TaxTMI 
TaxTMI 
2024 (8) TMI 339
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....tood thus, learned Assessing Officer proposed to reopen the assessment under section 147 of the Act on the ground that the method of computation of income by the assessee was erroneous and the provisions under section 50C of the Act are applicable in respect of the sale transaction held on 21/01/2009. Assessee objected to the same stating that the property in question which happened to be a fixed asset, was converted into stock in trade on 02/01/2008 in respect of which the capital gains were computed with reference to the Fair Market Value (FMV) of the property as on the date of conversion and taxes were paid in the assessment year 2009-10 in which it is sold, whereas on the sale of such stock in trade on 21/01/2009, the business profit/loss were computed in the assessment year 2009-10. Assessee, therefore, pleaded that when the sale took placed on 21/01/2009, the nature of the property was not a capital asset, but it was stock in trade and, therefore, section 50C of the Act has no application. 4. Learned Assessing Officer, however, did not agree with the said submission and on the other hand, in his order dated 20/03/2015 passed under section 143(3) read with section 147 of the ....
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.... Kasturbhai Lalbhai [1977] 109 ITR 537 (SC) to say that the report of the internal audit party also constitutes a valid source of information if it shows that the basis of assessment was wrong and the learned Assessing Officer missed the vital aspects that were required for proper assessment. 9. We have gone through the record in the light of the submissions made on either side. Insofar as the information enabling the learned Assessing Officer to propose reopening of a concluded assessment, under section 147 of the Act is concerned, Hon'ble Apex Court in the cases of P.V.S. Beedies (P.) Ltd. and R.K. Malhotra, Income-tax Officer (supra), held that the audit department was the proper machinery to scrutinise assessments made by the ITO and to point out errors of law contained therein, but such a view was disapproved in a subsequent decision in the case of Indian & Eastern Newspaper Society (supra) wherein it was held that the expression 'information' is an indispensable ingredient and it shall be in respect of either fact or law, and if it is in respect of law, it must flow from a formal source. The Assessing Officer himself must interpret and determine the law applicable to the fac....
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....ult to agree with the learned DR that the internal audit report constitutes the information under section 147 of the Act. 12. Apart from this, the reasons recorded by the learned Assessing Officer further show that the issue requires verification through scrutiny proceedings by reopening the assessment also further shows that the basis for reopening is not the reason to believe, but it is only a reason to suspect as has been held by the Hon'ble Rajasthan High Court in the case of Mukesh Modi vs. DCIT [2014] 45 taxmann.com 468 (Rajasthan), wherein while looking at the reasons for reopening of the assessments was for verifying or verification of the existing material, the Hon'ble Court found that such an action of reopening by the learned Assessing Officer per se, founded on mere change of opinion and the same cannot satisfy the legislative intent that the learned Assessing Officer had reason to believe that any income chargeable to tax had escaped. For the sake of completeness, we deem it just and proper to refer to the relevant observations of the Hon'ble High Court hereunder,- "53. While examining the matter in its entirety and on the basis of findings and conclusions recorded ....
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.... (Delhi). 15. According to the assessee, prior to its conversion into stock in trade on 02/01/2008 such an asset was capital asset in nature, but it was converted into stock in trade and the resultant capital gains were computed at Rs. 3,79,39,675/- and on that basis, the income was declared at Rs. 2,38,14,880/-. The said stock in trade was sold on 21/01/2009 at Rs. 11.53 crores, but the registration authorities valued the same at Rs. 16.12 crores for levying the stamp duty, but the assessee did not object to the same firstly because of their dire need for funds and secondly because such stamp duty was to be borne by the transferee. Assessee, however, maintains that insofar as there is no dispute as to the conversion of the property from capital asset to the stock in trade remains undisputed, the sale of stock in trade does not attract the provisions under section 50C of the Act. 16. The assessment order dated 20/03/2015 clearly speaks that the case of the assessee has been that there was no capital asset as such involved in the sale dated 21/01/2009 because one year prior thereto such capital asset ceased to exist on its conversion into stock in trade. Since no capital asset was....
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....value of land contributed by assessee in stock in trade was much higher as against its negligible profit sharing in the firm. In that scenario, the Hon'ble High Court held that the transaction of contribution to the partnership firm was sham and an attempt to device a method to avoid capital gains tax on transfer of land to firm. In the other case, Saras Metals (P.) Ltd., (supra), the main object of assessee company was to carry on business of manufacturing etc., of all kinds of ferrous and non-ferrous material and, therefore, the investment in the plot was not towards stock in trade and, therefore, any gain on sale of such property would be taxed as short term capital gain. 19. Neither of these cases are similar in facts to the case of the assessee. On the other hand, the conversion of the capital asset into stock in trade has never been in dispute. It is not the case of learned Assessing Officer or learned CIT(A) that the conversion of the capital asset into stock in trade was a sham and nominal transaction devised to evade tax, but on the other hand, such an issue attained finality in assessee's own case for the assessment year 2008-09 by order dated 05/07/2016 in ITA No. 190/H....