2018 (2) TMI 1218 - HC - Income Tax

Reopening of assessment - validity of notice - Held that - We are conscious that the return of the assessee was originally accepted without scrutiny and that therefore the Assessing Officer had much greater latitude in reopening such assessment. Nevertheless even in such cases reopening of the assessment is not permissible in law unless the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. In this context the question of validity of the reason demonstrating formation of belief by the Assessing Officer becomes relevant. As relying on case of one M/s.Prakriya Pharmachem thru Its current partner & others v. ITO 2016 (1) TMI 946 - GUJARAT HIGH COURT reasons recorded by the Assessing Officer to form belief that the income chargeable to tax had escaped assessment lack validity. - Decided in favour of assessee

Summary

Issues:
1. Validity of notice seeking to reopen assessment for the assessment year 2010-11 based on non-disclosure of capital gain.
2. Examination of legal provisions regarding tax liability on transfer of shares without consideration.
3. Comparison with a previous judgment on a similar matter for guidance on the validity of the notice.

Analysis:
1. The petitioner challenged a notice dated 31.03.2017 issued by the Assessing Officer to reopen the assessment for the assessment year 2010-11. The notice was based on the non-disclosure of the transfer of 3,96,000 shares without consideration to another company. The Assessing Officer believed that income chargeable to tax had escaped assessment, leading to the reopening of the assessment.

2. The Assessing Officer contended that the petitioner was liable to pay capital gains tax on the transfer of shares, which was not declared in the return of income for the relevant assessment year. However, the court emphasized that even if the original return was accepted without scrutiny, the assessment could only be reopened if there was a valid reason to believe that income had escaped assessment. The court analyzed the legal provisions related to capital gains tax and the specific exemptions under section 47 of the Income Tax Act.

3. Referring to a previous judgment in a similar case, the court highlighted that the transaction in question did not attract tax liability as per the provisions of the Income Tax Act. The court discussed the relevant sections, including section 45 on capital gains and section 47 on transactions not regarded as transfer. The judgment provided a detailed analysis of the legal framework and concluded that the reasons recorded by the Assessing Officer lacked validity. Consequently, the court quashed the impugned notice dated 31.03.2017 and allowed the petition, following the precedent set in the previous judgment.

This detailed analysis of the judgment provides insights into the legal aspects surrounding the validity of the notice seeking to reopen the assessment for the assessment year 2010-11, focusing on the non-disclosure of capital gain and the specific provisions of the Income Tax Act related to such transactions.