Reassessment for A.Y. 2015-16 deemed invalid due to lack of new material; shares not classified as securities under tax law.

The court set aside the notice dated 31st March 2021 and subsequent actions related to reopening the assessment for A.Y. 2015-16 under Section 148 of the Income Tax Act, 1961. It found the reassessment invalid as it was based on a change of opinion without new tangible material, with all necessary facts having been disclosed in the original assessment. The court also ruled that shares of a private limited company do not qualify as "securities" under Section 112(1)(c)(iii). The petition was allowed with no orders as to costs.

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Issues Involved:
1. Legality and validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Whether there was a failure to disclose fully and truly all material facts necessary for the assessment.
3. Applicability of Section 112(1)(c)(iii) of the Income Tax Act, 1961.
4. Whether the reassessment was based on new tangible material or constituted a change of opinion.

Detailed Analysis:

1. Legality and Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31st March 2021, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for A.Y. 2015-16. The petitioner argued that the notice was issued without complying with the jurisdictional conditions, particularly the requirement to show a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The court noted that the original assessment had already considered all relevant facts, including the capital reduction and computation of capital gains, and concluded that the notice was invalid as it was based on a mere change of opinion without any new tangible material.

2. Failure to Disclose Fully and Truly All Material Facts:
The petitioner contended that all necessary facts were disclosed during the original assessment proceedings, including details of the capital reduction and the computation of capital gains under Section 45 read with Section 48 of the Act. The court found that the petitioner had indeed disclosed all primary facts required for the assessment and that there was no failure to disclose any material facts. The court emphasized that the reassessment was conducted beyond four years, and there was no allegation of failure to disclose material facts in the reasons for reopening or the order disposing of the objections.

3. Applicability of Section 112(1)(c)(iii) of the Income Tax Act, 1961:
The petitioner argued that the shares of a private limited company do not qualify as "securities" under Section 2(h) of the Securities Contracts (Regulation) Act, 1956, and therefore, Section 112(1)(c)(iii) was not applicable. The court agreed, noting that the shares of a private limited company are not marketable and thus do not fall within the definition of securities. The court also observed that the Finance Act 2016 and 2017 amendments to Section 112(1)(c)(iii), which included shares of a company not being a company in which the public are substantially interested, were applicable only from A.Y. 2017-18 onwards and could not be applied retrospectively to A.Y. 2015-16.

4. Reassessment Based on New Tangible Material or Change of Opinion:
The court concluded that the reassessment was based on a mere change of opinion rather than any new tangible material. The original assessment had already considered the capital reduction transaction, and the reassessment was initiated based on the same set of facts without any new information. The court cited the Full Bench decision of the Delhi High Court in CIT v. Kelvinator of India Ltd., which held that a mere change of opinion does not provide jurisdiction to initiate reassessment proceedings.

Conclusion:
The court allowed the petition, setting aside the impugned notice dated 31st March 2021, the reasons dated 9th January 2022, and the impugned order dated 9th March 2022, along with all consequential actions taken by the respondents. The court emphasized that the reassessment was impermissible in law as it was based on a change of opinion without any new tangible material. The petition was disposed of with no orders as to costs.

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