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INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B” : HYDERABAD

ITA.No.1238/Hyd/2015 Assessment Years 2004-2005
Paul Devapriyam (Appellant) vs. DCIT (Respondent)
Date of Order: 22-01-2016

ORDER

PER SMT. P. MADHAVI DEVI, J.M.
This appeal is filed by the assessee for the A.Y. 2004-05. In this appeal, the assessee has raised the following grounds of appeal :

1. “The order of the Commissioner of Income-tax (Appeals)-4, Hyderabad dated 14.09.2015 is erroneous, contrary to law and facts of the case.

2. a) Commissioner of Income Tax (Appeals) ought to have seen that the Appellant was allotted 1,50,000 equity shares by Promuk Hoffmann International Limited on 31.08.2002 under certificate No.21 having distinctive Nos.799906 to 949905 on which Rs.1/- was paid as share application money. Therefore since the shares were allotted on 31.08.2002 they came into existence on 31.08.2002 and gain on sale of such shares should be considered as long term capital gain only since they were sold on 21.10.2003.

b) Commissioner of Income Tax (Appeals) grossly erred in law in determining the surplus on sale of 1,50,000 equity shares of Promuk Hoffman International Limited into short term capital gain of Rs.4,06,725/- and long term capital gains of Rs.30,60,525/- proportionately.

3. For all of the above and such other grounds as may be urged at the time of hearing it is most respectfully prayed that the Hon'ble Tribunal be pleased to direct the Assessing Officer to treat the surplus on sale of 1,50,000 equity shares of Promuk Hoffmann International Ltd as long term capital gain and grant deduction u/s.54F in the interest of justice.”

1.1. Vide letter dated 14.12.2015, assessee has raised an additional ground of appeal that the A.O. is not correct in law in reopening the assessment in the case of the assessee for the A.Y. 2004-05 which was earlier completed under section 143(3) of the Act. Since, the facts relating to the additional ground are on record and the ground being on legal issue, respectfully following the judgment of the Hon’ble Supreme Court in the case of NTPC Co. Ltd., vs. CIT (1998) 229 ITR 383 (SC) the additional ground is admitted and adjudicated as under.

2. Brief facts of the case are that the assessee, an individual and Director of M/s. Promuk Halfman International Limited, filed his return of income for the A.Y. 2004-05 on 03.10.2004 declaring taxable income of Rs.45,56,665. Assessment under section 143(3) of the Act was completed on 22.12.2006 determining the taxable income from business at Rs.10,64,840 and long term capital gain at Rs.41,77,140. Subsequently, the A.O. noticed that assessee had purchased 1,50,000 shares from M/s. Promuk Halfman International Limited, Hyderabad @ Rs.10 each and paid Rs.1 per share on 31.08.2002 and the balance of Rs.9 per share on 22.12.2002. He observed that all its shares were sold on 21.10.2003 and the assessee has treated capital gain as long term capital gain and claimed exemption under section 54F of the I.T. Act. According to the A.O., since the shares were fully paid up on 22.12.2002, when the assessee has paid the balance consideration, they are to be considered as acquired on 22.12.2002 and the gain derived on account of sale of such shares has to be treated as short term capital gain. He therefore, issued notice under section 148 for re-assessment of the long term capital gain. During the assessment proceedings under section 143(3) read with section 147 of the I.T. Act, the assessee has filed written submissions on 11.12.2009 giving details of purchase, allotment of shares and also the payment of the balance sale consideration. The A.O. however, did not accept assessee’s contentions and holding that assessee has made the payment of the sale consideration only on 22.12.2002, the capital gain arising out of the sale of shares is only short term capital gain. He accordingly brought it to tax and also disallowed the claim of exemption under section 54F of the I.T. Act. Aggrieved, assessee preferred an appeal before the Ld.

CIT(A) who partly allowed the same. Aggrieved, assessee is in appeal before us.

3. The assessee has raised grounds on the merits of the disallowance and also raised an additional ground on the validity of reopening of the assessment. Ld. Counsel for the assessee, submitted that the assessee had furnished all the details before the A.O. during the assessment proceedings under section 143(3) including the details of purchase and sale of shares. He has also drawn our attention to the assessment order passed under section 143(3) wherein the A.O. has brought to tax the long term capital gain as reported by the assessee. He has also drawn our attention to the questionnaire issued by the A.O. dated 28.06.2006 wherein the details of long term capital gain such as date and cost of acquisition, date of sale, sale consideration claimed and address of the party to whom the sale was made with evidence was required to be filed. He drew our attention to page No.4 of the paper book wherein the statement showing working of income from capital gain including the purchase and sale of shares of M/s. Promuk Halfman International Limited are furnished. Assessee’s reply to the A.O. on long/short term capital gains and particularly on sale of shares of M/s. Promuk Halfman International Limited has also been filed at pages 10 and 11 of the paper book. Thus, according to him, assessee has disclosed all the material facts before the A.O. and the A.O. has considered all the details before accepting the long term capital gain reported by the assessee. Further, he has also submitted that for the date of acquisition of the shares, it is pertinent to consider the date of allotment of shares i.e., in this case 31.08.2012 on which date, the shares were allotted to the assessee and not the date of payment of the entire sale consideration. Thus, according to him, there was no escapement of income in the case of the assessee and the reopening of the assessment is therefore bad in law.

4. The Ld. D.R, on the other hand, has supported the orders of the authorities below and submitted that shares became fully paid up only on the payment of balance of sale consideration of Rs.9 per share by the assessee in December, 2002 and therefore, the gain on sale of such share has rightly been treated as short term capital gain.

5. Having regard to the rival contentions and the material on record, we find that the assessment year before us is A.Y. 2004-05 and the assessee had filed the return of income and the assessment was completed under section 143(3) of the I.T. Act on 22.12.2006. The assessment was reopened by issuing notice under section 148 on 28.12.2009. As per the proviso to section 143 of the I.T. Act, an assessment made under section 143(3) of the Act cannot be reopened after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax is escaped assessment for such assessment year by reason of the failure on the part 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 this assessment for that assessment year.

5.1. In the case before us, the relevant assessment year ends on 31.03.2005 and the four years therefrom expires on 31.03.2009 while the notice under section 148 was issued on 05.12.2008 i.e., within the period of four years. Therefore, the proviso to section 147 is not applicable to the facts of the case before us. Further, the assessment may not reopened on a mere change of opinion. As demonstrated by the assessee before us, all the relevant facts were filed before the A.O. during the assessment proceedings under section 143(3) and from the questionnaire issued by the A.O. and the reply of the assessee thereto and the details filed by the assessee shows that the A.O. has applied his mind to the facts before accepting the long term capital gain returned by the assessee. Therefore, the A.O. after application of mind has come to a conclusion, we find that on the basis of the very same material on record, the A.O. cannot take a different stand as it would amount to change of opinion. In our opinion, the reopening of the assessment is on mere change of opinion and therefore, is not sustainable. Even otherwise, it is a settled law that the date of acquisition is the date on which the shares have been allotted to the assessee and not the date on which the shares have become fully paid-up. Therefore, even on merits, the issue is in favour of the assessee. In view of the same, the additional ground of appeal of the assessee is allowed and the assessment order under section 143(3) read with section 147 of the I.T. Act is set aside. Thus both the legal grounds and the grounds against the merits of the disallowance are allowed.

6. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 22.01.2016.

(B. RAMAKOTAIAH)                (SMT. P. MADHAVI DEVI)
ACCOUNTANT MEMBER        JUDICIAL MEMBER

For Capital Gains purposes, date of acquisition of shares is the date of allotment and not when the shares becomes fully paid-up | 24-01-2016 |