TaxTMI 
TaxTMI 
2001 (11) TMI 28
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....etitioner filed its return of income for the accounting year April 1, 1993 to March 31, 1994, particularly in the following terms (annexure B to the petition) -------------------------------------------------------------------------------- Income from business : Net profit as per profit and loss account Rs. 1,55,30,579 Net income from business Rs. 1,47,10,414 Short-term capital gain/(loss) Rs. (05,43,422) Long-term capital gain/(loss) Rs.(1,38,35,748) Total capital loss to be carried forward for set off in subsequent years ....
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....Silk Mills Ltd. ("Garden Silk" for brevity). The petitioner submitted its return for the assessment year 1994-95 on November 30, 1994, and annexed therewith the order of this court for amalgamation of Vareli Textile Industries Limited ("Vareli Textiles" for brevity-the amalgamating company) with Garden Silk (the amalgamated company), the statement of capital gain showing the sale of the shares of Garden Silk, the year of acquisition and the statement of shareholding in Garden Silk (the amalgamated company). The computation of total income showed total capital loss of Rs. 1,43,79,170. During the course of assessment proceedings, the Assessing Officer addressed a letter dated November 18, 1996, to the petitioner enquiring about the loss of Rs. 1,43,79,170 and asked the petitioner to furnish, inter alia, the following information: (i) How and from where the sold shares were acquired? (ii) Rates at which shares were purchased and the basis of working of cost of acquisition thereof, and (iii) Evidence in support of sale and purchase rate on the dates of acquisition and sales respectively. The petitioner with its reply letter dated December 3, 1996, produced the statement ....
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....ons of section 49(2) read with section 47(vii) would be Rs. 1,06,97,010 (75,40,515 x 244/172). The petitioner subsequently sold all these shares for Rs. 1,01,34,038 to its directors and their relatives during the financial year relevant to the assessment year 1994-95. However, the petitioner in its computation of income for capital gain, adopted the cost of these shares at Rs. 91.25 per share on the basis of the market price prevailing in the stock exchange as on March 31, 1988. Thus, the indexed cost of acquisition as worked out by the petitioner was Rs. 2,42,81,584 as against actual indexed cost of Rs. 1,06,97,010 as stated above. Thus, the capital loss from these transactions is only Rs. 5,62,672 instead of Rs. 1,43,79,170 as stated by the assessee in the computation of the total income. The computation of income filed along with the return of income (annexures B and C to the petition) does not reflect the true picture of the cost of acquisition and date of acquisition. As per the computation of income (annexures B and D to the petition), the cost of acquisition of 1,87,575 shares of Garden Silk Mills in the financial year 1989-90 is shown as Rs. 1,71,16,219 at the market rat....
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....ly and truly all material facts necessary for its assessment and since the Assessing Officer conducted the scrutiny assessment under section 143(3) of the Act, made all necessary inquiries regarding computation of the capital loss and about the cost of the shares and the petitioner had disclosed that the cost of acquisition of the shares of Vareli Textiles was Rs. 75,40,515, and since the computation of capital loss was made by the petitioner as per its understanding of the law and the Assessing Officer agreed with the said understanding of the law, the condition precedent for issuance of notice under sections 147 and 148 of the Act has not been satisfied. If at all any income has escaped assessment, it is not because of the fact that the petitioner had not fully and truly disclosed all material facts necessary for its assessment, but because the then Assessing Officer agreed with the petitioner that the cost of the shares sold in its hands is Rs. 91.25 as contended by the petitioner. Merely because the Assessing Officer might have made a mistake in not applying the correct legal provision which is now invoked, that cannot be a ground for issuing notice under section 148 of the Act....
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....with the rival submissions, it is necessary to refer to the relevant statutory provisions of the Act. Chapter VI of the Income-tax Act provides for computation of total income under different heads of income. Sub-Chapter E provides for levy and computation of capital gains. Section 45(1) provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall...be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of the previous year in which the transfer took place. Section 47(vii) provides that nothing contained in section 45 shall apply to any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company and the amalgamated company is an Indian company. Section 48 provides for the mode of computation and particularly provides that the income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer....
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....; as per section 49(2) -------------------------------------------------------------------------------- Year of acquisition: 1989-90 6-4-1987 Company: Garden Silk Mills Ltd. Shares in Vareli Textiles amalgamating company) No. of shares 1,87,5....
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.... Profit/loss as per accounts ------------------------------------------------------------------------- Rs. 75,40,155 Rs. 25,92,883 ------------------------------------------------------------------------- In the aforesaid manner, the assessee's capital loss was inflated by Rs. 1,35,84,574 (i.e., Rs. 1,41,47,546 less Rs. 5,62,972) and the assessee adjusted the said long-term capital loss (Rs. 1,41,47,546) against the net profit of Rs. 1,55,30,529 (Rs. 1.55 crores approximately) and with another capital loss Of Rs. 5,43,422, the assessee's tax liability was reduced to nil. The court, therefore, finds considerable substance in the submission made by learned counsel for the Revenue that when the assessee misled the Revenue so brazenly by relying on the market price of the shares of the amalgamated company (Garden Silk) as on March 31, 1988, the assessee cannot be permitted to take advantage of its own wrong and that too by invoking the discretionary jurisdic....
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.... It is thus clear that the petitioner had all along computed the capital loss on the basis of the market price of the shares of the amalgamated company as on March 31, 1988, and had not computed the same on the basis of acquisition of shares in the amalgamating company (Vareli Textiles) on April 6,1987, which was the date on which the petitioner had purchased the shares of Vareli Textiles which subsequently was amalgamated into Garden Silk with conversion ratio of 2 : 1. We entirely agree with the submission of Mr. Joshi, for the Revenue, that this was not a case where two views were possible, the Assessing Officer took one view and the Revenue has issued a notice under section 148 of the Act for taking another view. A perusal of the provisions of section 49(2) are too crystal clear to admit of any doubt. No Assessing Officer acting honestly and bona fide would have ever assessed the capital loss suffered by the petitioner on the basis of the market price of the shares in the amalgamated company (Garden Silk) as on March 31, 1988--the basis for computation of capital loss all along adopted by the petitioner. We are unable to accept the contention urged on behalf of the assesse....
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....ture and does violence to the plain phraseology of sections 147(a) and 148 of the Act and is against the settled law laid down by this court. We have to look to the purpose and intent of the provisions. One of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude." In our view, these observations are clearly applicable to the facts of the instant case and in exercise of its extraordinary prerogative and discretionary writ jurisdiction under article 226 of the Constitution this court would be loath to interfere with the impugned notice under section 148 of the Act when the assessee had all along adopted the market price of the shares of the amalgamated company (Garden Silk) for working out the capital loss at Rs. 1.07 crores (approx.), as against the capital loss which could have been worked out at only Rs. 5.6 lakhs (approx.) on the basis of the cost of acquisition o....
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.... with section 147 of the Act amounts to any unnecessary harassment as alleged. On the contrary, we are of the view that in the facts and circumstances of the case the Revenue is justified in invoking the following observations made by the apex court in Calcutta Discount Co. Ltd. [1961] 41 ITR 191: "The duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation. His omission to bring to the assessing authority's attention those particular items in the account books, or the particular portions of the documents, which are relevant, will amount 'omission to disclose fully and truly all material facts necessary for his assessment'. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued inve....
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....e Assessing Officer also has stated in the first line of his order that the return of income showing a taxable income at Rs. nil is filed on November 20, 1984. Even the computation made by the Assessing Officer in paragraph 11 commences by taking the figure of net profit as per profit and loss account and after deducting depreciation at a reduced figure, the total income is worked out at Rs. 10,41,260. The working under the head "Capital gain" is separately shown and the figure of total capital loss has no reflection for the purpose of assessing this year's tax liability. As per provisions of section 71(3) of the Act, in any assessment year, where the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee is not entitled to set off such loss against income from any other head. Section 74 of the Act provides for treatment of losses under the head "Capital gains". In the present case, neither side has placed on record as to whether the long-term capital loss computed for the assessment year 1994-95 has been set off or not in any of the subsequent years, because carry forward of such....
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....shah Investments Ltd. for Rs. 75,40,515. The very shares were converted into 1,87,575 shares of Garden Silk Mills Ltd. on amalgamation. Now these shares are sold for Rs. 1,01,34,038 to the directors and their relatives. Thus, in the computation of income by way of capital gain arising from transfer of such shares the cost of Garden Silk Mills Ltd. was to be taken at Rs. 75,40,515 as per the provision of section 49(2) read with section 47(vii) of the Act instead of Rs. 1,71,16,219 wrongly taken. If the correct provision is applied the index cost of acquisition of 1,87,575 shares would be Rs. 1,06,97,010 (75,40,515 x 244/172), whereas the assessee has incorrectly shown such indexed cost of acquisition at Rs. 2,42,81,584." The proviso to section 147 of the Act: "Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under se....