Reopening of income tax assessment requires more than mere change of opinion; the conditions under Section 47 for capital gains tax exemption must be strictly adhered to.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. B.S.Soparkar for the petitioner and learned Senior Standing Counsel Ms. Maithili Mehta for the respondents.

2. Rule returnable forthwith. Learned Senior Standing Counsel Ms. Mehta waives service of notice of rule on behalf of respondents.

3. Having regard to the controversy involved which is in narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing.

4. This petition is filed challenging the notice dated 31.03.2021 issued under section 148 of the INCOME TAX ACT , 1961 [for short ‘the Act’] for A.Y. 2015-16. The Notice is signed by the respondent- Assessing Officer at 6:53 p.m. on 31.03.2021. There is nothing on the record to show that the notice was not issued on 31.03.2021. It is not in dispute that the notice is issued on 31.03.2021 and accordingly, the notice cannot be said to be a time barred notice.

5. The above facts are recorded in view of the fact that the petitioner is one of the partner of one M/s. Mayur Dye-chem Intermediates (LLP) and where the other partners’ notices were stated to be issued after 31.03.2021.

6. The petitioner filed return of income for A.Y. 2015-16 on 29.09.2015 declaring total income of Rs. 52,06,570/-.

7. The petitioner was a shareholder in Mayur Dye-chem Intermediates Ltd which was converted into Mayur Dye-chem Intermediate LLP vide order dated 04.09.2014 passed by the Ministry of Corporate Affairs (MCA). The case of the petitioner was selected for scrutiny and a notice under section 143(2) was issued on 31.07.2016 under Limited Scrutiny under CASS and the Assessment Order under section 143(3) was passed on 26.12.2017 accepting the returned income.

8. The impugned notice dated 31.03.2021 was issued after recording following reasons:

“3. The erstwhile company was in business of Manufacturing, trading and export of chemicals and Mayur Dyechem Intermediates LLP has continued with the same business. Hetal Mayurkumar Patel held 1,17,000 shares (1.12% holding @ book value of Rs. 11,70,000/-) in the erstwhile company, and as a result of conversion of this Company into LLP, was given 1.12% partnership interest in Mayur Dyechem Intermediates LLP in lieu of shares held in erstwhile company. The financial statements of the erstwhile company clearly shows that the turnover for FY 2013-14 was Rs. 199.09 crores and that total company valued at Rs. 150,64,36,613/- (Share capital: Rs. 10,43,10,920/- Reserve & Surplus: Rs. 140,21,25,693/-) as on 03.09.2014 as per its books. The actual net-wroth of the said company should have been much higher considering that Land and some other assets continue to be reocrded on book value. Hence, the value of share in Mayur Dyechem Intermediates LLP received by Hetal Mayurkumar Patel as a result of this conversion of company into LLP amuonts to Rs. 1,57,02,090/- (i.e. 1.12% of Rs. 150,64,36,613/-) even at book value, which is a very conservative figure.

4. In short, Hetal Myurkumar Patel had originally invested amount of Rs. 11,68,390/- in equity shares of Mayur Dyechem Intermediates Limited and in lieu of such share, because of conversion of this company into LLP, got partnership stake in LLP causing a gain amounting to at least Rs. 1,57,03,700/- even @ book value (gain @market value in much higher).

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5.3 It is discernible from a cursory glance of Sec. 47 that the ‘transfers’ referred to in the said statutory provision would not be chargeable to income tax under the head “Capital gains” under section 45 of the Act if all the conditions prescribed are fulfilled. In other words, though the transactions referred to in S