2016 (2) TMI 130 - HC - Income Tax

Reopening of assessment - Income of the assessee chargeable to tax having escaped assessment - Held that - We may recall that the reason recorded by the Assessing Officer for issuing the impugned notice states that the assessee had leased out a property for monthly rent of ₹ 3 lacs, which was exclusive of the service tax. He had collected service tax of ₹ 8.23 lacs and showed it under the head of administrative and other expenses. According to the Assessing Officer, instead, the assessee should have shown gross income of ₹ 44.23 lacs of rental income and thereafter should have claimed ₹ 8.23 lacs of service tax as expense. In our opinion, whichever way it is shown, in the eventual tax computation, it would not make any difference. Whether the assessee showed net income of ₹ 36 lacs by way of rental income or showed the gross income of ₹ 44.23 lacs inclusive of the service tax and claimed ₹ 8.23 lacs of service tax separately as expense, in the ultimate analysis, it was this sum of ₹ 36 lacs which was chargeable to tax. In other words, the service tax component of ₹ 8.23 is not only as per the CBDT circular, even as per the Assessing Officer himself, as indicated in the reasons recorded, was not chargeable to tax. That being the position, mere accounting entry or even if there was some defect in indicating such amount in the accounts presented by the assessee, as long as income chargeable to tax had not escaped assessment, reopening of the assessment would not be permissible. - Decided in favour of assessee

Summary

Issues:
1. Challenge to notice for reopening assessment for Assessment Year 2010-11.
2. Contentions raised by the petitioner.
3. Opposition by the Department.
4. Question of income escaping assessment.

Analysis:
The petitioner challenged a notice dated 30.03.2015 seeking to reopen the assessment for the year 2010-11. The Assessing Officer believed that income of Rs. 8,23,397 had escaped assessment due to the petitioner not accounting for service tax correctly. The petitioner contended that the original assessment scrutinized various income heads, including rental income, and any addition now would be a change of opinion. Additionally, the petitioner argued that the service tax should not be considered as income as per CBDT circular and the ultimate tax liability would remain the same even with the addition. The Department opposed, stating that the issue was not examined during the original assessment, and the petitioner should have disclosed gross rental income. They argued that even under Section 115JB assessment, the loss would reduce with the addition.

The High Court focused on whether the income chargeable to tax had genuinely escaped assessment. The Assessing Officer believed the petitioner should have shown gross rental income of Rs. 44.23 lacs, including service tax, instead of Rs. 36 lacs. However, the court noted that regardless of how the income was presented, the ultimate tax liability would not change. The court emphasized that the service tax component was not chargeable to tax as per the CBDT circular and the Assessing Officer's own reasoning. Therefore, as long as the income chargeable to tax had not escaped assessment, there was no valid reason for reopening the assessment.

In conclusion, the High Court quashed the impugned notice dated 30.03.2015, stating that the reopening of the assessment was not permissible as the income chargeable to tax had not genuinely escaped assessment. The petition was disposed of accordingly.