TaxTMI 
TaxTMI 
2015 (12) TMI 36
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.... assessment within the meaning of section 147 of the Act when the details of claim of long term capital loss of Rs. 3,48,579/- arising out of extinguishment of assessee's rights as a shareholder were filed in the return of income itself, more so, when the original assessment has been completed u/s 143(3) of the Act ? 3. The brief facts of this issue is that the assessee held the following shares in the following companies :- Name of the Company No. of Shares Date of purchase PAN Services Pvt Ltd 40 1980-81 Cemcoat India Pvt Ltd 800 25.3.1985 Cemcoat India Pvt Ltd 750 19.5.1988 The assessee is a shareholder and director in the aforesaid companies. The said companies in view of the fact that they were not engaged in the operations chose to avail the easy exit scheme or simplified exit scheme brought out by the Ministry of Corporate Affairs, wherein pursuant to the application made thereon, the name of the companies would be struck off from the records of the Registrar of Companies in terms of section 560 of the Companies Act, 1956. The said scheme mandates that there should not be any asset or liability in the balance sheet and bala....
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....ee had to extinguish his rights in the shares held in the companies pursuant to companies filing application under simplified exit scheme in terms of section 560 of the Companies Act, 1956. b) No consideration was received by the assessee from any person for the shares held by him. c) Affidavits were filed by him in the capacity of director that there were no assets and liabilities in the company. d) Indemnity bond was filed by him in the capacity of director only to safeguard the interests of any other person (ie. Any third person) who might be affected by the closure of the company. e) Company went into liquidation in terms of section 560 of the Companies Act, 1956. No dispute as to the fact whether the company is dissolved or not. In other words, the fact of dissolution of the company has been accepted by the revenue. f) Assessee claimed indexed cost of acquisition of shares held by him in the companies which are not disputed by the revenue. 4.1. The Learned AR argued that the formation of belief of the Learned AO which led him to believe that income has escaped assessment has got no linkage with the relevant provisions of the Act. He argued that the relevant p....
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....or had filed affidavit before the Registrar of Companies that there are no liabilities in the company. Hence it could be concluded that the assessee had received consideration for his extinguishment of rights in the shares held by him which is not disclosed by the assessee and hence the long term capital loss could not be allowed to be carried forward. 6. We have heard the rival submissions and perused the materials available on record. We find that the provisions of section 46(2) of the Act are squarely applicable in the facts of the instant case. Hence the Learned AO had reopened the assessment without considering the provisions of section 46(2) of the Act and hence his basic formation of belief that income has escaped assessment fails. It is settled law that formation of belief by the Learned AO should have direct nexus with the provisions of the Act and in this case, it fails directly. We hold that non-consideration of the relevant provisions of the Act while forming a belief that income has escaped assessment is not permissible as per law. In this regard, the reliance on the decision of Gujarat High Court in the case of Devesh Metcast Ltd vs JCIT reported in (2011) 338 ITR ....
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....n 147 of the Act is, therefore, invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained. 21. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated March 28, 2000, seeking to reopen the assessment of the petitioner for the assessment year 1997-98 (exhibit B to the petition) is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs." 6.2. We find that the assessee had not received any consideration on his extinguishment of rights in shares held by him in the companies which went on liquidation. When the fact of liquidation is not disputed on record and there is no evidence brought on record as to whether any consideration was indeed received by the assessee on extinguishment of rights in shares, the assessee's claim of long term capital loss needs to be allowed to carried forward to subsequent years. In this regard, reliance on the decision of Gujarat High Court in the case of CIT vs Jaykrishna Harivallabhdas reported in (2000) 112 Taxman 683 (Guj) is very well placed and is directly on the impugned issue, wherein it was held that :- " By virtue of section 46....
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....ns of the Act, whether the ultimate result is found to be a gain or loss. The instant case was concerned with the return of capital of shareholder, which is a final act in the process of winding up. The conclusion reached was that even extinguishment of the right of a shareholder amounts to transfer for the purposes of section 48. In this context the words ' on liquidation' must necessarily refer to the date on which the company is would up or the winding up process is complete. Liquidation simpliciter in the context of winding up of company may mean winding up of a corporation where the assets are disturbed to those entitled to receive them and the process of reducing assets to cash discharging the liabilities and dividing the surplus or loss amongst contributories or members. The stage of distribution of surplus amongst contributories or members, so called owners of the company, is the final stage of liquidation, as until discharge of the liabilities and cost of liquidation the members are not entitled to any return of their contribution. Until the company is finally wound up, the right of shareholders or members to receive the surplus, if any, remains intact, which is the only r....
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....d any deemed consideration in satisfaction of his rights and interests in the holding and has thereby suffered a total loss, cannot claim the benefit of set-off or carry forward of the loss suffered by him. Otherwise, a starling and unjust situation may arise where the receipt of even one paise would enable him to claim set-off or carry forward of capital loss as worked out under section 48, while a shareholder who is a shade worse off and gets nothing in the event of such total loss should be denied the effect of section 46(2) read with section 71 and 74 and be put to a perpetual loss. Therefore, even where the receipt was ' nil' on the date of distribution on the liquidation of the company, the case of such shareholder would fall under section 46(2) and the deemed full value of the consideration for the purpose of section 48 would be regarded as 'nil' and on that basis the income chargeable under the head ' Capital gains' would have to be computed under section 48." 6.3. We also find that the Learned AO had originally completed the assessment u/s 143(3) of the Act and the details of computation of long term capital loss is part and parcel of the memo of income filed along with....
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....2] 256 ITR 1 (Del.) [decision affirmed by the Supreme Court in [2010] 320 ITR 561 (SC)] held that if two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the ITO exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the A.O. to initiate reassessment proceeding upon his mere change of opinion. If "reason to believe" of the A.O. is founded on an information which might have been received by the A.O. after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a p....