iii)Counsel further submitted that whether Savoy Finance hadheld the shares of Piramal Healthcare for a period in excess of oneyear is a matter of inquiry. The assessee had not declared suchsale in the return filed at all. All inquiries can be made by theAssessing Officer in the assessment proceedings. 9.It is undoubtfully true that in the present case assessee'sreturn has been accepted without scrutiny and therefore theAssessing Officer can not be stated to have formed any opinionand therefore, the concept of change of opinion would haveno applicability. In such a case the Assessing Officer would havemuch wider latitude to reopen the assessment and the scrutinyof this Court would be limited. Nevertheless, it is well Priya Soparkar816 wp 3390-18-oestablished principle through series of judgments of this Courtand other Courts that even in such a case the requirement that theAssessing Officer forms a belief that income chargeable to taxhad escaped assessment must exist. Within this narrow confine,it is always open for the assessee to argue that the reasonsrecorded by the Assessing Officer lack validity. With this, wemay revert back to the facts of the case. It is undisputed thatSavoy Finance before its merger with the assessee-company hadsold substantial number of shares of Piramal Healthcare for a saleconsideration of Rs.322.36 crores. In the return of income filed bythe petitioner for the assessment year 2011-12 relevant to theperiod of sale of shares after merger of Savoy Finance with thepetitioner, this sale was not reflected. In the column requiringthe petitioner to declare if any capital gain exempt from tax isreceived, the petitioner showed a figure of “Nil”. This isundoubtedly not a correct declaration. This by itself would notbe the conclusive of the question whether the proceeds of saleof shares was otherwise taxable as a capital gain and thattherefore, reopening of assessment would be necessary. Whatwould be relevant is did Savoy Finance hold the shares which 916 wp 3390-18-o came to be sold later on, for a period in excess of one yearbefore sale. This exercise, we are ofcourse are not inclined toundertake in a writ petition. 10.Minute perusal of the reasons recorded would show theground pressed in service by him is that the petitioner had earnedcapital gain out of sale of shares which was not disclosed andtherefore, income chargeable to tax had escaped assessment. Thiswas also the line adopted by the Assessing Officer in the orderdisposing of the objection. We have perused the detailobjections raised by the petitioner and the documents producedalongwith the same and also the order passed by the AssessingOfficer disposing of such objections. We do not find that theAssessing Officer had dealt with the contention of the petitionerthat the petitioner is in a position to establish that the shares inquestion were held by Savoy Finance for a period in excess ofone year and therefore, there was no liability to pay capital gaintax on the proceeds of sale of shares. 11.In facts of the present case, therefore, we ask the Assessing Priya Soparkar 10 16 wp 3390-18-o 11.In facts of the present case, therefore, we ask the Assessing Priya Soparkar 10 16 wp 3390-18-o Officer to consider this objection of the petitioner and give hisspecific finding through a speaking order. For this limitedpurpose, we place the matter back before the Assessing Officer.The Assessing Officer shall pass a further order dealing with thisspecific objection of the petitioner. In facts of the case, theAssessing Officer may give personal hearing to the authorizedrepresentative of the petitioner. Further order may be passedpreferably within two months from today. For a period of fourweeks after such order is communicated to the petitioner,reassessment shall stand stayed. Petition disposed of accordingly. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)….