2016 (1) TMI 947 - HC - Income Tax

Reopening of assessment - undisclosed dividend income - entitlement to exemption from tax under section 10(33) - Held that - In the facts of the present case, even otherwise from the record we find that the Petitioner had disclosed fully and truly all material facts relating to the dividend income received by it. This is clear firstly from the return of income filed by the Petitioner on 27th November, 2000 where in the computation annexed to the return, the Petitioner had stated that it had earned dividend income which was fully exempt from tax under section 10(33) of the Act. Secondly, in the profit and loss account, the Petitioner had disclosed by way of Schedule M that it had earned dividend income of the aforesaid amount. Thus there being a full and true disclosure of all material facts relating to earning of dividend income from units of mutual funds and the claim for exemption under section 10(33) of the Act, the the impugned notice is without jurisdiction as it fails to satify the criteria as set out in the first proviso to section 147 of the Act. Assessing Officer, during the regular assessment proceedings under section 143(3) of the Act, had specifically applied his mind to the dividend income earned by the Petitioner during the A.Y. 2000-2001 and on due consideration of these facts, he passed his assessment order under section 143(3) of the Act forming an opinion that the dividend income earned by the Petitioner was exempt from tax. This would clearly establish that there was due application of mind to all relevant facts and thereafter an opinion was formed that dividend income earned from the aforesaid three mutual funds are exempt from tax under section 10(33) of the Act. We have therefore no hesitation in holding that the initiation of reassessment proceedings has been undertaken merely on the basis of a change of opinion. Thus, the impugned notice is not sustainable also on the ground that it proceeds on a mere change of opinion. Assessing Officer could have no reason to believe that the dividend income earned by the Petitioner from the aforesaid three mutual funds had escaped assessment. As stipulated in section 10(33) of the Act, the said income was exempt and therefore could not have been brought to tax. Thus the impugned notice is also without jurisdiction as the Assessing Officer could have had no reason to believe that income chargeable to tax had escaped assessment. - Decided in favour of assessee

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for assessment.
3. Whether the reassessment proceedings were initiated based on a change of opinion.
4. Applicability of Section 10(33) of the Income Tax Act, 1961 to the dividend income earned by the petitioner.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 30th March 2007, issued under Section 148 of the Income Tax Act, 1961, for initiating reassessment proceedings for the Assessment Year (A.Y.) 2000-2001. The petitioner argued that the notice was issued after the expiry of four years from the end of A.Y. 2000-2001, making it invalid due to non-fulfillment of the prerequisite conditions, including the failure to disclose fully and truly all material facts necessary for assessment. The court found that the reasons recorded for reopening the assessment did not even allege that there was any failure on the part of the petitioner to disclose fully and truly any material fact, making the notice invalid.

2. Alleged Failure of the Petitioner to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The petitioner contended that there was a full and true disclosure of all material facts during the regular assessment proceedings for A.Y. 2000-2001. The court observed that the petitioner had disclosed the dividend income in the return of income filed on 27th November 2000 and in subsequent correspondences with the Assessing Officer. The court held that there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment, as required by the first proviso to Section 147 of the Act.

3. Whether the Reassessment Proceedings Were Initiated Based on a Change of Opinion:
The petitioner argued that the reassessment proceedings were initiated merely on the basis of a change of opinion, which is impermissible in law. The court noted that during the original assessment proceedings under Section 143(3) of the Act, the Assessing Officer had specifically considered the dividend income earned by the petitioner and had exempted it from tax under Section 10(33) of the Act. The court concluded that the reassessment proceedings were indeed initiated based on a change of opinion, which is not permissible.

4. Applicability of Section 10(33) of the Income Tax Act, 1961 to the Dividend Income Earned by the Petitioner:
The court examined the applicability of Section 10(33) of the Act, which exempts any income by way of dividends or income received in respect of units of a mutual fund specified under clause 10(23D). The court found that the dividend income earned by the petitioner from the mutual funds was exempt from tax under Section 10(33) of the Act, as the income did not arise from the transfer of units but from holding them. Therefore, the Assessing Officer could have no reason to believe that the dividend income had escaped assessment.

Conclusion:
The court quashed the notice dated 30th March 2007 issued under Section 148 of the Act and the order dated 5th December 2007 disposing of the objections filed by the petitioner. The court held that the reassessment proceedings were invalid due to the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment and because the proceedings were initiated based on a change of opinion. The court also affirmed that the dividend income earned by the petitioner was exempt from tax under Section 10(33) of the Act.

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