TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 48
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....t petition in W.P.No.9198 of 2022 has been filed against the assessment order dated 30.03.2022 passed by the respondent under Section 147/144B of the Act. 3. Petitioner's submission: 3.1 The learned Senior counsel appearing for the petitioner would submit that in this case, the notice, under Section 148 of the Act, was issued on 30.03.2021, for which, the objections were filed by the petitioner on 13.05.2021. However, without considering the said objections on the legal aspect, the assessment pertaining to the AY 2014- 2015 was reopened by the respondent on 27.07.2021, against which, the aforesaid WP.No.23676 of 2021 was filed by the petitioner. 3.2 Pending the said writ petition, the assessment order was hurriedly passed by the respondent in violation of principles of natural justice. While passing the said assessment order, the respondent had provided only one day time for filing the reply to the show cause notice dated 26.03.2022. Thereafter, without granting any opportunity of personal hearing, the impugned assessment order came to be passed by the respondent on 30.03.2022. 3.3 He would submit that in this case, the petitioner had sold the land ad-measuring 4.76....
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....ion against the petitioner and automatically, the exemption granted, under Section 47(iv) of the Act, would have been withdrawn. Thereafter, by invoking Section 155(7B) of the Act, the respondent shall issue a notice for the purpose of recomputation of income and amendment of the returns filed by the petitioner for the relevant AY, during which the sale was made. However, without doing so, in non-application of mind, the respondent had initiated proceedings under Section 147 of the Act and issued a notice under Section 148 of the Act to the petitioner. 3.10 Upon receipt of the said notice under Section 148 of the Act, the objection was filed by the petitioner, however, the same was rejected by the respondent. Thereafter, only one day time was provided for filing the reply to the show cause notice dated 26.03.2022 and subsequently, even without providing any opportunity of personal hearing, the reassessment order came to be passed under Section 147/144B of the Act on 30.03.2022, which is illegal and in violation of principles of natural justice. 3.11 Further, he would contend that as stated above, even if the respondent's contention is accepted, the right course to be adop....
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....r/transferor company under Section 147/148 of the Act, by treating the very same transaction as "stock in trade" and proceeded to re-open the assessment. Hence, he would contend that the entire proceeding is liable to be quashed. 3.14 Further, by referring Section 49(1)(iii)(e) of the Act, he would submit that any transfer between the holding company and its subsidiary company would not be considered as transfer for the purpose of capital gain tax. Ultimately, if the said property was sold by the transferee company to anybody else, the cost of acquisition of the asset shall be deemed to be the cost for which the holding company acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee as the case may be. Therefore, if the assets are sold as capital asset by the transferee company, no capital gain loss would occur to the exchequers.. The object of introduction of this provision was to protect the revenue of the Department. 3.15 In this case, while filing various returns from time to time, the transferee company had calculated the capital gain by treating the asset as "Capital Asset" and in terms of Section 49....
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.... their business by treating the purchase of the property as "stock in trade". He would also submit that in this case, the transaction made by the transferee company with the developer by virtue of agreement dated 28.03.2016 was treated as "stock in trade" and accordingly, the exemption was withdrawn in terms of Section 47A of the Act and the tax liability was quantified to a sum of Rs. 45 Crores along with interest of Rs. 36 Crores, i.e., total demand amount is a sum of Rs. 81 Crores. 4.4 Therefore, he would submit that to recover the aforesaid demand amount, without any other option, the respondent had proceeded for reassessment and issued notice under Section 148 of the Act, which is permissible to be issued within a period of 6 years. He would also submit that now, the assessment order has been passed and hence, the petitioner can very well challenge the same in the manner known to law by way of filing an appeal against the said assessment order. However, instead of doing so, the petitioner had approached this Court vide the present petitions. 4.5 As far as the invocation of Section 155(7B) is concerned, he would submit that in this case, the conversion had occurred at the....
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....nd also perused the entire materials available on record. Brief Facts of the case: 7. In the cases on hand, the petitioner, being the holding company, had sold the property to an extent of 4.76 acres of land to its wholly owned subsidiary company for the sale consideration of a sum of Rs. 290 crores by virtue of sale deed dated 13.02.2014. The said subsidiary company was incorporated on 16.01.2014. The sale consideration was paid by the subsidiary company by virtue of allotment of shares to its holding company, i.e., petitioner herein. 8. Thereafter, the subsidiary company had entered into a Joint Development Agreement with the Developer on 28.03.2016 and subsequently, it was modified from time to time. The details with regard to the entire transaction and the Joint Development Agreement was intimated to the respondent by the transferee company vide communication dated 28.03.2016. 9. In terms of the said Joint Development Agreement, the transferee company is entitled to sell the undivided share of land and receive the entire sale consideration in their account. As far as the Developer is concerned, they will develop the property by constructing the superstructures, for ....
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....king aforesaid Section 47A of the Act. On the other hand, in the event, if the respondent had initiated any proceedings against the transferee company by treating the sale of asset as "stock in trade", certainly, they will have locus standi to invoke Section 47A of the Act against the petitioner/transferor company. Admittedly, as on date, the respondent had not take any such stand against the transferee company. Per contra, they had accepted the capital gain tax paid by the transferee company to an extent of around a sum of Rs. 106 Crores and there is no dispute on the said aspect. Under these circumstances, the respondent have no locus standi and authority to initiate any proceeding against the petitioner for withdrawal of exemption under Section 47A of the Act. Consequences of withdrawal of exemption in terms of Section 47A of the Act: 15. As contended by the petitioner, even if the contention of the respondent is accepted, i.e., if the transferee company had sold the assets by treating the same as "stock in trade", the recourse available to the respondent is to invoke Section 47A & 155(7B) of the Act. 16. At this juncture, it would be apposite to extract the provision o....
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.... gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with. 17. From the above, it is clear that the provisions of Section 47A was conspicuously incorporated, so as, to withdraw the exemption, which was granted in terms of Section 47(iv) of the Act to the transferor company, at the time of transfer of its assets to its subsidiary company, in the event, if the transferee company transfers the capital assets within a period of 8 years from the date of its transfer by treating the same as "stock in trade". 18. For ready reference, the provisions of Section 47(iv) of the Act is extracted hereunder: "47. Transactions not regarded as transfer.- Nothing contained in section 45 shall apply to the following transfers:- (i)............ (ii).......... (iii)............
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....ly thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the capital asset was so converted or treated or in which the parent company or its nominees or, as the case may be, the holding company ceased to hold the whole of the share capital of the subsidiary company.] 23. By virtue of Section 155(7B), after withdrawing the exemption under Section 47A of the Act, the respondents will recompute the income and amend the ITR of the transferor company for the relevant assessment years, during which the sale of the property was occurred, and then, the respondent will call upon the petitioner to pay the said capital gain tax along with the interest, if any. 24. Therefore, in the event if the transferee company sold the property before the expiry of the period of 8 years from the date of transfer of "capital asset" by treating the same as "stock in trade", then the respondent shall withdraw the exemption, granted under Section 47(iv), in terms of Section 47A of the Act. 25. The object of the said provision is to ensure that there was no loss of revenue for the Department towards remittance of the cap....
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.... and they are to be invoked in different circumstances. The ITO can have recourse to one or the other, but he must have recourse to the appropriate provision having regard to the facts and circumstances in each case. In cases where the two appear to overlap, the ITO must choose one in preference to the other and proceed. He should not take one as the appropriate proceeding and give it up at a later stage to have recourse to the other, since such proceedings are quasi-judicial and adjudication after notice is intended for the same purpose. In such a case of overlapping, constructive res judicata and not the statutory inhibition, should make the ITO desist from using one proceeding after the other instead of using one of the two with due care and caution. We have, however, felt in the instant case that in respect to most of the items, the ITO has exhibited ignorance of law and the Tribunal, for good reasons, has held about them that no case of error apparent on the record was made out." 29. By referring the above, he would submit that the provisions for rectification of error apparent on record and taking proceedings regarding escapement are common feature in tax laws. Further, ti....
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....art of the assessee to make a return under section 139 or in response to a notice issued under sub. section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped a....
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.... on or before the 1st day of April, 2012" 32. A reading of the above provisions would show that in the event if any income chargeable to tax has escaped assessment for such assessment year and if the Assessing Officer has reasons to believe the said escapement, certainly, he can very well issue notice under Section 148 of the Act. The said escapement will be ascertained based on the information furnished by the assessee in their returns. In other words, at the time of filing the returns, if there is any evasion of tax by the assessee by virtue of any mis-statement, mis-declaration, or suppression of fact, etc., the invocation of Section 147 will come into picture. 33. In this case, initially, the transfer was made by the holding company to its subsidiary company and there was no question of escapement, as on the date of filing the ITR for the relevant assessment year, while computing the capital gain and availment of exemption under Section 47(iv) of the Act by the transferor company. When such being the case, the question of initiating the proceedings under Section 147, would not arise at all. Limitation to initiate proceedings under Section 155(7B) of the Act: 34. In ....
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....ansferee company, the respondent, who is the Assessing Officer for both transferee and transferor company, is now taking a plea of ignorance, which is totally unacceptable. That too, in the case on hand, there is nothing for the transferee company to inform to the respondent, since the assets were sold by them as "capital assets", for which they had duly paid the capital gain tax and the same was also accepted by the respondent. 36. When a Statute mandates the Authority, to do, certain act in a particular manner, based on the happening of certain events, the said Authority is bound, to do, the said act in accordance with the provision of the Statute. Hence, the deviation in initiating the proceedings by any Authority under the wrong provision of law is per se illegal. Method of calculation of capital gain tax when the asset is sold as "capital asset" by the transferee company: 37. In the event if the transferee company sold the asset by treating it as "capital asset" at any point of time subsequent to the transfer of asset, the transferee company shall take the cost of acquisition in terms of Section 49(1)(iii)(e) of the Act, which reads as follows: 49. Cost with ....
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.... the holding company acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee as the case may be. Therefore, if the assets are sold as capital asset by the transferee company, no capital gain loss would occur to the exchequers only in the event if the said capital asset was sold, within a period of 8 years from the date of transfer, as "stock in trade", in which case, the exemption will be withdrawn under Section 47A of the Act. Loss of Revenue: 40. In this case, the transferee company had treated the sale of asset as "capital asset" and paid the capital gain tax to the respondent. As accepted by the petitioner as well as respondent, so far the transferee company had sold to an extent of 46% of the total property, out of the said sale consideration, the capital gain tax of a sum of Rs. 106 Crores was paid up to the year 2020. If the same yardstick is applied for the remaining 54% of property, it would come approximately around a sum of Rs. 120 Crores. Thus, in total, a sum of Rs. 226 Crores would have been remitted towards capital gain tax by the transferee company. 41. In the event, if the respondent....
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....47/148 of the Act. In other words, notice under Section 148 of the Act can be issued only if there is any escapement of income, due to the mis-statement, mis-declaration, or suppression of fact, etc., while filing the returns for relevant assessment year. However, it is nobody's case that there was an escapement of income in the ITR filed as on the date of filing the same by the petitioner for the AY 2014-15. As long as the respondent was not in a position to find out any escapement or error or deliberate omission or commission of offence in the returns for relevant assessment year, there is no locus standi for the respondent to initiate proceedings under Section 148 of the Act. In this case, as stated above, admittedly, there was no escapement of income in the ITR filed by the petitioner for the assessment year 2014-2015 and there was no suppression of material fact as well. (iii) At the time of transfer of assets, the petitioner had claimed the exemption under Section 47(iv) of the Act, which is permissible in law, since the said assets were transferred from the holding company to its subsidiary company. On 28.03.2016, a Joint Development Agreement was entered betwee....
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....nsion, no action was taken by the respondent to invoke the provisions of Section 155(7B) of the Act. Thus, the proceeding is also barred by limitation. (vi) The recomputation and amendment in ITR in terms of provisions of Section 155(7B) for the relevant assessment year, due to the subsequent events would not be a ground for reopening of the assessment in terms of the provisions of Section 147/148 of the Act. In this case, the Assessee and the Assessing Officer are well aware of the fact that as on the date of filing the returns, the ITR was filed by the petitioner with due compliance in all the aspects and there is no dispute on the aspect of correctness of the ITR for the relevant AY 2014-15. However, due to the subsequent events, the exemption granted under Section 47(iv) of the Act was said to have withdrawn in terms of Section 47A of the Act by the respondent. Such withdrawal of exemption would not be considered as escapement of income to invoke Section 147/148 of the Act, but it would pave way for recomputation and amendment of ITR of the relevant assessment year, in terms of the provisions of Section 155(7B) of the Act. (vii) In this case, as long as the re....