2015 (10) TMI 2183 - HC - Income Tax

Reopening of assessment - assessee s return was assessed u/s.143(3) at ₹ 46,48,050/- out of which income from share trading amounting to ₹ 41,95,223/-was assessed as short term capital gain at special rate of ₹ 10% - Held that - Materials produced by the petitioner either in response to the queries raised by the Assessing Officer or voluntarily, leave no manner of doubt that full details to enable the Assessing Officer to take a view whether the income of the assessee from trading of shares should be taxed as capital gain or business income, was on record. The Assessing Officer had raised multiple questions calling for documentary proof in certain cases. All these questions pertain to the assessee s declared income from sale of shares. If not strictly speaking in the sequences in which the questions were raised, nevertheless at least in the stock summary full details were laid before the Assessing Officer. If during such assessment the Assessing Officer was of the opinion that the activity carried on by the assessee was in the nature of business of buying and selling shares, he could as well have expressed such opinion in the assessment order and taxed the income accordingly. By no stretch of imagination, could it be stated that on account of failure on the part of the assessee to disclose full and true material facts, he came to erroneous conclusion and accepted the assessee s stand that the income was in the nature of capital gain. To reiterate, during the original assessment in response to various queries raised by the Assessing Officer, the assessee made full disclosures. Full facts were thus before the Assessing Officer to ascertain whether the income was in the nature of business income or capital gain. He having taken a particular view, reopening beyond the period of four years would not be permissible. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice for reopening assessment issued beyond the period of four years.
2. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for the assessment.
3. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Kenya.

Detailed Analysis:

1. Validity of the Notice for Reopening Assessment Issued Beyond the Period of Four Years:

The petitioner challenged the notice dated December 26, 2012, issued by the Assessing Officer for reopening the assessment for the assessment year 2007-08. This notice was issued beyond the period of four years from the end of the relevant assessment year. The court noted that the Assessing Officer's reasons for reopening the assessment were based on the perusal of the return and assessment records. The court emphasized that reopening beyond four years is permissible only if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Since the reasons recorded by the Assessing Officer did not mention any such failure, the court found the reopening notice to be impermissible.

2. Alleged Failure of the Petitioner to Disclose Fully and Truly All Material Facts Necessary for the Assessment:

The petitioner argued that there was no failure on his part to disclose fully and truly all material facts necessary for the assessment. During the original scrutiny assessment, the petitioner had provided detailed replies and voluminous documents in response to the Assessing Officer's queries. The court examined the queries raised by the Assessing Officer and the responses provided by the petitioner, including the submission of a complete stock transaction summary. The court found that the petitioner had made full disclosures, and the Assessing Officer had sufficient material to take a view on whether the income from share transactions should be taxed as capital gain or business income. The court concluded that the Assessing Officer's attempt to reopen the assessment was merely a change of opinion, which is not permissible.

3. Applicability of the Double Taxation Avoidance Agreement (DTAA) Between India and Kenya:

The petitioner contended that he had no permanent establishment in India and was a resident of Kenya. According to the DTAA between India and Kenya, the petitioner's business income, even if earned in India, could only be taxed in Kenya. The court noted that the Assessing Officer did not address this contention in his order disposing of the petitioner's objections. However, the court did not delve further into this issue as it had already found the reopening notice to be invalid on other grounds.

Conclusion:

The court quashed the impugned notice dated December 26, 2012, for reopening the assessment for the assessment year 2007-08. The court held that the reopening was not permissible as there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The petition was disposed of accordingly, and the rule was made absolute. No order as to costs was issued.