TaxTMI 
TaxTMI 
2021 (9) TMI 565
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....income tax assessment for the A.Y. 2015- 16. 3. Brief facts giving rise to filing present writ applications are as follows:- SCA No.19093/2018 (Hareshbhai Mathurbhai Zinzuvadia):- 3.1 The writ applicant being an individual assessee filed his return of income on 23.09.2015 declaring total income at Rs. 3,73,32,220/-. The return of income was processed under Section 141 of the Act and no scrutiny assessment was undertaken. SCA No.19068/2018 ( Darshit Ashokbhai Zinzuvadia):- 3.2 The writ applicant being an individual assessee filed his return of income on 23.09.2015 declaring total income at Rs. 1,14,20,050/-. The return of income was processed under Section 141 of the Act and no scrutiny assessment was undertaken. 3.3 In both the cases, the Assessing Officer reopened the assessment under Section 147 of the Act by issuing impugned Notice dated 28.03.2018 under Section 148 of the Act for the A.Y. 2015-16. The reasons for reopening were furnished to both the assessee. Both the assessee raised various objections vide letter dated 04.06.2018 and 11.06.2018 respectively and the same came to be disposed of by the Revenue vide order dated 28.08.2018. 3.4 In both the case....
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....ed are completely erroneous in law, so far as the applicability of Section 45(3) of the Act is concerned. He urged that, Section 45(3) of the Act has no application at all in the facts of the present case. Referring to Section 45(3) of the Act, he submitted that, Section 45(3) of the Act is applicable when a capital asset is introduced by a partner towards credit in the capital account of the firm. In the present case, what is introduced is stock in trade and not capital assets. The learned Senior Counsel drawing the attention to the certificate of registration under the Gujarat Value Added Tax ("VAT" for short) Act and the rules thereunder, submitted that, both the writ applicants are traders in gold and gold ornaments and they have been regularly trading in the gold and gold ornaments, therefore, the gifted gold was treated as stock in trade by both the writ applicants and the same was brought in the books of both the writ applicants before introducing as capital in the firm, which clearly establishes that, they have transferred their stock in trade to the partnership firm, which cannot be taxed under Section 45(3) of the Act as the stock in trade was not a capital asset to the w....
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....requisite to reopen the assessment is that, there must be a reason to believe that the income chargeable to tax has escaped assessment and therefore, the AO has rightly formed a rational belief that both the writ applications had transferred the capital assets received by them in the form of gift to the partnership firm by way of capital contribution at the market rate and therefore, such transactions would be hit by the provisions of Section 45(3) of the Act. Thus, when the scrutiny assessment has not taken place, the sufficiency of reasons cannot be gone into at this stage. 9. It was further contended by the learned Senior Counsel for the revenue that the gifted stock introduced by both the petitioners in the firm as capital contribution is not reflected as stock in trade in the trading account for the A.Y. 2015-16 and therefore, the entire premise of challenge to reopening that the gifted stock was stock in trade and not a capital asset falls on ground. The factum of stock in trade as claimed by the writ applicants itself is a highly disputed question of fact and the same cannot be gone into by this Court in exercise of writ jurisdiction. 10. It was further submitted by th....
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....e following partners of the above firm: I. Shri Ashok Kumar M. Zinzuvadia ii. Shri Haresh M. Zinzuvadia iii. Shri Darshit A. Zinzuvadia 3. Above issues are discussed as under:- It is observed that the assessee has shown the valuation of the stock in the partnership firm at Rs. 77,75,10,150/- as on 01.07.2014 through capital account of the following partners: Sr. No. Name of the partner Value of the stock Remarks 1 Shri Ashok Kumar M. Zinzuvadia 343330821/- Shri Ashok Kumar M. Zinzuvadia was proprietor of M/ s. Radhika Jewelers upto 30.06.2014 2 Shri Harsh M. Zinzuvadia 367497429/- Brother of said proprietor 3 Shri Darshit A. Zinzuvadia 66682080/- Son of said proprietor Total value of stock as on 01.07.2014 777510150/- It is seen that in the grab of transfer of business of going concern, the assessee has inflated the value of stock from Rs. 34,33,30,821/to 77,75,10,150/-. This stock has been brought in the partnership firm by way of capital contribution by the above 3 mentioned partners. In such case, the provision of section 45(3) are attracted....
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....ing the year, which is an escaped assessment within the meaning of section 147 of the Income Tax Act 1961. Hence it is a fit case for issuing notice u/s. 148. A photo copy of the assessment order relating to firm M/s. Radhika Jewellers, Rajkot for the AY: 2015-16 is enclosed herewith for your reference. Issue notice u/s. 148 of the Income Tax Act, 1961." 14. Before adverting to the rival contentions raised on either side, it is important to bear in mind that, Section 147 of the Act substituted w.e.f. 01.04.1989, empowered the AO to assess or reassess income chargeable to tax if the AO has reason to believe that income for any assessment year has escaped assessment. To confer the jurisdiction under Section 147 of the Act, two conditions have to be fully satisfied i.e. (i) the AO must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment and (ii) if the reopening of assessment was after 4 years from the end of the relevant assessment year, the AO must also have reason to believe that such escapement had occurred by reason of either omission or failure on the part of the assessees to disclose fully or truly all the material facts nece....
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.... in which he is or becomes a partner of member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset." 19. There need not be a debate with regard to the proposition of law as laid in the case of Sunil Siddharthbhai (supra), that where a partner of a firm makes over capital assets which are held by him to a firm as his contribution towards capital, there is a transfer of asset within the terms of Section 45 of the I.T.Act, 1961 because an exclusive interest of the partner in personal asset is reduced, on their entry into the firm, into a share interest. The Supreme Court further held that consideration, which a partner acquires on making over a personal asset to the firm as his contribution to its capital cannot fall within the terms of Section 48 and as that provision is fundamental to the computation machinery, incorpora....
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.... in the trading of gold and gold ornaments and hold the VAT registration and are maintaining day to day accounts of their business. It is their specific case that, the gifted stock received from Mr. Ashok Zinzuvadia was treated stock in trade and have transferred it to the partnership firm and therefore, stock in trade is not capital asset. 22. In the aforesaid context, the question that falls for our consideration is, whether the writ applicants were engaged in trading business of gold and gold ornaments before the partnership firm came into existence ? 23. Upon perusal of the order disposing of the objections against the reopening of the proceedings, it appears that, the AO has taken into consideration the fact that the alleged stock in trade introduced in the firm on 01.07.2014 of Rs. 36,74,97,429/- has not been reflected in the trading account of both the writ applicants for the A.Y. 2015-16. It was further observed by the AO while rejecting the objections that, in the capital account, there is no credit of the value of the gift received from Mr. Ashok Zinzuvadia. Both the writ applicants failed to submit the balancesheet as on 01.07.2014 and 30.06.2014 respectively, as a....
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....e order dated 31.12.2017. It is pertinent to note that, against the assessment order dated 31.12.2017, the firm is in appeal before the appellate authority and the appeal is still pending. Thus, while recording the reasons, the AO has considered the relevant facts like issue of stock in trade, the way in which the stock of proprietary concern came to be gifted to the family members by proprietor Mr. Ashok Zinzuvadia. It could be said that there was proper application of mind on the part of the AO while recording the reasons for reopening. When the return of income of both the assessees was processed under Section 143(1) of the Act and not under Section 143 (3) of the Act, the AO is justified in arriving at the conclusion that the income has escaped assessment. It has been held by the Apex court in the case of Central Provinces Manganese Ore Company Ltd. [(1991) 191 ITR 662 (SC)]; Rajesh Jhaveri [(2008) 14 SCC 208], that the word "reason" in the phrase "reason to believe" in Section 147 would mean cause or justification. If the AO has cause or justification to know or suppose that income has escaped assessment, he can be said to have reason to believe that income has escaped assessm....