2016 Supreme(Guj) 1597

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Akil Abdul Hamid Kureshi, A.J. Shastri, JJ.
Aditya Medisales Ltd. - Appellant
Vs.
Dy. Commissioner of Income Tax, Circle 1(1) - Respondent
Special Civil Application No. 2827 of 2013
Decided On : 10-08-2016

The main legal point established in the given judgment is that as long as assessment was at large by virtue of the first notice of reopening, the question of issuing second notice for the same purpose did not arise. There cannot be two parallel assessments based on two notices. As long as first assessment is not completed, question of reassessment would not arise.

Headnote:

Reopening - Assessment - Companies Act - Income Tax Act - 147 - 148 - The court set aside the notice of reopening by following the judgment of the Supreme Court in case of Kikabhai Premchand, on the ground that transfer of shares from stock-in-trade to investment did not result into any immediate income accruing to the assessee which can be taxed in the assessment year 2005-2006. The notice for reopening is founded on the allegations that the assessee had shown to have held only 20,10,198 shares of Sun Pharmaceuticals on 31.3.2004. However, on 1.4.2004, the assessee had shown to have converted 40,20,396 shares of the said company from stock-in-trade to investment. Further, the list of shares and securities that the assessee claimed to have converted into investment on 1.4.2004 submitted during the course of assessment did not include these 40,20,396 shares. These shares were redeemed during the year under consideration and instead of showing receipt as business income or short term capital gain, it was shown as long term capital gain. The assessee had thus paid tax at a lower rate and avoided tax on business income. Thus according to the Assessing Officer, the assessee had supplied wrong information and paid tax on the sale of shares claiming as long term capital gain which at best could have been short term capital gain.

Fact of the Case:

The petitioner challenged a notice dated 30.3.2012 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2005-2006. The petitioner is a company registered under the Companies Act. For the assessment year 2005-2006, the petitioner had filed return of income on 31.10.2005 declaring total income of Rs. 57.73 lacs. Such return was taken in scrutiny by the Assessing Officer. He passed the order of assessment on 27.12.2007 computing total income of Rs. 5.86 crores (rounded off). To reopen such assessment, the Assessing Officer issued notice dated 11.1.2011. The petitioner challenged the said notice dated 11.1.2011 of reopening by filing Special Civil Application No. 10217/2011 in which on 12.9.2011 while issuing rule, the Court by way of interim relief directed that till final disposal of the petition, there shall be stay of further proceedings pursuant to the notice. When such petition was pending, the Assessing Officer issued yet another notice under section 147 of the Act seeking to reopen the petitioner's assessment for the same assessment year 2005-2006 which has been challenged in this petition.

Finding of the Court:

The court set aside the notice of reopening by following the judgment of the Supreme Court in case of Kikabhai Premchand, on the ground that transfer of shares from stock-in-trade to investment did not result into any immediate income accruing to the assessee which can be taxed in the assessment year 2005-2006.

Issues: The issues raised by the petitioner included the validity of the notice of reopening, the alleged failure on part of the assessee to disclose truly and fully all material facts, and the permissibility of issuing a second notice of reopening when the original assessment was already pending.

Ratio Decidendi: The court held that as long as assessment was at large by virtue of the first notice of reopening, the question of issuing second notice for the same purpose did not arise. There cannot be two parallel assessments based on two notices. As long as first assessment is not completed, question of reassessment would not arise. Once a notice is issued under section 148 of the Act, it triggers initiation of proceedings for assessment or reassessment of income which may have escaped assessment earlier. During such assessment, any income which may come to the notice of Assessing Officer may also be brought to tax. Till this assessment is not completed, it would not be possible for him to form a belief that income chargeable to tax had escaped assessment. Until the assessment, be it original or reopened, is pending before the Assessing Officer, the question of issuing notice for reopening would not arise.

Final Decision: The court set aside the notice of reopening dated 30.3.2012, and the petition was disposed of.