2019 (1) TMI 1345 - HC - Income Tax

Reopening of assessment - reopening beyond the period of four years - addition under capital gains - rectification application as Amount of capital gains wrongly considered - Held that - The assessee had furnished the necessarily details before the Assessing Officer of the said amount having been shown in Profit Loss A/c but not offering it to tax. If during the original assessment proceedings, the AO desired to inquire further into such claim of the assessee, nothing prevented him from doing so. At any rate, he cannot do so in the assessment proceedings which are sought to be commenced beyond the period of four years from the end of relevant assessment year. Short term capital gain - gain accrued on account of non-STT paid venture capital fund - Held that - Addition suffers from factual error and non application of mind on his part. In the return itself, the assessee had showed short term capital gain of ₹ 3.79 crores and further gain of ₹ 89.67 lacks total of which came to ₹ 4.68 crores which was duly offered to tax. AO had in the order of assessment actually erroneously taxed a sum of ₹ 44.68 crores which was clearly an error. The assessee brought this error to the notice of the Assessing Officer by filing an application for rectification. AO had made contradictory statements. In the first part, he has recorded that the assessee had offered such sum to tax on short term capital gain. In the later part, he contradicts himself by saying that the assessee had not offered it to tax. AO now cannot contend that this issue is debatable or is a factual aspect. The material on record would clearly suggest that on this ground, he had proceeded on erroneous footing. AO has proceeded solely on the basis of material already on record clearly debarring his jurisdiction for issuing notice of reassessment beyond the period of four years from the end of relevant assessment year. In that view of the matter, it is not necessary for us to decide the contention of the assessee's counsel that such income was not taxable at all. In the result, impugned notice is quashed. - Decided in favour of assessee.

Issues Involved:

1. Legality of the notice for reopening the assessment beyond four years.
2. Alleged failure to disclose ?42.90 crores from outstanding credit entries.
3. Alleged non-disclosure of ?4.68 crores as short-term capital gain.
4. Alleged incorrect deduction of ?6.46 crores related to dividend received and Dividend Distribution Tax (DDT) refund.

Issue-wise Detailed Analysis:

1. Legality of the Notice for Reopening the Assessment Beyond Four Years:

The petitioner challenged the notice of reopening of the assessment dated 8.6.2017, arguing it was issued beyond the statutory period of four years from the end of the relevant assessment year. The petitioner contended that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment, and the Assessing Officer (AO) relied on materials already on record during the original assessment. The court held that the mandatory requirement under the first proviso to Section 147 of the Income Tax Act, 1961, was not met, as there was no failure on the part of the assessee to disclose material facts. The court cited the Supreme Court's decision in Calcutta Discount Co. Ltd Vs. I.T.O. 41 ITR 191, emphasizing the responsibility of the assessee to disclose primary facts, but not the inferences drawn from them.

2. Alleged Failure to Disclose ?42.90 Crores from Outstanding Credit Entries:

The AO noted that the petitioner had credited ?42.90 crores to the Profit & Loss account as per RBI directives but did not offer it to tax. The court found that the petitioner had disclosed this amount in their return and provided a note explaining the non-taxability based on a Delhi ITAT decision. The court held that the AO had all the necessary information during the original assessment and failed to act on it, thus reopening the assessment on this ground beyond four years was not justified.

3. Alleged Non-Disclosure of ?4.68 Crores as Short-Term Capital Gain:

The AO claimed that the petitioner did not offer ?4.68 crores as short-term capital gain to tax. However, the court found that the petitioner had shown this amount in their return and it was taxed. The AO had erroneously assessed it as ?44.68 crores, which was later rectified. The court concluded that the AO's reasons were factually incorrect and showed non-application of mind, thus invalidating the reopening on this ground.

4. Alleged Incorrect Deduction of ?6.46 Crores Related to Dividend Received and DDT Refund:

The AO argued that the petitioner incorrectly claimed a deduction of ?6.46 crores for dividends received and consequently claimed a DDT refund of ?46.91 crores. The court observed that the AO relied solely on materials already on record and did not allege any failure to disclose material facts by the petitioner. Therefore, reopening the assessment on this ground beyond four years was not permissible.

Judgment:

The court quashed the impugned notice for reopening the assessment, concluding that the AO proceeded on materials already on record without any failure on the part of the petitioner to disclose material facts. The court emphasized that the AO's reasons for reopening were based on erroneous or already available information, which did not justify reopening the assessment beyond the statutory period. The petition was disposed of accordingly.

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