LUCAS INDUSTRIES LTD, MUMBAI v. DDIT (IT) 4(1), MUMBAI

ITA 8865/MUM/2010 | 2002-2003
Pronouncement Date: 30-03-2012 | Result: Allowed

Appeal Details

RSA Number 886519914 RSA 2010
Assessee PAN AAACL0747J
Bench Mumbai
Appeal Number ITA 8865/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 10 day(s)
Appellant LUCAS INDUSTRIES LTD, MUMBAI
Respondent DDIT (IT) 4(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-03-2012
Date Of Final Hearing 23-11-2011
Next Hearing Date 23-11-2011
Assessment Year 2002-2003
Appeal Filed On 20-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA PRESIDENT AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO8865/MUM/2010 (ASSESSMENT YEAR: 2002-03) LUCAS INDUSTRIES LIMITED C/O. DELOITTE HASKINS & SELLS 264-265 DR. ANNIE BESANT ROAD VASWANI CHAMBERS MUMBAI -400 030 ..... ASSESSEE VS THE DEPUTY COMMISSIONER OF INCOME-TAX INTERNATIONAL TAXATION RANGE -4(1) MUMBAI ........ REVENUE PAN: AAACL 0747 J APPELLANT BY: SHRI J.D. MISTRY RESPONDENT BY: MRS. USHA NAIR DATE OF HEARING: 24.11.2011 DATE OF PRONOUNCEMENT: 30.03.2012 O R D E R PER R.S. PADVEKAR JM: IN THIS APPEAL THE ASSESSE-COMPANY HAS CHALLENGED T HE IMPUGNED ORDER OF THE LD. A.O. PASSED U/S.143(3) AS PER THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL-II MUMBAI (IN SHORT D RP-II) U/S.144(5) OF THE INCOME-TAX ACT. 2. IN THE GROUND NOS.1 TO 5 THE ASSESSEE HAS CHALLE NGED THE LEGALITY AND VALIDITY OF THE RE-ASSESSMENT PROCEEDINGS INITI ATED U/S.147 OF THE ACT AND THE RELEVANT GROUNDS READ AS UNDER:- ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 2 1. THE LEARNED DRP/DDIT ERRED IN INVOKING THE PROV ISIONS OF SECTION 147 OF THE INCOME-TAX ACT 1961 (HEREINAFTE R REFERRED TO AS THE ACT) IN THE FACTS OF THE APPELLANTS CA SE. 2. THE LEARNED DRP/DDIT ERRED IN HOLDING THAT IN TE RMS OF EXPLANATION 2(C)(II) TO SECTION 147 THE ASSESSMENT HAS BEEN RIGHTLY REOPENED AND IT IS NOT ON THE BASIS OF CHAN GE OF OPINION. 3. THE LEARNED DRP/DDIT ERRED IN NOT APPRECIATING T HE FACT THAT THE ISSUE ON WHICH ASSESSMENT WAS REOPENED WAS CONSIDERED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT AND HENCE IT WAS MERELY CHANGE OF OPINIO N. 4. THE LEARNED DRP ERRED IN HOLDING THAT THE DDIT W ITHOUT APPLICATION OF HIS MIND BLINDLY FOLLOWED THE OPINIO N OF CIT TAMILNADU. THE LEARNED DRP FURTHER ERRED IN HOLDIN G THAT CIT TAMILNADU WAS NEITHER HAVING JURISDICTION OVER THE APPELLANT NOT THE DDIT. 5. THE LEARNED DRP/DDIT ERRED IN NOT APPLYING THE P ROVISIONS OF THE FIRST PROVISO TO SECTION 147 OF THE ACT WHIC H CLEARLY APPLIES TO THE APPELLANTS CASE. IN TERMS OF PROVI SO TO SECTION 147 IN CASE WHERE AN ASSESSMENT UNDER SECTION 143(3 ) IS MADE NO REOPENING CAN BE DONE IF THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR THE ASSESSMENT. THE APPELLANT SUBMITS THAT THERE WAS N O FINDINGS BY LEARNED DRP/DDIT THAT THE APPELLANT HAS FAILED TO DISCLOSE MATERIAL FACTS RELATING TO THE ISSUE ON WHICH REASSESSMENT PROCEEDING IS INITIATED. 3. THE FACTS REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS A NON-RESIDENT COMPANY AND IS TAX-RESIDENT OF THE U NITED KINGDOM (IN ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 3 SHORT UK). THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2002-03 U/S.139(1) OF THE ACT DECLARING A TOTAL INCOME OF ` 111 11 64 571/- ON 31.10.2002. THE SAID RETURN WAS ACCEPTED BY THE A. O. VIDE INTIMATION DATED 28.2.2003 ISSUED U/S.143(1) OF THE ACT. THE ASSESSEE SUBSEQUENTLY FILED THE REVISED RETURN OF INCOME DEC LARING TOTAL INCOME AT RS.108 62 14 516/- U/S.139(5) OF THE ACT. THE ASSE SSEES CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S.143(2) ON 21.10.2004. THE ASSESSMENT WAS COMPLETED U/S.143(3) VIDE ORDER DATE D 28.3.2005. DURING THE REGULAR ASSESSMENT PROCEEDINGS THE A.O. TOOK THE COGNIZANCE OF THE FACT THAT THE ASSESSEE HAD DERIVE D LONG-TERM CAPITAL GAINS FROM THE SALE OF THE SHARES OF LUCAS-TVS LIMI TED (IN SHORT LTVS) AND LUCAS TVS DIESEL SYSTEMS LIMITED (IN SHORT LTVS DS). THE ASSESSEE WAS HOLDING 10 39 500 SHARES IN LTVS CONST ITUTING 52.5% OF THE TOTAL SHARE HOLDING IN LTVS. THE LTVS EFFECTED DEMERGER WITHIN THE MEANING OF SECTION 2(19AA) OF THE INCOME-TAX ACT BY IMPLEMENTING A SCHEME OF ARRANGEMENT/DEMERGER UNDER THE PROVISIONS OF THE COMPANIES ACT 1956. THE SCHEME OF DEMERGER WAS SA NCTIONED BY THE HONBLE HIGH COURT OF MADRAS. AS A RESULT OF THE S CHEME OF ARRANGEMENT/DEMERGER LTVSDS CAME INTO EXISTENCE AS A RESULTANT COMPANY. IN ACCORDANCE WITH THE TERMS OF A SCHEME THE ASSESSEE COMPANY WAS ALLOTTED 52.5% OF THE TOTAL SHARE CAPIT AL OF LTVSDS WITHOUT ANY PAYMENT CORRESPONDING TO 52.5% EQUITY S TAKE IT WAS HOLDING IN THE DEMERGED COMPANY LTVS. ACCORDINGLY THE ASSESSEE WAS ALLOTTED 41 58 000 SHARES IN LTVSDS. SIMULTANEOUSL Y WITH THE SCHEME OF DEMERGER LTVS RESORTED TO RESTRUCTURING OF ITS SHARE CAPITAL. AS A RESULT OF THE RESTRUCTURING SCHEME 40% OF THE SHAR ES HELD BY THE ASSESSEE COMPANY IN LTVS WERE EXTINGUISHED UNDER CA PITAL REDUCTION SCHEME OF LTVS. IN SUM AND SUBSTANCE 7 92 000 SHA RES OF RS.100/- EACH WERE CANCELLED. THE ASSESSEE WAS PAID AN AMOUN T OF RS.146 28 24 000/- IN RESPECT OF THE SHARES EXTINGU ISHED WHICH WAS TREATED BY LTVS AS DEEMED DIVIDEND U/S.2(22)(D) OF THE I.T. ACT AND PAID DIVIDEND DISTRIBUTION TAX (DDT). IT IS PERTINENT T O NOTE HERE THAT THE LTVS HAS SOUGHT THE OPINION OF THE LD. CIT TAMILNA DU-II CHENNAI IN RESPECT OF TAX LIABILITY ON THE AMOUNT TO BE PAID I N CONSEQUENCE OF THE ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 4 RESTRUCTURING OF THE SHARE CAPITAL TO THE ASSESSEE COMPANY. THE LD. CIT TAMILNADU-II CHENNAI VIDE HIS LETTER DATED 30.1.20 00 HAD COMMUNICATED TO THE LTVS THAT THE AMOUNT PAID TO SH AREHOLDERS ON THE REDUCTION OF THE CAPITAL WOULD BE TAXABLE AS A DIVI DEND AND WOULD BE GOVERNED BY THE PROVISIONS OF SEC.115-O OF THE INCO ME-TAX ACT. THE LTVS PAID DIVIDEND DISTRIBUTION TAX @ 10.2% AMOUNTI NG TO RS.14 92 08 048/- ON THE AMOUNT PAID TO SHARE HOLDE RS IN CONSEQUENCE OF REDUCTION IN SHARE CAPITAL AS PER THE OPINION G IVEN BY THE LD. CIT TAMILNADU-II CHENNAI. THE AMOUNT WAS REMITTED TO THE UK WITHOUT DEDUCTION IN ANY TDS AS THE DIVIDEND DISTRIBUTION T AX WAS PAID UNDER SEC. 115-O OF THE ACT. 4. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2002- 03 THE ASSESSEE SOLD THE ENTIRE SHAREHOLDING IN THE TWO COMPANIES I .E. LTVS AND LTVSDS AS UNDER: (A) 2 47 500 SHARES IN LTVS TO : I) INDIAN NIPPON ELECTRICALS LIMITED II) PUNRVASU SWASTHI TRUST AND III) HASTHAM SWASTHI TRUST (B) 41 58 000 SHARES IN LTVSDS TO DELPHI AUTOMOTIVE SYSTEMS SINGAPORE INVESTMENTS PTE LTD.: 5. THE ASSESSEE OFFERED THE CAPITAL GAIN ON SALE OF ABOVE SHARES BUT DID NOT CLAIM ANY BENEFIT OF INDEXATION OF THE COST UNDER THE SECOND PROVISO TO SECTION 48 OF THE ACT AS BEING A FOREIGN COMPANY THE ASSESSEE HAD NO BENEFIT OF INDEXATION. BUT THE AS SESSEE SUBSTITUTED THE COST OF ACQUISITION AS DETERMINED U/S. 48 BY AD OPTING THE FAIR MARKET VALUE AS ON 01.04.1981. IT WAS CLAIMED BY T HE ASSESSEE THAT IT WAS ENTITLED TO THE BENEFITS OF THE PROVISIONS OF S EC.55(2)(B)(I) OF THE INCOME-TAX ACT FOR THE REASON THAT SECTIONS 48 & 55 OF THE ACT ARE STAND ALONE AND INDEPENDENT OF EACH OTHER. IN THE REGULA R ASSESSMENT ORDER THE A.O. HAS DISCUSSED THE ISSUE OF TAX OF CAPITAL GAIN IN DETAIL. THE ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 5 A.O. HAD RESERVATION IN ACCEPTING THE PLEA OF THE A SSESSEE THAT THE COST OF ACQUISITION IS TO BE SUBSTITUTED WITH THE FAIR M ARKET VALUE AS ON 1.4.1981 IN RESPECT OF THE SHARES ACQUIRED PRIOR TO 1.4.1981. THE A.O. ALSO REFERRED TO THE DECISION OF THE ITAT MUMBAI I N THE CASE OF NOVARTIS A.G. BASLE IN ITA NO.537/MUM/2002. THE A.O. REJECT ED THE CONTENTION OF THE ASSESSEE AND WORKED OUT THE LONG-TERM CAPITA L GAINS AT RS.131 82 19 424 BY MAKING THE ADDITION OF RS.24.85 CRORES. 6. SUBSEQUENTLY THE A.O. INITIATED REASSESSMENT PR OCEEDINGS U/S.147 OF THE INCOME-TAX ACT AND ISSUED NOTICE U/S .148 DATED 30.3.2009 BY GIVING THE FOLLOWING REASONS: LN THE INSTANT CASE THE ASSESSEE WAS HOLDING 52.5 % SHARES IN LUCAS TVS LTD (LTVS). AS A RESULT OF RESTRUCTURING OF SHARES CAPITAL 40% OF THE SHARES HELD BY THE ASSESSEE IN LTVS WERE EXTINGUISHED UNDER CAPITAL REDUCTION SCHEME OF LTUS AND 7 92 000 SHARES OF RS.100/- EACH HELD BY ASSESSEE WERE CANCELLED AND A SSESSEE HAD RECEIVED RS.146 26 24 000 AS CONSIDERATION FOR THE SAME. HOWEVER ASSESSEE TREATED THE SAME AS DEEMED DIVIDE ND U/S 2(22) OF THE I. T. ACT 1961 WHICH IS EXEMPT U/S 1 0(33) OF THE I T ACT 1961. HOWEVER IT HAS BEEN HELD BY THE SUPREME COURT IN THE CASE OF KARTIKEYAN SARABAL V. CIT (1997) 94 TAXMAN 164(SC) AND CIT V. G. NARASIMHAN (DECD.) (1999)[102 TAXMAN 66( SC) THAT IF THERE IS A REDUCTION OF SHARE CAPITAL BY A COMPANY BY PAYING A PART OF CAPITAL TO ITS SHAREHOLDERS IT WOULD RESULT IN EXTINGUISHMENT OF PROPORTIONATE RIGHT IN SHARES HELD BY SHAREHOLDERS AND CHARGEABLE TO CAPITAL GAIN TAX IN THE HANDS OF SHAREHOLDERS AS IT AMOUNTS TO TRANSFER UNDER SECTION 2(47) WHICH IS CHARGEABLE T O TAX 20%. THUS THE CONSIDERATION RECEIVED ON REDUCTION OF SH ARE CAPITAL SHOULD HAVE BEEN OFFERED FOR TAX AS CAPITAL GAIN. I N VIEW OF THE ABOVE I HAVE REASON TO BELIEVE THAT INCOME CHARGEA BLE TO TAX AMOUNTING TO RS.146 28 24 000 HAS ESCAPED ASSESSMEN T. ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 6 7. THE ASSESSEE FILED ITS OBJECTION ON 26.11.2009 T O THE A.O. SERIOUSLY CHALLENGING THE LEGALITY AND VALIDITY OF THE NOTICE ISSUED U/S.148. WHILE GIVING CHALLENGE TO THE REASSESSMEN T PROCEEDINGS THE ASSESSEE CONTENDED THAT THE REASSESSMENT PROCEEDING S WERE INITIATED BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR I.E. A.Y. 2002-03 AND IN VIEW OF PROVISO TO SE C.147 AS THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL THE MATERIAL FACTS AND HENCE NOTICE ISSUED U/S.148 WAS NOT VALID. IT WAS FURTHER CONTENDED THAT THE ISSUE OF THE REDUCTION IN THE SHARE CAPITA L OF THE LTVS AND IN CONSEQUENCE THE PAYMENT MADE TO THE ASSESSEE WAS IN DETAIL EXAMINED BY THE A.O. WHILE COMPLETING THE REGULAR ASSESSMENT U/S.143(3) OF THE ACT AND HENCE THE RE-ASSESSMENT PROCEEDING INITIAT ED BY THE A.O. U/S.147 WERE ON THE MERE CHANGE OF THE OPINION AND THE SAME WAS NOT PERMISSIBLE IN VIEW OF THE DIFFERENT JUDICIAL PRONO UNCEMENTS. THE ASSESSEE ALSO CONTENDED THAT THERE IS NO ESCAPEMENT OF THE INCOME CHARGEABLE TO TAX AND UNLESS AND UNTIL THE A.O. PRO VES THERE IS AN ESCAPEMENT OF ANY INCOME THEN THE JURISDICTION IS V ESTED IN THE A.O. FOR INITIATING THE ACTIONS AGAINST THE PERSON UNDER SEC . 147 OF THE ACT. ON MERIT ALSO THE ASSESSEE FILED OBJECTIONS BY STATING THAT THE REDUCTION IN THE SHARE CAPITAL BY LTVS FALLS WITHIN THE AMBIT OF PROVISIONS OF SEC.2(22)(D) OF THE ACT. THE GENERAL RESERVES REPRE SENTING ACCUMULATED PROFITS FAR EXCEEDS THE AMOUNT PAID FOR REDUCTION O F THE SHARE CAPITAL AS SAME WAS EVIDENCED OF THE FACT THAT THE BALANCE AT THE TIME TO THE CREDIT OF GENERAL RESERVES AS PER SCHEDULE-II OF AU DITED ACCOUNTS OF LTVS WAS RS.331 15 13 000/- AND THE AMOUNT DISTRIBU TED ON REDUCTION OF CAPITAL WAS RS.146 28 24 000/-. THE ASSESSEE AL SO PLACED ITS RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. G. NARASIMHAN (DECEASED) AND OTHRS. 162 TAXMAN 66. THE A.O. REJECTED THE OBJECTION OF THE ASSESSEE ON THE ISSUE OF THE LEGALITY AND VALIDITY OF THE RE-ASSESSMENT PROCEEDING. THE PROVI SIONS OF SEC.144C ARE APPLICABLE TO THE ASSESSEE BEING THE FOREIGN COMPAN Y. THE A.O. PASSED THE DRAFT ASSESSMENT ORDER AND THE COPY OF THE DRAF T ASSESSMENT ORDER WAS SENT TO THE ASSESSEE. ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 7 8. THE ASSESSEE FILED THE OBJECTION BEFORE THE DIS PUTE RESOLUTION PANEL (DRP-II) U/S.144C(2)(B) OF THE ACT. THE DRP AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE PASSED THE DIRECTIONS U /S.144C(5) OF THE ACT AND ON THE BASIS OF THE DIRECTIONS PASSED BY THE DR P-II MUMBAI THE A.O. PASSED THE FINAL ASSESSMENT ORDER U/S.143(3) / 147 R.W.S. 144C(13) OF THE I.T. ACT DATED 5.10.2010. IT IS PERTINENT T O NOTE HERE THAT AS PER THE COPIES OF THE ORDERS ON RECORD THERE IS NO DIF FERENCE IN THE REASONING GIVEN BY THE A.O. IN THE DRAFT ASSESSMENT ORDER AS WELL AS IN HIS FINAL ORDER. SAME WAY THE DRP-II MUMBAI ALSO REJECTED THE OBJECTIONS OF THE ASSESSEE ON THE ISSUE OF THE VALI DITY AND LEGALITY OF THE RE-ASSESSMENT PROCEEDINGS BY GIVING FOLLOWING REASO NS: WE HAVE CONSIDERED THE VARIOUS ISSUES RAISED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER AS ALSO THE SUBMIS SIONS OF THE ASSESSEE WITH RESPECT TO REOPENING OF THE ASSESSME NT PROCEEDINGS. MAIN CONTENTIONS OF THE ASSESSEE ARE THAT THERE WAS NO ESCAPEMENT OF INCOME AS THE INCOME WAS NOT CHARGEAB LE TO TAX THERE WAS NO RELEVANT MATERIAL FOR THE FORMATION OF REASON TO BELIEVE THERE WAS NO FAILURE ON THE PART OF THE A SSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR IT S ASSESSMENT AS ALL MATERIAL FACTS WERE DULY DISCLOSED AND THERE IS CHANGE OF OPINION IN SO FAR AS THE AO IN THE ORIGINAL ASSESSM ENT PROCEEDINGS HAVE ALREADY HELD THAT THE SAID AMOUNT WOULD BE TRE ATED AS DEEMED DIVIDEND. FOR THE SAKE OF CONVENIENCE AND RE ADY REFERENCE PARA 2.1 OF THE ORIGINAL ASSESSMENT ORDER IN WHICH IT WAS CLAIMED THAT THE AO HAD ALREADY APPLIED HIS MIND IS BEING REPRODUCED FOR READY REFERENCE: SIMULTANEOUS WITH THE SCHEME OF DEMERGER. LTVS RES ORTED TO RESTRICTING OF ITS SHARE CAPITAL. AS A RESULT THER EOF 40% OF THE SHARES HELD BY THE ASSESSEE IN LTVS WERE EXTINGUISH ED UNDER CAPITAL REDUCTION SCHEME OF LTVS. IN OTHER WORDS 7 92 000 SHARES OF ` 100 EACH WERE CANCELLED. AS A CONSEQUENCE OF THE REDUCTION OF SHARE CAPITAL OF LTVS. AN AMOUNT OF RS.1 46 824 000 WAS PAID TO ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 8 THE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2(22) (D) OF THE I.T. ACT. THE AMOUNT PAID TO ITS SHARE HOLDERS BY LTVS ON CAPITAL REDUCTION WAS TAKEN TO BE DEEMED DIVIDEND UNDER SEC TION 2(22)(D) OF THE I.T. ACT IN ACCORDANCE WITH THE OPINION OF T HE COMMISSIONER OF INCOME-TAX TAMILNADU-II IN RESPONSE TO LTVS LE TTER 4TH SEPTEMBER 2000. THE CIT VIDE HIS LETTER DATED 30TH OCTOBER 2000 HAD COMMUNICATED TO THE ASSESSEE THAT THE AMOUNT PA ID TO SHAREHOLDERS ON REDUCTION OF CAPITAL WOULD BE TAXAB LE AS DIVIDEND AND WOULD BE GOVERNED BY THE PROVISIONS OF SECTION 115-O OF THE I.T. ACT. IN ACCORDANCE WITH THE OPINION OF THE CI T LTVS PAID DIVIDEND DISTRIBUTION TAX AT THE RATE OF 10.2% AMOU NTING TO RS. 14 92 08 048. CONSEQUENTLY THE AMOUNT WAS REMITTE D TO THE ASSESSEE IN U.K. WITHOUT ANY TAX BEING DEDUCTED AT SOURCE. 4. TO FURTHER EXPLAIN THE FACTS NOTED IN THE ABOVE PARA A LETTER WAS WRITTEN BY ONE MR. K. SESHADRI EXECUTIVE DIREC TOR OF LUCAS TVS CHENNAI TO COMMISSIONER OF INCOME-TAX. TAMILNA DU-I BEFORE THE DEMERGER WAS ACTUALLY COMPLETED FOR THE DIESEL FUEL INJECTION EQUIPMENT DIVISION TO STATE THAT FOLLOWING THE RED UCTION OF CAPITAL OF THE NON RESIDENTIAL SHARE HOLDER THE AMOUNT OF PAY OUT TO THE FOREIGN SHARE HOLDER. LUCAS INDUSTRIES LTD. UK WHI CH WOULD BE PAID OUT OF THE ACCUMULATED PROFITS SHOWN IN THE BA LANCE SHEET UNDER THE GENERAL RESERVE WOULD BE DEEMED TO BE A DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(D) OF THE I.T . ACT 1961 R.W.S. 115-O OF THE ACT OR WHETHER THE PAY OUT TO THE FOR EIGN SHAREHOLDER WOULD BE CONSIDERED AS CAPITAL RECEIPTS ATTRACTING CAPITAL GAINS TAX WITH THE OBLIGATION ON THE PART OF THE APPLICANT CO MPANY TO DEDUCT TAX AT SOURCE U/S. 195 R.W.S. 112. CURIOUSLY HOWEV ER A REPLY WAS GIVEN BY CIT TAMILNADU-IL WHICH STATED THAT THE LE TTER HAD BEEN REFERRED TO HIM WHICH WAS STUDIED IN HIS OFFICE TO COME TO THE CONCLUSION THAT THE AMOUNTS REDUCED FROM THE GENERA L RESERVES FOR THE PURPOSES OF REDUCTION OLD SHARES WOULD BECOME T AXABLE AS DIVIDEND AND WOULD HE GOVERNED BY THE PROVISIONS OF SECTION 115-O OF THE I.T. ACT. ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 9 5. FROM THE TENOR OF THE NOTING IN PARA 2.1 OF THE OF THE ORIGINAL ASSESSMENT ORDER EXTRACTED ABOVE IT IS CLEAR THAT THE AO WAS PERSUADED BY THE LETTER OF THE CIT TAMILNADU-II WIT HOUT ANY APPLICATION OF MIND ON HIS PART TO BLINDLY ACCEPT0 THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD. THE AO PASSIN G THE ORDER WAS BASED IN MUMBAI WHILE THE CIT GIVING HIS OPINI ON TO THE ASSESSEE WAS BASED IN TAMILNADU. THE OPINION OF THE COMMISSIONER OF TAMILNADU-II WHO WAS NOT EVEN THE J URISDICTIONAL COMMISSIONER COULD NOT HAVE BEEN TREATED AS THE OPI NION OF THE DEPARTMENT OR A CIRCULAR OR A BINDING PRECEDENT O R AN ORDER OF THE COURT BUT THE AO WITHOUT GOING INTO THE MERITS OF THE OPINION OF THE COMMISSIONER MERELY NOTED DOWN AND WITHOUT ANY APP LICATION OF MIND ACCEPTED THE POSITION AS GOSPEL TRUTH AND ACC EPTED THE POSITION AS NARRATED BY THE ASSESSEE. EXCEPT NOTING IN PARA 2.1 OF THE ORIGINAL ASSESSMENT ORDER THE ABOVE POSITION N OWHERE ELSE IN THE ASSESSMENT ORDER HAS THERE BEEN A DISCUSSION AB OUT THE ISSUE AT STAKE. IN THE CASE OF CONSOLIDATED PHOTO REPORT ED IN 281 ITR 394 THE DELHI HIGH COURT HELD THAT A CHANGE OF OPI NION CAN ONLY BE INFERRED IF THE A.O. HAD APPLIED HIS MIND. IN THE CASE UNDER CONSIDERATION IT IS CLEAR FROM THE ABOVE DISCUSSIO N THAT THE AO HAD NOT APPLIED HIS MIND TO THE FACTS UNDER CONSIDERATI ON AND BLINDLY FOLLOWED THE OPINION OF THE CIT TAMILNADUII PRODUC ED BEFORE HIM TO MERELY NOTE THE SUBMISSIONS MADE BEFORE HIM. IN VIEW OF THE ABOVE IT IS HELD THAT THERE WAS NO CHANGE OF OPINI ON AS CLAIMED BY THE ASSESSEE AS THERE WAS NO APPLICATION OF MIND BY THE AO IN THE FIRST PLACE. 6. WITH RESPECT TO NO ESCAPEMENT OF INCOME AS THE INCOME WAS NOT CHARGEABLE TO TAX THE ASSESSEE AGAIN RELIED U PON THE LETTER OF THE CIT STALE THAT SINCE THE INCOME WAS STATED TO B E NOT CHARGEABLE TO TAX. IT COULD NOT HAVE ESCAPED ASSESSMENT. IN TH E NOTICE ISSUED FOR REASSESSMENT THE A.O. UNDISPUTEDLY HAS SHOWN R EASON TO BELIEVE THAT THERE WAS A TAXABLE INCOME WHICH HAD E SCAPED ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 10 ASSESSMENT. WHETHER THE INCOME IS CHARGEABLE OR NO T CHARGEABLE TO TAX WOULD BE ACCORDING TO THE INTERPRETATION OF THE PROVISIONS OF THE STATUTE AND NOT BASED ON OPINION OF THE ASSESSE E THAT SINCE THE INCOME WAS NOT CHARGEABLE TO TAX IT COULD NOT HAVE ESCAPED. IN THE REASONS RECORDED BY THE A.O. IT IS HIS PREMISE THAT THE INCOME WAS IN FACT CHARGEABLE TO TAX WHICH HAS ESCAPED ASS ESSMENT. 7. WITH RESPECT TO NON POSSESSION OF RELEVANT MATER IAL THE ASSESSEE HAS QUOTED THE DECISION OF RAJESH JHAVERI (SUPRA) AND JAYBHARAT MARUTI (SUPRA) AND TAKEN REFUGE AGAIN UND ER THE LETTER OF CIT AND THE ORIGINAL A.O. TO STATE THAT THERE WA S NO RELEVANT MATERIAL WITH THE PRESENT A.O. FOR REOPENING. THESE DECISIONS ARE IN FACT ON THE ISSUE AS TO THE FRAMING OF A PRMIA FACIE REASON TO BELIEVE BY THE A.O. TO ISSUE NOTICE WHICH COULD BE GATHERED FROM THE RECORDED REASONS. THE ASSESSEE HAD OBJECTED TO THE REASONS RECORDED AFTER THE REASONS WERE CONFRONTED TO IT. T HE OBJECTIONS OF THE ASSESSEE HAVE ALREADY BEEN DEALT WITH BY THE A O. THE - COURTS HAVE HELD THAT THE REASONS FOR REOPENING MUST BE OB JECTIVE RELEVANT AND NOT VAGUE FAR FETCHED OR FANCIFUL BAS ED ON SURMISES OR SUSPICION. THERE IS NO ALLEGATION BY THE ASSESSE E THAT THE REASON RECORDED IS NOT RELEVANT OR ARE VAGUE. THERE IS DIR ECT NEXUS OF THE REASONS RECORDED WITH THE ESCAPEMENT OF INCOME. A C OMPLETED ASSESSMENT DOES NOT OFFER COMPLETE IMMUNITY TO THE ASSESSEE WHERE THE ASSESSING OFFICER STUMBLES ON MATERIAL WH ICH INDICATES ESCAPEMENT OF INCOME. A MERE EXTENT OF UNDERSTATED WEALTH IS GOOD ENOUGH TO JUSTIFY ASSESSMENT NOTICE (K R VENKATESAL U VS WTO 237 ITR 293( MAD)). IN GRUH FINANCE LTD VS JT CIT. (II T. 243 ITR 482(GUJ) THE ARGUMENT THAT THE CLAIM OF DEPRECIATIO N HAS BEEN CONSIDERED AND THAT IT CANNOT BE DISALLOWED ON MERE CHANGE OF OPINION WAS NOT ACCEPTED BECAUSE THERE WAS NO CONSC IOUS CONSIDERATION OF THE MATERIAL WHICH WERE ON RECORD AND THE ALLEGATION WAS THAT THE CLAIM WAS FOR DEPRECIATION ON NON EXISTENT MACHINERY. FURTHER. THE A.O. WHILE DEALING WITH THE OBJECTION RAISED BEFORE HIM AGAINST THE REOPENING H AS REFERRED TO ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 11 SUBSECTION (C) BELOW EXPLANATION 2 TO SECTION 147 W HICH UNEQUIVOCALLY ALLOWS REOPENING OF ASSESSMENT IF THE A.O. HAS REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HA D ESCAPED ASSESSMENT ON ACCOUNT OF IT BEING UNDER ASSESSED AN D WHICH CAME TO ASSESSING OFFICERS NOTICE SUBSEQUENTLY. IN VIEW OF THE ABOVE NO INTERFERENCE IS CALLED FOR REOPENING THE ASSESSMENT U/S. 147 OF THE ACT. NOW THE ASSESSEE HAS CHALLENGED THE DIRECTIONS IS SUED BY THE DRP-II MUMBAI AS WELL AS ASSESSMENT ORDER PASSED B Y THE A.O. ON THE ISSUE OF THE LEGALITY AND VALIDITY OF THE ASSESSMEN T ORDER. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE LD. SENIOR COUNSEL BRIEFLY STATED THE FACTS WHICH IS ALREADY REPRODUCED IN THIS ORDER HEREINABOVE. HE S UBMITS THAT THE ASSESSEE HAS NEVER SOUGHT THE OPINION OF THE CIT TA MILNADU. HE SUBMITS THAT LTVS HAS SOUGHT THE OPINION OF THE LD. CIT TAMILNADU-II WHETHER THE AMOUNT WOULD BE TREATED AS DIVIDEND WIT HIN THE MEANING OF SEC.2(22)(D) OF THE ACT TO ASCERTAIN FOR PAYMENT OF DIVIDEND DISTRIBUTION TAX (DDT). HE SUBMITS THAT AS PER THE OPINION GIVE N BY THE LD. CIT TAMILNADU-II IN WRITING VIDE LETTER DATED 4.9.2000 LTVS PAID THE DIVIDEND DISTRIBUTION TAX (DDT) AND AMOUNT WAS REMI TTED TO THE ASSESSEE COMPANY IN UK WITHOUT DEDUCTION OF THE TAX . THE LD. COUNSEL REFERRED TO THE PAPER BOOK MORE PARTICULARLY THE COPY OF THE ASSESSMENT ORDER PASSED U/S.143(3) AND SUBMITS THAT THE ENTIRE ISSUE OF RESTRUCTURING OF THE SHARE CAPITAL WAS CONSIDERE D BY THE A.O. IN THE ORIGINAL ASSESSMENT ORDER AND APPLICATION OF THE MI ND BY THE A.O. ON THE ISSUE WHICH IS BASE FOR INITIATING THE REASSESS MENT PROCEEDINGS SHOULD NOT HAVE ANY CLOUD OF DOUBT. HE SUBMITS THA T THE NOTICE U/S.148 WAS ISSUED AFTER THE EXPIRY OF THE FOUR YEA RS FROM THE END OF THE A.Y. 2002-03 AND IN VIEW OF THE PROVISO TO SEC.147 UNLESS THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL THE MATERIAL FACTS THERE IS LEGAL FITTER ON THE A.O.S POWER TO INITIATE THE REASSESSMENT PROCEEDING. HE VEHEMENTLY ARGUES THAT IN THE ORIGINAL ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 12 ASSESSMENT ORDER THE ISSUE IS OPEN BEFORE THE A.O . HE APPLIES HIS MIND DISCUSSES AND CONSIDERS THE ENTIRE ISSUE AND CAN IT BE SAID THAT STILL HE HAS NOT APPLIED HIM MIND ? CAN IT NOT BE SAID THAT THIS IS A CASE WHERE DUE TO THE CHANGE OF OPINION THE A.O. RESORTE D THE SHELTER OF SEC. 147 OF THE ACT? THE LD. COUNSEL ALSO VEHEMENTLY AS SAILED THE DIRECTIONS PASSED BY THE DRP-II MUMBAI U/S.144C OF THE ACT. HE FURTHER ARGUES THAT ON MERIT ALSO THE AMOUNT RECEIVED BY THE ASSES SEE IS A DIVIDEND WITHIN A MEANING OF CLAUSE (D) TO SEC.2(22) OF THE ACT. THE LD. COUNSEL ALSO REFERRED TO DECISION IN THE CASE OF G. NARASIM HAN (DECEASED) AND ORS 162 TAXMAN 66(S.C.) AND SUBMITS THAT HOW THE OP INION OF LD. CIT TAMILNADU CAN BE SAID AS IRRESPONSIBLE AND NOT RELE VANT WHEN THE A.O. TRIED TO SIT ON THE SAME. THE LD. COUNSEL HEAVILY RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561. HE PLEADED FOR QUASHING THE ENTI RE ASSESSMENT PROCEEDINGS. PER CONTRA THE LD. D.R. SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORDS. THE FACTS ARE ALREADY NARRATED IN DETAIL. BUT SHORT REFERENCE MAY BE REQUIRED. THERE IS NO DISPUTE IN THIS CASE THAT THE ASSESSEE FILED THE ORIGINAL RETURN U/S.139(1) DECLARING THE CAPITA L GAIN. SUBSEQUENTLY THE ASSESSEE FILED THE REVISED RETURN CLAIMING SOME ADDITIONAL DEDUCTION WHILE COMPUTING THE LONG-TERM CAPITAL GAIN. ON PER USAL OF THE ASSESSMENT ORDER WE FIND THAT THE ASSESSEES CASE W AS SELECTED FOR THE SCRUTINY FOR THE A.Y. 2002-03 AND THE ASSESSMENT WA S COMPLETED U/S.143(3) THE COPY OF THE ASSESSMENT ORDER PASSED U/S.143(3) IS PLACED AT PAGE NO.31 TO 45 OF THE PAPER BOOK. WE F IND THAT THE A.O. HAS DISCUSSED THE ISSUE OF THE SALE OF THE SHARES OF LT VS AND LTVSDS. THE A.O. HAS ALSO DISCUSSED THE SHARE HOLDING OF THE AS SESSEE IN BOTH THE COMPANIES MORE PARTICULARLY IN PARA 2 OF THE ASSE SSMENT ORDER. THE A.O. HAS ALSO DISCUSSED THE FACTUM OF THE DEMERGER AND HOW THE HONBLE HIGH COURT OF MADRAS HAS APPROVED THE SCHEM E OF DEMERGER. IN PARA 2.1 THE A.O. HAS DISCUSSED THE ISSUE OF RESTRU CTURING OF THE SHARE CAPITAL BY LTVS. HE HAS ALSO RECORDED THAT AS A CO NSEQUENCE OF THE ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 13 REDUCTION OF THE SHARE CAPITAL OF THE LTVS A SUM OF RS.146 28 24 000/- WAS PAID TO THE ASSESSEE WHICH WAS TREATED AS A DIV IDEND U/S.2(22)(D) OF THE INCOME-TAX ACT. WE MAY LIKE TO REPRODUCE THE R ELEVANT PART OF THE ASSESSMENT ORDER WHICH READS AS UNDER: 2.1 SIMULTANEOUS WITH THE SCHEME OF DEMERGER LTVS RESORTED TO RESTRUCTURING OF ITS SHARE CAPITAL. AS A RESULT TH EREOF 40% OF THE SHARE HELD BY THE ASSESSEE IN LTVS WERE EXTINGUISHE D UNDER CAPITAL REDUCTION SCHEME OF LTVS. IN OTHER WORDS 7 92 000 SHARES OF RS. 100 EACH WERE CANCELLED. AS A CONSEQUENCE OF THE REDUCTION OF SHARE CAPITAL OF LTVS AN AMOUNT OF ` 1 462 824 000 WAS PAID TO THE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2( 22)(D) OF THE I.T. ACT. THE AMOUNT PAID TO ITS SHARE HOLDERS BY LTVS ON CAPITAL REDUCTION WAS TAKEN TO BE DEEMED DIVIDEND UNDER SEC TION 2(22)(D) OF THE I.T. ACT IN ACCORDANCE WITH THE OPINION OF T HE COMMISSIONER OF INCOME-TAX TAMILNADU-II IN RESPONSE TO LTVS LE TTER 4TH SEPTEMBER 2000. THE CIT VIDE HIS LETTER DATED 30TH OCTOBER 2000 HAD COMMUNICATED TO THE ASSESSEE THAT THE AMOUNT PA ID TO SHAREHOLDERS ON REDUCTION OF CAPITAL WOULD BE TAXAB LE AS DIVIDEND AND WOULD BE GOVERNED BY THE PROVISIONS OF SECTION 115-O OF THE I.T. ACT. IN ACCORDANCE WITH THE OPINION OF THE CI T LTVS PAID DIVIDEND DISTRIBUTION TAX AT THE RATE OF 10.2% AMOU NTING TO RS. 14 92 08 048. CONSEQUENTLY THE AMOUNT WAS REMITTE D TO THE ASSESSEE IN U.K. WITHOUT ANY TAX BEING DEDUCTED AT SOURCE. 11. AS PER THE FACTS ON RECORD WE FIND THAT FOR LTV S SOUGHT THE OPINION OF THE LD. CIT TAMILNADU-II WHO GIVES HIS O PINION VIDE LETTER DATED 30.10.2000 (PAGE NO.85 OF THE PAPER BOOK) INF ORMING THE LTVS THAT THE AMOUNT PAID TO THE ASSESSEE AFTER THE REDU CTION IN THE SHARES WOULD BE TAXABLE AS A DIVIDEND AND SHALL BE GOVERNE D BY PROVISIONS OF SECTION 115-O OF THE INCOME-TAX ACT. THE OBSERVATIO NS OF THE DRP-II MUMBAI THE LD. CIT TAMILNADU-II WAS NO WAY CONCERN ED WITH ASSESSE IS TOTALLY MISCONSTRUED AS OPINION/CLARIFICATION WA S SOUGHT BY LTVS WHICH WAS IN VERY MUCH JURISDICTION OF SAID CIT. IN OUR OPINION DRP-II MUMBAI PASSED THE DIRECTIONS WITHOUT CORRECTLY APPR ECIATING THE FACTS. ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 14 12. SECTION 147 READS AS UNDER: IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY AS SESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER I NCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PRO CEEDINGS UNDER THIS SECTION OR RECOMPUTE THE LOSS OR THE DEPRECIA TION ALLOWANCE OR ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SE CTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE R ELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVA NT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE O N THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN R ESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS N ECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR: PROVIDED FURTHER THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME OTHER THAN THE INCOME INVOLVI NG MATTERS WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL REFERE NCE OR REVISION WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSME NT.] ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 15 EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFF ICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY TH E ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE W ITHIN THE MEANING OF THE FOREGOING PROVISO. EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION T HE FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT NAMELY : ( A ) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INC OME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE U NDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUN T WHICH IS NOT CHARGEABLE TO INCOME-TAX ; ( B ) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED B Y THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS DEDUCTION ALLOWANCE OR RELIEF IN THE RETURN ; ( C ) WHERE AN ASSESSMENT HAS BEEN MADE BUT ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UND ERASSESSED ; OR ( II ) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT ; OR ( IV ) EXCESSIVE LOSS OR DEPRECIATION ALLOWAN CE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED. EXPLANATION 3. FOR THE PURPOSE OF ASSESSMENT OR RE ASSESSMENT UNDER THIS SECTION THE ASSESSING OFFICER MAY ASSES S OR REASSESS THE ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 16 INCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED A SSESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION NOTWITHSTANDING THA T THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RE CORDED UNDER SUB-SECTION (2) OF SECTION 148. 13. ADMITTEDLY IN THE PRESENT CASE THE NOTICE U/S .148 DATED 30.03.2009 IS ISSUED BEYOND THE PERIOD OF THE FOUR YEARS. COPY AT PAGE NO.50 OF THE PAPER BOOK AND HENCE THE PROVISO TO S EC.147 GIVES PROTECTION TO THE ASSESSE AS REGULAR ASSESSMENT IN THIS CASE IS COMPLETED UNDER SEC. 143(3) OF THE ACT AND FETTERS ON THE POWER OF THE A.O. TO INITIATE THE PROCEEDINGS U/S.147 SAVE THE C IRCUMSTANCES MENTIONED THEREIN. AT THE MOST THE ONLY SITUATION WHERE THE A.O. COULD HAVE ISSUED THE NOTICE WAS IF THE ASSESSEE WOULD HA VE FAILED TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FO R THIS ASSESSMENT. AS PER THE FACTS ON RECORD THE ASSESSEE DISCLOSED EVER Y FACT TO THE A.O. EVEN THE LTVS OBTAINED THE OPINION OF THE LD. CIT T AMILNADU-II ON THE ISSUE AND THE LTVS WAS GIVEN THE OPINION THAT THE A MOUNT PAID BY IT TO THE ASSESSEE COMPANY WOULD BE DIVIDEND LIABLE TO BE TAXED U/S.115-O. THE REASONS OF THE REOPENING IS THAT IF THERE IS RE DUCTION OF THE SHARE CAPITAL BY THE COMPANY BY PAYING CAPITAL TO ITS SHA REHOLDERS THEN IT WOULD RESULT IN EXTINGUISHMENT OF PROPORTIONATE RIG HT IN THE SHARES HELD BY THE SHAREHOLDER AND CHARGEABLE TO CAPITAL GAINS TAX AND THAT AMOUNTS TO TRANSFER U/S.147 OF THE INCOME-TAX ACT. 14. IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561 THEIR LORDSHIPS HAVE HELD AS UNDER:- 4. ON GOING THROUGH THE CHANGES QUOTED ABOVE MAD E TO S. 147 OF THE ACT WE FIND THAT PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT 1987 REOPENING COULD BE DONE UNDE R ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID CO NDITIONS ALONE CONFERRED JURISDICTION ON THE AO TO MAKE A BA CK ASSESSMENT BUT IN S. 147 OF THE ACT (W.E.F. 1ST AP RIL 1989) ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 17 THEY ARE GIVEN A GO BY AND ONLY ONE CONDITION HAS R EMAINED VIZ. THAT WHERE THE AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE POST 1ST APRIL 1989 POWER TO REOPEN IS MUCH WIDER. HOWEVER ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BE LIEVE FAILING WHICH WE ARE AFRAID S. 147 WOULD GIVE ARB ITRARY POWERS TO THE AO TO REOPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION WHICH CANNOT BE PER SE RE ASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL D IFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE A.O. HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSES S. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERT AIN PRE- CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED AS CONTENDED ON BEHALF OF THE DEPARTMENT THEN IN THE GARB OF REOPENING THE ASSESSMENT REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OP INION AS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE AFTER 1ST APRIL 1989 AO HAS POWER TO REOPEN PROV IDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION TH AT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE TO LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO S.147 OF THE ACT AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMEN DMENT) ACT 1987 PARLIAMENT NOT ONLY DELETED THE WORDS R EASON TO BELIEVE BUT ALSO INSERTED THE WORD OPINION IN S. 147 OF THE ACT. HOWEVER ON RECEIPT OF REPRESENTATIONS FROM TH E COMPANIES AGAINST OMISSION OF THE WORDS REASON TO BELIEVE PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DE LETED THE WORD OPINION ON THE GROUND THAT IT WOULD VEST ARB ITRARY POWERS IN THE AO. WE QUOTE HEREINABOVE THE RELEVAN T PORTION OF CIRCULAR NO.549 DT. 31ST OCT. 1989 [(1990) 82 CTR (ST) 1] WHICH READS AS FOLLOWS: ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 18 7.2 AMENDMENT MADE BY THE AMENDING ACT 1989 TO RE-INTRODUCE THE EXPRESSION REASON TO BELIEVE IN S. 147 A NUMBER OF REPRESENTATIONS WERE RECEIVED AGAINST THE OMISSION OF THE WARDS REASON TO BELIEV E FROM S. 147 AND THEIR SUBSTITUTION BY THE OPINION OF THE AO. IT WAS POINTED OUT THAT THE MEANING OF THE EXPRESSION REASON TO BELIEVE HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM S. 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLAY THESE FEARS THE AMENDING ACT 1989 HAS AGAIN AMENDED S. 147 TO REINTRODUCE THE EXPRESSION HAS REASON TO BELIEVE IN PLACE OF THE WORDS FOR REASO NS TO BE RECORDED BY HIM IN WRITING IS OF THE OPINION. OTHER PROVISIONS OF THE NEW S. 147 HOWEVER REMAIN THE SAME. 15. THOUGH THE LD. SENIOR COUNSEL HAS RELIED ON THE PLETHORA OF THE DECISIONS WHICH ARE AS UNDER: 1) CIT VS. FORMER FRANCE -264 ITR 566 (SC) 2) ANDHARA BANK V/S. CIT -225 ITR 447 ( SC) 2) GARDEN SILK MILLS LTD. VS. DCIT -222 ITR 68 (GU J) 3) HINDUSTAN LEVER LTD. VS. ACIT -268 ITR 332 (BO M) 4) ASIAN PAINTS V/S. DCIT -308 ITR 195 (BOM) 5) CARTINI INDIA LTD. VS. ADDL CIT -179 TAXMAN 157(BOM) 16. BUT IN OUR OPINION THERE IS NO NEED TO DISCUS S THE PROPOSITION WELL SETTLED BY THE HONBLE SUPREME COURT IN THE CA SE OF KELVINATOR OF INDIA LTD. (SUPRA) WHICH IS ALSO CONSIDERED IN ABOV E CITED DECISIONS. GIVING OUR ANXIOUS CONSIDERATION TO THE ENTIRE FACT S AND EVIDENCE ON RECORD WE ARE OF THE OPINION THAT THERE WAS NO FAI LURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERI AL FACTS REQUIRED FOR THE ITA 8865/MUM/2010 LUCAS INDUSTRIES LIMITED 19 PURPOSE OF THE ASSESSMENT AND HENCE IN VIEW TO THE PROVISO TO SEC.147 AS THE NOTICE WAS ISSUED BEYOND THE PERIOD OF 4 YEA RS FROM END OF A.Y. 2002-03 THE REASSESSMENT PROCEEDINGS ARE BAD IN LA W AND VOID AB INITIO . WE ARE FURTHER OF THE OPINION THAT IN THE ORIG INAL ASSESSMENT ORDER THE A.O. HAS DISCUSSED THIS ISSUE AND APPLIED HIS MIND. THE ASSESSEES CASE IS MERELY CHANGE OF OPINION OF THE A.O. AND THE PRINCIPLES LAID DOWN BY THEIR LORDSHIPS IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) ARE SQUARELY APPLICABLE. MOREOVER A S PER THE OPINION GIVEN BY LD. CIT TAMILNADU-II CHENNAI TO THE LTVS THE AMOUNT RECEIVED BY THE ASSESSEE PARTAKES THE CHARACTER OF THE DIVIDEND WITHIN THE MEANING OF SEC. 2(22)(D) OF THE ACT . WE ARE THEREFORE A LLOWING THE GROUNDS TAKEN BY THE ASSESSEE CHALLENGING THE RE-ASSESSMENT PROCEEDINGS INITIATED BY THE A.O. U/S.147 AND CANCEL THE ASSESS MENT ORDER ON OUR ABOVE REASONING. THE ASSESSEE HAS ALSO TAKEN THE G ROUNDS ON THE MERIT BUT AS THE ASSESSEES APPEAL IS ALLOWED ON THE BASI C ISSUE OF JURISDICTION OF THE A.O. WE DO NOT CONSIDER IT FIT TO GO INTO T HE GROUNDS TAKEN ON MERITS BY THE ASSESSEE. 17. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 30TH MARCH 2012. SD/- ( G.E. VEERABHADRAPPA ) PRESIDENT SD/- ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 30TH MARCH 2012 . COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE DIT (CENTRAL)II/ (INT. TAXN.) MUMBAI/ PUNE/ CONCERNED.. 4) THE CIT / DIT- CONCERNED.. MUMBAI. 5) THE D.R. A BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN