FIAT INDIA P.LTD, MUMBAI V. DCIT RG 10(1), MUMBAI

CO 256/MUM/2013

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2645 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-11-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 25-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SS PARAS SALVA
• Assessee Lawyers: S PADMAJA
• Keywords: Reopening of assessment; Capital asset; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 2(14); 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 5901/MUM/2012 (ASSESSMENT YEAR: 2004-05) D C I T 10(1) VS. M/S. FIAT INDIA P. LTD. ROOM NO. 455, 4 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 (NOW NEW HOLLAND (INDIA) P. LTD.) 303, CENTRAL PLAZA, 166 CST ROAD, KALINA, SANTACRUZ (E) MUMBAI 400098 PAN AAACI3922Q APPELLANT RESPONDENT CO NO. 256/MUM/2013 (ASSESSMENT YEAR: 2004-05) M/S. FIAT INDIA P. LTD. VS. D C I T 10(1) (NOW NEW HOLLAND (INDIA) P. LTD.) 303, CENTRAL PLAZA, 166 CST ROAD, KALINA, SANTACRUZ (E) MUMBAI 400098 ROOM NO. 455, 4 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACI3922Q CROSS OBJECTOR APPELLANT IN APPEAL APPELLANT BY: MS. S. PADMAJA RESPONDENT BY: S/S. PARAS SALVA & HARSH KAPADIA DATE OF HEARING: 30.11.2016 DATE OF PRONOUNCEMENT: 14.12.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 21, MUMBAI DATED 15.06.2012 FOR A.Y. 2004-05. THE A SSESSEE HAS ALSO PREFERRED CROSS OBJECTIONS (CO) IN RESPECT OF THE A FORESAID ORDER OF THE CIT(A)-21, MUMBAI. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SELLING OF PASSENGER CARS AND COMPONENTS, FILED ITS RETURN OF INCOME FOR ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 2 A.Y. 2004-05 ON 30.10.2004 DECLARING LOSS OF (-) ` 184,80,692/-. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS CO MPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHOR T 'THE ACT') VIDE ORDER DATED 29.12.2006, WHEREIN THE LOSS WAS ASSESSED AT (-) ` 162,94,69,692/-. SUBSEQUENTLY, PROCEEDINGS WERE INITIATED UNDER SECT ION 147 OF THE ACT AND THEREAFTER NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 30.03.2009. THE RESULTANT ASSESSMENT WAS COMPLET ED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DATED 10.08 .2009. 2.2 FOR A SECOND TIME, THE ASSESSING OFFICER (AO) I NITIATED REASSESSMENT PROCEEDINGS FOR A.Y. 2004-05 AND AFTER RECORDING RE ASONS THAT INCOME OF THE ASSESSEE LIABLE TO TAX HAD ESCAPED ASSESSMENT A ND OBTAINING ADMINISTRATIVE APPROVAL, ISSUED NOTICE UNDER SECTIO N 148 OF THE ACT ON 31.03.2011. IN RESPONSE THERETO, THE ASSESSEE REQUE STED THAT THE ORIGINAL RETURN OF INCOME FILED ON 30.10.2004 BE TREATED AS FILED IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DAT ED 29.11.2011 WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT ` 1654,00,32,908/- IN VIEW OF THE FOLLOWING ADDITIONS: - (I) LTCG ON CANCELLATION OF PREFERENCE SHARES AND EQUITY SHARES ` 1444,85,34,800/- (II) LTCG ON CONVERSION OF LOANS ` 393,95,27,800/- 2.3 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR A.Y. 2 004-05 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DAT ED 29.11.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-21, MUMBAI. THE LEARNED CIT(A) DISPOSED OFF THE APPEAL ALLOWING THE ASSESSE E PARTIAL RELIEF, INTER ALIA: (I) DELETING THE ADDITION OF LTCG ON CANCELLATION O F PREFERENCE SHARES AND EQUITY SHARES OF ` 1444,85,34,800/-; (II) HOLDING THAT THE AO WAS NOT JUSTIFIED IN ASSUM ING JURISDICATION UNDER SECTION 147 OF THE ACT SINCE THERE WAS NO FAILURE O N THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL RELEVANT M ATERIAL; AND (III) IN RESPECT OF THE ADDITION OF LTCG ON CONVERS ION OF LOANS TO SHARE CAPITAL AMOUNTING TO ` 393,95,27,800/-, ADMITTEDLY AS RECORDED IN THE ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 3 IMPUGNED ORDER, THE AO IN RESPONSE TO A RECTIFICATI ON APPLICATION BY THE ASSESSEE IN THIS REGARD UNDER SECTION 154 OF THE AC T VIDE ORDER DATED 22.03.2012, HOLDING THAT SUCH CONVERSION OF LOANS T O EQUITY SHARES WAS NOT CAPITAL GAINS IN THE HANDS OF THE ASSESSEE COMP ANY. REVENUES APPEAL FOR A.Y. 2004-05 IN ITA NO. 5901/M UM/2012 3. REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT(A) -21, MUMBAI DATED 15.06.2012 FOR A.Y. 2004-05 HAS PREFERRED THIS APPE AL RAISING THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN HOLDING THE VIEW THAT THE DECISION OF REOPENING WAS BEYOND THE JURISDICTION U/S. 147 OF THE ACT, WITHOUT APPRECIAT ING THE FACT THAT THE DECISION OF REOPENING U/S. 147 R.W.S. 148 OF AC T WAS ON ACCOUNT OF FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULL Y AND TRULY ALL RELEVANT MATERIALS PERTAINING TO CANCELLATION OF EQ UITY AND PREFERENCE SHARES. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1444,85,34,800/- MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF CANCELLATION OF EQU ITY AND PREFERENCE SHARES RESULTING INTO LONG TERM CAPITAL GAIN, WITHOUT APPRECIATING THE FACT THAT THE HOLDING COMPANY M/S. FIAT INDIA AUTOMOBILES PVT. LTD. HAS CLAIMED LONG TERM CAPITAL LOSS ON THIS CANCELLATION OF EQUITY AND PREFERENCE SHARES, AND P ROVISIONS OF SEC. 45 OF THE ACT WAS CORRECTLY APPLIED BY THE ASSESSIN G OFFICER. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT, OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4. GROUND AT S. NOS 3 & 4 4.1 THESE GROUNDS ARE GENERAL IN NATURE AND THEREFO RE NO ADJUDICATION IS CALLED FOR THEREON. 5. GROUND NO. 1 VALIDITY OF ASSUMPTION OF JURISDICTI ON UNDER SECTION 147 OF THE ACT. 5.1 IN THIS GROUND (SUPRA), REVENUE ASSAILS ORDER O F THE LEARNED CIT(A) HOLDING THAT THE AOS THE DECISION TO REOPEN THE AS SESSMENT WAS BEYOND THE JURISDICTION UNDER SECTION 147 OF THE ACT, WITH OUT APPRECIATING THAT THE AOS DECISION WAS ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 4 DISCLOSE FULLY AND TRULY ALL RELEVANT MATERIAL PERT AINING TO CANCELLATION OF EQUITY AND PREFERENCE SHARES. THE LEARNED D.R. SUPP ORTED THE GROUND RAISED. 5.2 THE LEARNED A.R. OF THE ASSESSEE REITERATED THE SUBMISSIONS PUT FORTH BEFORE THE CIT(A). IT WAS CONTENDED THAT AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE ASSESS MENT CAN BE REOPENED ONLY IF THE ASSESSEE HAS FAILED TO DISCLOSE FULLY A ND TRULY ALL MATERIAL FACTS NECESSARY FOR THAT ASSESSMENT. IN THE CASE ON HAND, THE ASSESSEES ASSESSMENT FOR A.Y. 2004-05 WAS REOPENED ON THE GRO UND THAT THE GAIN ARISING FROM CANCELLATION OF 11,68,01,390 EQUITY SH ARES AND 1,23,80,000 PREFERENCE SHARES HELD BY M/S. FIAT INDIA AUTOMOBIL E P. LTD. AND CONVERSION OF CONCERNED LOAN INTO EQUITY SHARES WAS NOT OFFERE D TO TAX BY THE ASSESSEE. THE LEARNED A.R. OF THE ASSESSEE SUBMITTED THAT THE CONTENTION OF REVENUE IN THIS GROUND (SUPRA) THAT THE REOPENING WAS ON AC COUNT OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L RELEVANT MATERIAL PERTAINING TO CANCELLATION OF EQUITY AND PREFERENCE SHARES WAS FACTUALLY ERRONEOUS. IN THIS REGARD, IT WAS POINTED OUT THAT IN SUBMISSIONS PLACED BEFORE THE LEARNED CIT(A) HIS ATTENTION WAS INVITED TO NOTE 12 OF SCHEDULE 14 AND NOTE 15 OF SCHEDULE 14 OF THE BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION WHEREIN THIS MATTER HAS BEEN EXPLAINE D IN DETAIL. IN VIEW OF THIS DISCLOSURE IN THE ASSESSEES BALANCE SHEET, IT IS CONTENDED THAT THE ASSESSEE HAD FULLY AND TRULY DISCLOSED ALL RELEVANT MATERIAL/FACTS BEFORE THE AO AND ON THE BASIS OF WHICH THE AO IN EARLIER SCRU TINY ASSESSMENTS AFTER EXAMINATION OF RESTRUCTURING OF SHARE CAPITAL WAS O F THE VIEW THAT THIS TRANSACTION DID NOT GIVE RISE TO ANY INCOME. IT IS SUBMITTED THAT THE THEN AO WHO HAD COMPLETED THE EARLIER ASSESSMENT ORDERS, HA D CORRECTLY FRAMED THE ORDERS TAKING INTO CONSIDERATION MATERIAL BEFORE HI M THAT THE AFORESAID TRANSACTIONS DID NOT GIVE RISE TO ANY CAPITAL GAINS TAXABLE UNDER SECTION 45 OF THE ACT AND RELIED ON THE DECISION OF THE IDEA C ELLULAR LTD. (250 ITR 1). THEREFORE, IT IS CONTENDED THAT ON THE BASIS OF THE DISCLOSURE OF THESE TWO ISSUES IN THE FINANCIAL STATEMENTS OF THE ASSESSEE AND THE EARLIER SCRUTINY ASSESSMENT ORDERS COMPLETED UNDER SECTION 143(3) ON 29.12.2006 AND UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORD ER DATED 10.08.2009, IT IS ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 5 CLEAR THAT THE PRESENT REOPENING OF ASSESSMENT FOR A.Y. 2004-05 WAS ON ACCOUNT OF MERE CHANGE OF OPINION, ON THE SAME SET OF FACTS AVAILABLE ON RECORD, WHICH IS NOT PERMISSIBLE IN LAW AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF KELVINATOR INDIA LTD. (320 ITR 561) AND HON'BLE BOMBAY HIGH COURT IN ASIAN PAINTS LTD. (308 ITR 195 (BOM). TO S UM UP, THE LEARNED A.R. OF THE ASSESSEE CONTENDED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY FACTS IN RELATION TO CAPIT AL REDUCTION. MERE CHANGE OF OPINION ON SAME SET OF FACTS ALREADY DISCLOSED B EFORE THE AO WAS NOT A VALID GROUND FOR REOPENING THE ASSESSMENT SINCE THE RE WAS NO INCOME OF THE ASSESSEE LIABLE TO TAX ESCAPING ASSESSMENT PURSUANT TO CAPITAL REDUCTION AND CONVERSION OF LOANS. THEREFORE IN THE LIGHT OF THE ABOVE, IT WAS CONTENDED THAT THE AO HAD ERRED IN ASSUMING JURISDI CTION UNDER SECTION 147 OF THE ACT WITHOUT FULFILLING THE CONDITIONS PR ECEDENT AND THEREFORE THE ASSUMPTION OF JURISDICTION IS NOT VALID. 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. THE LEARNED CIT(A) HAS DEALT WITH THIS ISSUE AND HELD THE AOS ASSUMPTION OF JURISDICTION FOR REOPENING AND ASSESS MENT UNDER SECTION 147 OF THE ACT WAS NOT JUSTIFIED AND INVALID AS IT WAS BEYOND JURISDICTION SINCE THERE WAS NO FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY AND TRULY ALL RELEVANT MATERIAL BEFORE THE AO. IN THE I MPUGNED ORDER THE LEARNED CIT(A) HAS HELD AS UNDER AT PARAS 2.3 TO 2. 3(C) THEREOF: - 2.3 1 HAVE CONSIDERED THE FACTS OF THE CASE. 2.3(A) AS PER PROVISIONS OF SEC. 147 OF THE ACT, TH E ASSESSMENT CAN BE REOPENED IF THE A.O. HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THUS, FOR REOPENING OF ASSESSMENT, THE A.O. SHOULD HAVE REASON AND ON THE BASIS OF SUC H REASONS A PRIMA FACIE BELIEF CAN BE FORMED THAT ANY INCOME CH ARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN THE CASE UNDER CONSIDERATION THE A.O. REOPENED A SSESSMENT BY RECORDING FOLLOWING REASONS: 'PURSUANT TO THE CAPITAL RESTRUCTURING, THE GAIN AR ISING FROM THE CANCELLATION OF 116,801,390 EQUITY SHARES AND 1 2,380,000 PREFERENCE SHARES HELD BY M/S. FIAT INDIA AUTOMOBIL ES PUT. LTD. AND THE CONVERSION OF UNSECURED LOANS INTO EQUITY S HARES WAS NOT OFFERED TO TAX. ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 6 IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT COMING WIT HIN THE MEANING OF SEC. 147 READ WITH PROVISO THERETO, BY R EASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THEREFORE, NOTI CE U/S. 148 OF THE INCOME TAX ACT HAS BEEN ISSUED. THE A.O. NOTICED THAT PURSUANT TO CAPITAL RESTRUCTU RING, THERE WAS CANCELLATION OF 11.68,01,390 EQUITY SHARES AND 1,23 ,80,000 PREFERENCE SHARES HELD BY M/S. FIAT INDIA AND ALSO THAT THERE WAS CONVERSION OF UNSECURED LOANS INTO EQUITY SHARES. T HE A.O. HAS HELD THAT GAIN ARISING FROM THESE TRANSACTIONS WERE NOT OFFERED TO TAX. THE QUESTION FOR CONSIDERATION IS WHETHER ON THE BASIS OF THESE FACTS A BELIEF COULD BE FORMED THAT ANY INCOME CHARGEABLE T O TAX HAD ESCAPED ASSESSMENT. FOR THE PURPOSE OF GENERATION OF CAPITA L GAIN THERE SHOULD BE TRANSFER OF CAPITAL ASSET. THAT MEANS SUC H CAPITAL ASSET SHOULD BE PROPERTY OF THE ASSESSEE AND SHOULD BE HE LD BY ASSESSEE AND THEREAFTER, IT SHOULD HAVE BEEN TRANSFERRED BY THE ASSESSEE TO SOME OTHER PERSON FOR SOME CONSIDERATION RECEIVED O R TO BE RECEIVED. THE CAPITAL ASSET HAS BEEN DEFINED IN SEC.2(14) OF THE ACT MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION BUT IT IS NOT INCLU DED STOCK IN TRADE AND OTHER THINGS AS MENTIONED IN SEC.2(14). THUS AS PER PROVISIONS OF SEC.45(1) R.W.S. 2(14), THERE SHOULD BE (I) EXISTEN CE OF CAPITAL ASSET (II) SUCH CAPITAL ASSET SHOULD BE HELD BY AN ASSESSEE (I II) THERE SHOULD BE TRANSFER OF SUCH CAPITAL ASSET FROM THE ASSESSEE TO THE OTHER PARTY. IN THE CASE UNDER CONSIDERATION, THE APPELLANT WAS CON TINUOUSLY INCURRING LOSSES AND THERE WERE HUGE ACCUMULATED LO SSES OF RS. 1,444.85 CRORES. THEREFORE, AS PER THE SCHEME APPRO VED BY THE HON'BLE HIGH COURT, THE LOSS TO THE TUNE OF RS. 1,4 44.85 CRORES WAS WIPED OUT BY REORGANIZING AND REDUCING THE SHARE CA PITAL AND CONVERSION OF CERTAIN LOANS INTO EQUITY SHARES. ON ACCOUNT OF THIS SHARE CAPITAL RESTRUCTURING, NO CAPITAL ASSET OF TH E APPELLANT WAS TRANSFERRED AND CONSEQUENTLY NO INCOME OR CAPITAL G AIN AROSE TO THE APPELLANT COMPANY. THE APPELLANT COMPANY DID NOT SE LL ANYTHING TO ANY PERSON. THE SHARE CAPITAL SO REDUCED WAS BELONG ING AND PERTAINING TO THE SHAREHOLDERS AND WAS ASSETS OF SH AREHOLDERS AND NOT OF THE APPELLANT COMPANY. SUCH SHARE CAPITAL RE DUCED WAS LIABILITY OF APPELLANT COMPANY. IN THE SAME WAY, TH E UNSECURED LOANS PAYABLE BY APPELLANT WERE NOT THE ASSETS OF THE APP ELLANT COMPANY BUT WERE LIABILITIES OF THE APPELLANT COMPANY. SUCH UNSECURED LOANS WERE ASSETS IN THE HANDS OF CREDITORS. AS PER PROVI SIONS OF SEC.45(1) R.W.S. 2(14), THERE SHOULD BE A CAPITAL ASSET, SUCH CAPITAL ASSET SHOULD BE HELD BY ASSESSEE AND SUCH CAPITAL ASSET SHOULD B E TRANSFERRED BY ASSESSEE TO OTHER PERSON FOR SOME CONSIDERATION. IN THE CASE UNDER CONSIDERATION, ALL THESE FACTORS WERE MISSING. THE APPELLANT WAS NOT HOLDING THESE (SHARE CAPITAL AND LOANS) AS CAPITAL ASSETS. THUS NOTHING WAS SOLD BY THE APPELLANT AND NO ASSET WAS TRANSFERRED BY THE APPELLANT. CONSEQUENTLY NO CONSIDERATION WAS RE CEIVED BY APPELLANT. IN THE FACTS AND CIRCUMSTANCES, THERE CO ULD NOT HAVE BEEN ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 7 ANY INCOME EARNED BY THE APPELLANT OR CAPITAL GAIN AROSE TO THE APPELLANT. IN THE FACTS AND CIRCUMSTANCES, THE REAS ONS AS RECORDED BY A.O. FOR REOPENING ASSESSMENT COULD NOT HAVE GIVEN FORMATION OF EVEN A PRIMA FACIE BELIEF THAT INCOME /GAINS CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE AC T. IN THE FACTS AND CIRCUMSTANCES, THE REASONS RECORDED BY A.O. WER E NOT PROPER FOR FORMING A BELIEF U/S. 147 OF THE ACT THAT INCOME CH ARGEABLE TO TAX HAD ESCAPED ASSESSMENT. ON THE BASIS OF SUCH IMPROPER R EASONS, THE A.O. COULD NOT HAVE ASSUMED JURISDICTION U/S.147 OF THE ACT. ON THE BASIS OF THESE REASONS, NO LOGICAL CONCLUSION COULD HAVE BEEN DRAWN THAT CAPITAL GAINS CHARGEABLE TO TAX ESCAPED ASSESSMENT. THE REASONS SO RECORDED WERE NOT SUSTAINING THE FORMATION OF BELIE F 329 JTR 110 (DEL) SARTHAK SECURITIES CO. THE REASONS SO RECORDED WERE NOT LEADING TO A BELIEF THAT CAPITAL GAINS ESCAPED ASSESSMENT. THERE WAS NO MATERIAL AVAILABLE ON RECORD FROM WHICH THE REQUISITE BELIEF COULD BE FORMED BY A.O. THERE, WAS NO 'TANGIBLE MATERIAL' TO COME TO T HE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. THE BELIEF FORMED B Y A.O. IN THE CASE UNDER CONSIDERATION WAS NOT THAT OF AN HONEST AND REASONABLE PERSON 336 ITR 451 (A.P.) G.V.K. GAUTARNI POWER LTD . THE SUFFICIENCY OF THE EVIDENCE OF MATERIAL IS NOT OPEN TO SCRUTINY BY THE COURT BUT THE EXISTENCE OF THE BELIEF SINE QUA NON FOR A VALID EX ERCISE OF POWER. IN THE PRESENT CASE, IT WAS IMPOSSIBLE FOR ANY PRUDENT PERSON TO FORM A REASONABLE BELIEF THAT THE INCOME HAD ESCAPED ASSES SMENT. THE REASONS SO RECORDED, COULD NEVER HAVE LED A PRUDENT PERSON TO FORM AN OPINION THAT THE INCOME HAD ESCAPED ASSESSMENT. THERE WAS ABSOLUTELY NO BASIS FOR THE A.O. TO FORM A BELIEF T HAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT 324 ITR 15 4 (BORN) PRASHANT S. JOSHI VS. ITO. 2.3(B) THE APPELLANT'S ARGUMENT AND SUBMISSIONS ARE ALSO HAVE FORCE THAT THE PRESENT REOPENING WAS MADE ONLY ON THE BAS IS OF CHANGE OF OPINION. THE APPELLANT DISCLOSED ALL RELEVANT FACTS PERTAINING TO THESE ISSUES IN ITS ACCOUNTS AND BALANCE SHEET THE APPELL ANT'S RETURN OF INCOME WAS SCRUTINIZED U/S.143(3) OF THE ACT VIDE ORDER DTD.29.12.2006. THEREAFTER THE ASSESSMENT WAS REOPE NED AND ASSESSMENT ORDER WAS PASSED U/S.143(3) R.W.S. 147 O F THE ACT VIDE ORDER DTD.10.08.2009. THE FACTS PERTAINING TO THE I SSUE ON WHICH PRESENT REOPENING HAS BEEN MADE WERE ALSO BEFORE TH E A.O. WHO COMPLETED THE EARLIER ASSESSMENT ORDER. THEREFORE, IT WAS PRESUMED THAT THE EARLIER A.0 HAD ALSO CONSIDERED THESE ISSU E AND FORMED OPINION THAT THERE WAS NO INCOME/CAPITAL GAINS ARIS ING TO THE APPELLANT ON ACCOUNT OF THIS ARRANGEMENTS. THE PRES ENT A.O. HAS REOPENED ASSESSMENT ON THE BASIS OF SAME FACTS WHIC H HAD ALREADY BEEN, PRESUMED TO HAVE BEEN CONSIDERED BY THE EARLI ER A.O. THERE WERE NO NEW FACTS WHICH CAME INTO POSSESSION OF A.O . AFTER THE COMPLETION OF EARLIER ASSESSMENT ORDERS. IN THE FAC TS AND CIRCUMSTANCES THE APPELLANT'S ARGUMENT HAS FORCE TH AT THE PRESENT REOPENING HAS BEEN MADE ONLY ON THE BASIS OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER THE LAW AS HELD BY H ON'BLE SUPREME COURT IN THE CASE OF M/S. KELVINATOR INDIA LTD. ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 8 2.3(C) IN THE CASE UNDER CONSIDERATION, THE REOPENI NG WAS MADE AFTER LAPSE OF FOUR YEARS FROM THE END OF ASSESSMENT YEAR . AS PER PROVISO TO SEC. 147, WHERE ASSESSMENT HAD BEEN COMPLETED U/S.1 43(3) OF THE ACT, THE ASSESSMENT CAN BE REOPENED AFTER LAPSE OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR ONLY IF THERE I S FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIA L FACTS RELEVANT FOR ASSESSMENT. IN THE CASE UNDER CONSIDERATION, ADMITT EDLY THE ASSESSMENT WAS REOPENED AFTER FOUR YEARS FROM THE E ND OF RELEVANT ASSESSMENT YEAR. THE APPELLANT HAD DISCLOSED RELEVA NT FACTS IN NOTE NO.12 AND 15 OF SCHEDULE 14 OF BALANCE SHEET. THESE WERE PRESUMABLY CONSIDERED BY A.O'S WHO FRAMED EARLIER T WO ASSESSMENT ORDERS FOR THIS ASSESSMENT YEAR. ADMITTEDLY THERE W AS NO FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRU LY ALL MATERIAL FACTS RELEVANT FOR ASSESSMENT. BEING THE FACTS SO, THE A. O. WAS NOT JUSTIFIED IN ASSUMING JURISDICTION U/S.147 OF THE ACT SINCE THER E WAS NO FAILURE ON THE PART OF APPELLANT TO DISCLOSE FULLY AND TRUL Y ALL RELEVANT MATERIAL. 5.3.2 FROM AN APPRECIATION OF THE FACTS ON RECORD, THE SUBMISSIONS MADE AND THE RELEVANT PORTIONS OF THE IMPUGNED ORDER, IT IS IMPERATIVE THAT IF REOPENING THE ASSESSMENT WAS AS PER THE PROVISIONS OF SECTION 147 OF THE ACT, THE AO SHOULD HAVE PRIMA FACIE REASON TO BELIE VE THAT INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE QUESTION FOR CONSIDERATION IS, WHETHER ON THE BASIS OF THE REASO NS RECORDED BY THE AO (EXTRACTED SUPRA AT PARA 5.3.1), A PRIMA FACIE BELI EF TO THAT EFFECT COULD HAVE BEEN FORMED IN THE FACTS AND CIRCUMSTANCES OF THE CASE; THAT THERE WAS CAPITAL GAIN ARISING TO THE ASSESSEE ON CANCELL ATION OF THE AFORESAID 11,68,01,390 EQUITY SHARES AND 1,23,80,000 PREFEREN CE SHARES HELD NOT BY THE ASSESSEE BUT BY M/S. FIAT INDIA AUTOMOBILES LTD . FOR CAPITAL GAIN TO ARISE THERE SHOULD BE TRANSFER OF CAPITAL ASSET. TH E PREREQUISITES IN THIS REGARD AS PER THE PROVISIONS OF SECTION 2(14) R.W.S . 45(1) OF THE ACT ARE THAT:- (I) THERE SHOULD BE EXISTENCE OF A CAPITAL ASSET, (II) SUCH CAPITAL ASSET SHOULD BE HELD BY THE ASSES SEE, AND (III) THERE SHOULD BE TRANSFER OF SUCH CAPITAL ASSE T FROM THE ASSESSEE TO THE OTHER PARTY. 5.3.3 IN THE CASE ON HAND, THE FACTS ARE THAT THE A SSESSEE HAD ACCUMULATED LOSSES OF ` 1,444.85 CRORES. AS PER SCHEME APPROVED BY THE ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 9 HON'BLE BOMBAY HIGH COURT, THIS LOSS WAS TO BE WIPE D OUT BY REORGANIZING AND REDUCING THE ASSESSEES SHARE CAPITAL AND CONVE RSION OF CERTAIN LOANS INTO EQUITY SHARES. WE CONCUR WITH THE VIEW OF THE LEARNED CIT(A) THAT IN THE FACTUAL MATRIX AS LAID OUT ABOVE, NO CAPITAL AS SET OF THE ASSESSEE WAS SOLD/TRANSFERRED AND THEREFORE NO CAPITAL GAIN AROS E TO THE ASSESSEE COMPANY. THE SAID SHARE CAPITAL THAT WAS REDUCED BE LONGED NOT TO THE ASSESSEE BUT TO SHAREHOLDERS M/S. FIAT INDIA AUTOMO BILES P. LTD. IN THE CASE ON HAND, THE ASSESSEE WAS NOT OWNING THE SAID SHARES AS CAPITAL ASSET; THEREFORE EVIDENTLY NO ASSET WAS SOLD/TRANSF ERRED BY THE ASSESSEE AND CONSEQUENTLY NO CONSIDERATION/GAIN AROSE TO THE ASSESSEE AND THEREFORE THE CONDITIONS PRECEDENT AS PER THE PROVI SIONS OF SECTION 2(14) R.W.S. 45(1) OF THE ACT (SUPRA) ARE ALL MISSING. IN THIS FACTUAL/LEGAL MATRIX OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE RE ASONS RECORDED BY THE AO FOR REOPENING THE ASSESSMENT COULD NOT HAVE GIVE N RISE TO FORMATION OF PRIMA FACIE REASON TO BELIEVE THAT INCOME OF THE AS SESSEE CHARGEABLE TO TAX UNDER CAPITAL GAINS HAD ESCAPED ASSESSMENT. THERE W AS ADMITTEDLY NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS RELEVANT FOR MAKING THE ASSESSMENT, SINCE, TH E RELEVANT FACTS WERE DISCLOSED IN ITS FINANCIAL STATEMENTS IN NOTES 12 A ND 15 OF SCHEDULE 14 OF THE BALANCE SHEET FOR THE PERIOD UNDER CONSIDERATIO N, WHICH WOULD HAVE BEEN BEFORE THE AO FOR CONSIDERATION IN THE EARLIER SCRUTINY ASSESSMENT PROCEEDINGS WHICH CULMINATED IN ORDERS OF ASSESSMEN T UNDER SECTION 143(3) OF THE ACT DATED 29.12.2006 AND UNDER SECTIO N 143(3) R.W.S. 147 OF THE ACT DATED 30.03.2009. IN OUR VIEW, IN THESE THI RD ROUND OF ASSESSMENT PROCEEDINGS, NO NEW FACTS HAD COME INTO THE POSSESS ION OF THE AO AFTER COMPLETION OF THE EARLIER ASSESSMENT ORDERS AND THE REFORE THE PRESENT INITIATION OF REASSESSMENT PROCEEDINGS INITIATED UN DER SECTION 147 OF THE ACT HAS BEEN MADE ON THE BASIS OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE, AS HELD BY THE HON'BLE APEX COURT IN T HE CASE OF KELVINATOR INDIA LTD. (SUPRA). IN THIS VIEW OF THE MATTER, AS DISCUSSED FROM PARA 5.3.1 OF THIS ORDER (SUPRA), WE UPHOLD THE FINDING OF THE LEARNED CIT(A) THAT THE AO WAS NOT JUSTIFIED IN ASSUMING JURISDICTION UNDER SECTION 147 OF THE ACT FOR REOPENING THE ASSESSMENT FOR A.Y. 2004-05 SINCE THERE WAS NO FAILURE ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 10 ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL RELEVANT MATERIAL BEFORE THE AO FOR MAKING THE ASSESSMENT. CONSEQUENT LY, GROUND NO.1 OF THE REVENUES APPEAL IS DISMISSED. 6. GROUND NO. 2 6.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE DECISI ON OF THE LEARNED CIT(A), IN DELETING THE ADDITION OF ` 1444.85 CRORES MADE BY THE AO ON ACCOUNT OF REDUCTION OF SHARE CAPITAL BY WAY OF CANCELLATION O F EQUITY AND PREFERENCE SHARES RESULTING IN LTCG, WITHOUT APPRECIATING THAT THE HOLDING COMPANY M/S. FIAT INDIA AUTOMOBILES P. LTD. HAD CLAIMED LTC L THEREON. THE LEARNED D.R. FOR REVENUE WAS HEARD AND PLACED SUPPO RT ON THE ORDER OF THE AO ON THIS ISSUE. 6.2 THE LEARNED A.R. OF THE ASSESSEE REITERATED ITS CONTENTIONS BEFORE THE AUTHORITIES BELOW THAT ITS ACCUMULATED LOSSES HAD R ESULTED IN EROSION OF ITS NET WORTH BY MORE THAN 50% AND THEREFORE BY A RESTR UCTURING SCHEME APPROVED BY THE HON'BLE BOMBAY HIGH COURT DATED 28. 04.2004, THE ASSESSEE HAD REDUCED ITS SHARE CAPITAL OF EQUITY SH ARES AND PREFERENCE SHARES, WHICH HAS BEEN DISCLOSED AND EXPLAINED IN N OTES 12 AND 15 TO SCHEDULE 14 OF THE BALANCE SHEET. IT IS CONTENDED T HAT THE SAID SHARES HAVE BEEN WRONGLY CONSTRUED AS CAPITAL ASSET OF THE ASSESSEE BY THE AO WHEN THEY WERE HELD BY FIAT INDIA AUTOMOBILES LTD. AND NOT BY THE ASSESSEE. THEREFORE, SINCE THERE WAS NO TRANSFER OF CAPITAL ASSET BY THE ASSESSEE, THERE WAS NO QUESTION OF LTCG ARISING IN THE HANDS OF THE ASSESSEE COMPANY. IT WAS FURTHER CONTENDED THAT THE VIEW OF THE AO, THAT SINCE THE SHAREHOLDERS OF M/S. FIAT INDIA AUTOMOBIL ES LTD. CLAIMED LTCL, THEREFORE THE ASSESSEE SHOULD BE CHARGED LTCG IS NO T SUSTAINABLE AS NO CAPITAL ASSET OF THE ASSESSEE COMPANY HAS BEEN SOLD /TRANSFERRED TO RESULT IN ANY LTCG. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THE FACTS OF THI S MATTER, AS EMANATE FROM THE RECORD, ARE THAT THE ASSESSEE HAD HUGE ACCUMULA TED LOSSES AMOUNTING TO ` 1,444.85 CRORES. THE ASSESSEE ENTERED INTO AN ARRAN GEMENT WITH ITS SHAREHOLDERS TO WIPE OUT SUCH ACCUMULATED LOSSES WH ICH WAS APPROVED BY ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 11 THE HON'BLE BOMBAY HIGH COURT ON 28.04.2004 WHEREBY ITS CAPITAL WAS TO BE RESTRUCTURED, INTER ALIA, BY WHICH 11,68,01,390 EQUITY SHARES AND 1,23,80,000 PREFERENCE SHARES HELD BY M/S. FIAT IND IA AUTOMOBILES P. LTD. WERE CANCELLED. IT HAS BEEN CLEARLY ESTABLISHED THA T THE AFORESAID SHARES WERE NOT THE PROPERTY OR CAPITAL ASSETS OF THE ASSE SSEE COMPANY. 6.3.2 AS PER THE PROVISIONS OF SECTION 2(14) R.W.S. 45(1) OF THE ACT (WHICH WERE INVOKED BY THE AO TO WRONGLY HOLD THAT THE ASS ESSEE IS TO BE ASSESSED TO LTCG OF ` 1,444.85 CRORES) THE PREREQUISITES ARE THAT THERE S HOULD BE: (I) THERE SHOULD BE EXISTENCE OF A CAPITAL ASSET, (II) SUCH CAPITAL ASSET SHOULD BE HELD BY THE ASSES SEE, AND (III) THERE SHOULD BE TRANSFER OF SUCH CAPITAL ASSE T FROM THE ASSESSEE TO THE ANOTHER PERSON/PARTY. IN THE FACTUAL MATRIX OF THE CASE, AS DISCUSSED AB OVE, SINCE THE CANCELLED EQUITY AND PREFERENCE SHARES WERE CAPITAL ASSETS BELONGED TO M/S. FIAT INDIA AUTOMOBILES LTD. AND NOT THE ASSESS EE, THERE WAS NO CAPITAL ASSET HELD BY THE COMPANY. CONSEQUENTLY, TH ERE COULD BE NOT TRANSFER OF THE AFORESAID CAPITAL ASSETS BY THE ASS ESSEE AND THEREFORE, THE PROVISIONS OF SECTION 2(14) R.W.S. 45(1) ARE NOT AT TRACTED. IN THIS FACTUAL AND LEGAL MATRIX OF THE CASE, WE UPHOLD THE FINDING OF THE LEARNED CIT(A) THAT THE PROVISIONS OF SECTION 2(14) R.W.S. 45(1) OF THE ACT ARE NOT ATTRACTED AND THEREFORE SINCE NO CAPITAL GAIN AROSE TO THE ASSESS EE, THE ADDITION AS CAPITAL GAIN OF ` 1,444.85 CRORES IN THE HANDS OF THE ASSESSEE IS UNSUSTAINABLE. CONSEQUENTLY, GROUND NO. 2 OF REVENU ES APPEAL IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2004-05 IS DISMISSED. ASSESSEES CROSS OBJECTION IN CO NO. 256/MUM/2013 8.1 THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE REOPENING OF ASSESSMENT IS BAD IN LAW AND LIABLE TO BE QUASHED AS THE COMMISSIONER OF INCOME TAX HAS GIVEN HIS APP ROVAL MECHANICALLY WITHOUT FOLLOWING THE DUE PROCESS OF L AW AS MANDATED IN SECTION 151 OF THE ACT AND HENCE THE OR DER OF THE ITA 5901 & CO 256/MUM/2013 M/S. FIAT INDIA P. LTD. 12 LD. COMMISSIONER OF INCOME TAX (APPEAL) BE UPHELD O N THIS GROUND ALSO. 8.2 ON A PERUSAL OF THE CROSS OBJECTION RAISED BY T HE ASSESSEE (SUPRA), WE FIND THAT IT SUPPORTS THE IMPUGNED ORDER OF THE LEA RNED CIT(A). IN VIEW OF THE FACT THAT REVENUES APPEAL HAS BEEN DISMISSED, THE ASSESSEE NOW HAS NO GRIEVANCE TO BE ADDRESSED, THEREBY RENDERING THE CO INFRUCTUOUS. IN THIS VIEW OF THE MATTER AS THE CO IS RENDERED INFRU CTUOUS, WE DISMISS THE CO RAISED BY THE ASSESSEE. 9. IN THE RESULT, THE ASSESSEES CO FOR A.Y. 2004-05 I S DISMISSED. 10. TO SUM UP, BOTH REVENUES APPEAL FOR A.Y. 2004-05 A ND THE ASSESSEES CROSS OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DECEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14 TH DECEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -21, MUMBAI 4. THE CIT - 10, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.