2013 (9) TMI 39 - AT - Income Tax

Re-opening of assessement Notice issued u/s 148 of the Income Tax Act for income escaped assessment Reasons to be recorded for re-opening of assessment Held that - Assessee is in possession of large quantity securities - From the assessment records, it can be seen that the assessee is the owner of several assets, on which income accrues every year - Two observations of the Assessing Officer are sufficient reasons to believe that, income escaped assessment. These two reasons have a live link with the escapement of income and it cannot be said that the reasons are not based on the relevant material. When the assessee has large quantity of securities and when she has other assets on which income accrues, it cannot be said that the belief drawn by the Assessing Officer is not a bonafide belief and that the reasons are vague or suspicious. It is true that before the issuance of notice under section 148, the Assessing Officer ought to have a reason to believe that the income has escaped assessment. In our opinion, it cannot be said that the reasons recorded by the Assessing Officer for re-opening the assessment are not in conformity with the principles laid down by the Courts. Merely because the assessee had some difficulties in filing of return of income, it cannot be said that the notice issued under section 148, is bad-in-law. The interest income itself is more than Rs. 60,00,000 and the assessee also had income from capital gains Decided against the Assessee. Date of acquisition for nature of capital gain Held that - Date of acquisition should be as per the contract notes for the reasons that the Assessing Officer has taken the cost of acquisition of shares based on these very contract notes - One part of the contract note cannot be accepted and the other part rejected Decided in favor of Assessee. Interest u/s 234A, 234B, 234C of the Income Tax Act - Assessee is a notified person under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 Held that - All its assets including bank accounts were attached and vested in the hands of the Custodian appointed under the said Act. From the date of functioning of the Court i.e., 1.6.1992, the distribution of monies in case of notified person will be decided by the Special Court. The taxes do not have the priority in settlement. Even if a notified person had wanted to pay the advance tax it was not within his control to do so. He has to make an application to the custodian and only he can permit payment of advance tax after obtaining approval from the Special Court. No penalty or interest can be imposed for non-fulfillment of an act which a Notified Party is prevented from doing by reason of the Special Court Act. In such cases, even though the provisions of some other Act or contract lay down consequences for non-performance, the provisions of the Special Courts Act will prevail In case of conflict between the provisions of the Special Courts Act and that other law and / or contract, the provisions of the Special Court Act must prevail - It was impossible for the assessee to have paid the advance tax even if he had wanted to. It is a well known legal dictum LEX NON COGITAD IMOSSIBILIA (law cannot compel you to do the impossible). Assessee cannot therefore be foisted with interest liability under section 234A, 234B and 234C Decided in favor of Assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment.
2. Computation of long-term capital gains.
3. Allowability of interest expenditure.
4. Addition under section 68 of the Income Tax Act.
5. Levy of interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The Tribunal upheld the reopening of the assessment, observing that the possession of large quantities of securities and other assets by the assessee provided sufficient reasons to believe that income had escaped assessment. The Tribunal noted, "These two reasons have a live link with the escapement of income and it cannot be said that the reasons are not based on the relevant material."

2. Computation of Long-Term Capital Gains:
The Tribunal found that the date of acquisition of shares should be taken as per the contract notes. It stated, "One part of the contract note cannot be accepted and the other part rejected." The matter was set aside to the Assessing Officer to determine the long-term capital gains by considering the date of acquisition mentioned in the contract notes.

3. Allowability of Interest Expenditure:
The Tribunal admitted the claim of interest expenditure and set aside the matter to the Assessing Officer for adjudication on merit. It held, "The Assessing Officer, in our opinion, is duty bound to correctly assess the income, by taking into consideration the expenditure." The Tribunal distinguished the case from the judgment in Goetz (India) Ltd. v/s CIT, emphasizing that no return of income was filed in this instance.

4. Addition Under Section 68:
The Tribunal deleted the addition of Rs. 2,76,745 made under section 68, accepting the assessee's explanation that this amount represented dividend income. It stated, "The assessee has been able to demonstrate before us by way of paper book that this amount is nothing but dividend received from MTC Ltd., Gujarat Ambuja and other companies."

5. Levy of Interest Under Sections 234A, 234B, and 234C:
The Tribunal followed its earlier decision in Orion Travels P. Ltd. v/s DCIT, holding that interest under sections 234A, 234B, and 234C should not be levied on the assessee, a notified person under the Special Court Act. It cited the legal principle, "LEX NON COGITAD IMPOSSIBILIA" (law cannot compel you to do the impossible), and concluded, "Assessee cannot therefore be foisted with interest liability under section 234A, 234B and 234C."

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief on several grounds, including the computation of long-term capital gains, allowability of interest expenditure, and deletion of the addition under section 68. The Tribunal also ruled against the levy of interest under sections 234A, 234B, and 234C.