Capital gains reassessment fails where gifted shares were transferred without consideration and statutory exclusions kept the transfer outside tax.

A reassessment notice under section 148 cannot be sustained where the impugned transfer is an admitted gift of shares without consideration and the statutory scheme does not bring such transfer within capital gains tax. Section 45 applies to transfers yielding profits or gains, section 48 computes gains with reference to consideration received or accruing, and section 47(iii) excludes gifts from section 45. On those provisions, and despite the return having been processed under section 143(1), there was no tangible material to form a valid belief that taxable income had escaped assessment.

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Issues: Whether the reassessment notice under section 148 was valid when the shares were transferred by way of gift without consideration and the statutory scheme under sections 45, 47(iii) and 48 did not permit capital gains to be brought to tax.

Analysis: The return had been processed under section 143(1), but the precondition for reopening still remained that the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment. The transfer of shares was admitted to be a gift without consideration. Under section 45(1), capital gains arise only on transfer of a capital asset giving rise to profits or gains, and section 48 computes such gains only with reference to the full value of consideration received or accruing. Section 47(iii) specifically excludes a transfer by way of gift from the scope of section 45. The proviso to section 48 and the later provisions in sections 50CA and 50D did not assist the Revenue on the facts, since the transaction involved gifted quoted shares and no consideration was received. On this statutory scheme, there was no tangible material to form a valid belief that taxable income had escaped assessment.

Conclusion: The reassessment notice and the order disposing of objections were invalid and were liable to be quashed.

Final Conclusion: The reopening was set aside because the impugned transfer, being a gift without consideration, did not attract capital gains tax under the applicable provisions.

Ratio Decidendi: Where a transfer is admittedly by way of gift without consideration and the governing provisions exclude such transfer from capital gains taxation, a reassessment notice cannot be sustained on the basis of an alleged escapement of income from capital gains.

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