2017 (3) TMI 38 - HC - Income Tax

Reopening of assessment - reason to believe - Held that - It is a settled position that even where an assessment has been only processed under Section 143(1) of the Act, the reopening notice must satisfy the test of having reason to believe that the income chargeable to tax has escaped assessment (see Asst. CIT v/s. Rajesh Jhaveri Stock Brokers (P)Ltd. (2007 (5) TMI 197 - SUPREME Court). - Prima facie determination of income escaping assessment would indicate application of mind to arrive at the reason to believe that income chargeable to tax has escaped assessment. This Court in Vodafone India Services Pvt. Ltd. v/s. CIT 2014 (10) TMI 278 - BOMBAY HIGH COURT has taken a view that the share premium being on capital account cannot be subjected to tax as income. HC granted stay on further proceedings till final disposal of the appeal.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal under Section 148 for reopening assessment for Assessment Year 2011-12.

Analysis:
The petition under Article 226 of the Constitution challenges the order passed by the Income Tax Appellate Tribunal seeking to reopen the assessment for the specified Assessment Year. The reasons for the impugned notice are based on the fact that no scrutiny assessment was done for the subject year, and the assessment was processed only under Section 143(1) of the Income Tax Act. The reasons recorded mention a communication from the office of the Chief Commissioner of Income Tax, which directed the matter to be examined. Subsequently, the Assessing Officer issued a notice seeking details of the share capital issued at a premium. The petitioner provided the requested details. The court notes that even in cases where assessment was processed under Section 143(1) only, the reopening notice must have a valid reason to believe that income has escaped assessment. The Assessing Officer must apply his mind to the material available and reach a prima facie view that income chargeable to tax has escaped assessment. Mere receipt of information is not enough to justify reopening. In this case, the court finds that the Assessing Officer did not conduct a basic inquiry into the material before concluding that income had escaped assessment, as evidenced by the absence of any determined amount in the reasons.

The court also refers to a previous judgment stating that share premium being on capital account cannot be taxed as income. Therefore, prima facie, the court finds that the impugned notice lacks jurisdiction. Consequently, the respondent Revenue is restrained from further action on the notice until the final disposal of the petition. The petition is scheduled for final hearing along with another Income Tax Appeal.