2016 (6) TMI 381 - HC - Income Tax

Reopening of assessment - recording of reasons - formation of belief - petitioner has disclosed loss of ₹ 77,51,810/- and the petitioner has been assessed at an income of ₹ 35,96,518/- on the book profit under section 115JB - Held that - In the light of the decision of this court in the case of India Gelatine and Chemicals Ltd. v. Assistant Commissioner of Income Tax (No.1) (2015 (2) TMI 808 - GUJARAT HIGH COURT), having regard to the fact that even if the entire amount which is proposed to be added by the Assessing Officer is sustained, there would be no addition to the tax liability of the petitioner and the petitioner would still be governed by the provisions of section 115JB of the Act and assessed on the same book profit, it cannot be said that there was sufficient material before the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. The impugned notice issued under section 148 of the Act, therefore, cannot be sustained. For the foregoing reasons, the petition succeeds and is, accordingly, allowed in favour of assessee.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether there was any new tangible material to justify the reopening of the assessment.
3. Impact of the proposed addition on the tax liability under section 115JB of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 02.03.2015 issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2011-12. The petitioner argued that there was no new tangible material on record to justify the reopening of the assessment. The court noted that the Assessing Officer sought to reopen the assessment on the ground that the shares of the company were subscribed at a premium significantly higher than their real worth. The court referred to a similar case, Olwin Tiles (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax, where the reopening was upheld. Thus, on the merits of reopening, the present case was deemed to be covered by the above decision against the petitioner.

2. New Tangible Material:
The petitioner contended that the Assessing Officer had no fresh tangible material to form a belief that income chargeable to tax had escaped assessment. The court observed that the reasons recorded by the Assessing Officer indicated that the shares were issued at a premium much higher than their net worth, which was considered unexplained cash-credit. The court found that the reasons recorded were not perverse or untenable and thus upheld the reopening of the assessment.

3. Impact on Tax Liability Under Section 115JB:
The petitioner argued that even if the proposed addition of ?81,18,000 was made, it would not affect the tax liability as the petitioner was assessed on book profit under section 115JB, showing a total loss of ?77,51,810 and a book profit of ?35,96,518. The court referred to the decision in India Gelatine and Chemicals Ltd. v. Assistant Commissioner of Income Tax, where it was held that if the addition proposed by the Assessing Officer is sustained, there would be no change in the tax liability since the petitioner had already paid higher tax on book profit. The court concluded that there was no sufficient material before the Assessing Officer to form the belief that income chargeable to tax had escaped assessment. Consequently, the notice issued under section 148 was quashed.

Conclusion:
The petition was allowed, and the impugned notice dated 02.03.2015 issued under section 148 of the Income Tax Act, 1961, was quashed and set aside. The court ruled that there was no new tangible material to justify the reopening and that the proposed addition would not impact the tax liability under section 115JB.

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