2015 (4) TMI 411 - HC - Income Tax

Reopening of assessment - Assessee had gifted the shares without any consideration - Held that - All that the Revenue desires is verification of certain details and pertaining to the gift. That is not founded on the belief that any income which is chargeable to tax has escaped assessment and hence, such verification is necessary. That belief is not recorded and which alone would enable the Assessing Officer to proceed. Thus, the reasons must be founded on the satisfaction of the Assessing Officer that income chargeable to tax has escaped assessment. Once that is not to be found, then, we are not in a position to sustain the impugned notice. Having reproduced the same and contents thereof being clear, it is not possible to agree with Mr. Gupta that this Court should not interfere at the threshold. We find additionally that in the affidavit in reply the Revenue has stated that the concept of gift prevails between two individual persons out of love and affection, which does not prevail in the case of companies. In the case of companies, the financial transaction exists to earn profit and the transaction of the so called gift made by the Assessee is only for the purpose of avoiding capital gains tax. This is a stand taken in the affidavit in reply but what we find is that the gift without any consideration and as noted in the reasons recorded and supplied has not been termed as one which attracts any tax or which is chargeable to tax and therefore there is any income which has escaped assessment. In other words, the amount of ₹ 1,21,33,429/shown as gift has not been termed as an income and which is chargeable to tax and which has escaped assessment. All that is required from the Assessee is a verification and in terms of section 47(iii) of the IT Act and for enabling it, the Assessee was called upon to appear before the AO. Thus, it is for verification of the value of these shares and whether the computation is on the market rate on the date of such transfer. This, to our mind, would not in any manner enable the Revenue/Respondents to resort to section 147 of the IT Act. The reasons as recorded cannot then be substituted or supplemented by filing an affidavit in the Court. Thus, additional reasons cannot be supplied and on affidavit. The notice under section 148(1) is quashed and set aside. - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the income chargeable to tax has escaped assessment.
3. Validity of the reopening of the assessment based on the reasons provided by the Assessing Officer.
4. The applicability of Section 47(iii) of the Income Tax Act concerning the gift of shares.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The Petitioner challenged the notice issued under Section 148 of the IT Act, proposing to reassess the income for the assessment year 2010-11, alleging that income had escaped assessment. The Petitioner argued that the notice was issued based on a mere change of opinion and lacked valid reasons for the belief that income chargeable to tax had escaped assessment. The Court noted that the notice must be founded on the satisfaction of the Assessing Officer that income chargeable to tax has indeed escaped assessment, which was not evident in this case.

2. Whether the Income Chargeable to Tax Has Escaped Assessment:
The Petitioner contended that the gift of shares was disclosed in the return of income and added back while computing the total income. The Court observed that the reasons provided for reopening the assessment did not indicate any understatement of income or excessive claim of loss or deduction. The Court emphasized that the belief entertained by the Income Tax Officer must be reasonable and based on relevant material, which was not demonstrated in the reasons recorded for reopening the assessment.

3. Validity of the Reopening of the Assessment Based on the Reasons Provided by the Assessing Officer:
The reasons provided by the Assessing Officer for reopening the assessment were scrutinized. The Court found that the reasons were merely a reiteration of the figures and statements already disclosed in the return of income. The Court held that the reasons must disclose the requisite satisfaction that income chargeable to tax has escaped assessment, which was not evident in this case. The Court referred to the judgment in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd., emphasizing that the reasons must be relevant and material to justify the belief that income has escaped assessment.

4. The Applicability of Section 47(iii) of the Income Tax Act Concerning the Gift of Shares:
The Petitioner argued that the transfer of shares as a gift was exempt under Section 47(iii) of the IT Act. The Court noted that the Revenue's attempt to verify the gift transaction and whether the value of the shares was computed on the market rate did not constitute valid reasons for reopening the assessment. The Court held that the reasons recorded should indicate that the income chargeable to tax has escaped assessment, which was not the case here. The Court also referred to the judgment in the case of Smt. Maniben Valji Shah, reiterating that the reasons must have a rational and intelligible nexus with the belief that income has escaped assessment.

Conclusion:
The Court concluded that the reasons recorded for reopening the assessment did not satisfy the principal condition that income chargeable to tax had escaped assessment. The notice under Section 148(1) was quashed and set aside, and the Writ Petition was allowed. The Court emphasized that the reasons recorded cannot be supplemented by additional reasons provided in an affidavit. The judgment reinforced the principle that the reasons for reopening the assessment must be based on relevant and material facts, and a mere verification of details does not justify the issuance of a notice under Section 148 of the IT Act.

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