2018 (2) TMI 1219 - 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 for reopening assessment for the assessment year 2010-11 based on transfer of shares without consideration.
2. Whether the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment.
3. Comparison with a similar case where the notice for reopening was set aside.

Issue 1: Validity of notice for reopening assessment:
The petitioner challenged a notice issued by the Assessing Officer seeking to reopen the assessment for the assessment year 2010-11 based on the transfer of shares without consideration. The Assessing Officer received information that the petitioner had transferred shares to another entity without any consideration, leading to alleged capital gains escaping assessment. The reasons cited for reopening the assessment included failure to disclose material facts necessary for assessment.

Issue 2: Reason to believe income escaped assessment:
The Assessing Officer contended that the petitioner transferred shares without consideration, resulting in unreported capital gains. The court noted that even though the original assessment was accepted without scrutiny, reopening was permissible only if income chargeable to tax had genuinely escaped assessment. The court analyzed the validity of the reasons provided by the Assessing Officer to form the belief that income had escaped assessment.

Issue 3: Comparison with a similar case:
The court referred to a previous case with similar circumstances where the notice for reopening was set aside. In that case, it was established that the transaction did not attract tax liability under the relevant provisions of the Income Tax Act. The court highlighted the provisions of section 45 and section 47 of the Act to determine the tax implications of the share transfer without consideration. The court emphasized that the Assessing Officer's reasons lacked validity in forming a belief that income had escaped assessment, leading to the quashing of the notice in the present case.

In conclusion, the High Court of Gujarat quashed the impugned notice dated 31.03.2017, as the court found that the reasons recorded by the Assessing Officer to believe that income chargeable to tax had escaped assessment were not valid. The judgment emphasized the importance of complying with the legal requirements for reopening assessments and highlighted the need for a genuine belief supported by valid reasons before initiating such actions.