2016 (12) TMI 671 - HC - Income Tax

Reopening of assessment - Exemption under Section 54EC - Held that - No reason to hold that the income chargeable to tax had escaped assessment in the present facts. The trigger for issuing the reopening notice appears to have been the limit to exemption available under Section 54EC of the Act coming into force with effect from Assessment Year 2007-08 onwards. This is evident not only from reasons recorded for issue of Notice u/s 148 of the Act as referred to herein above, but as also recorded by the Tribunal that the report received from the Deputy Director of Income Tax (Investigation), Surat essentially seeks to deny the exemption under Section 54EC of the Act in view of the amendment thereto. When the capital gains has been offered to tax in earlier assessment year and accepted by the Revenue in scrutiny proceedings, then a mere change in law in the subject assessment year with regard to extent of exemption will not give any reason to believe that income chargeable to tax in the subject assessment year had escaped assessment. - Decided in favour of assessee

Summary

Issues:
1. Reopening of assessment for Assessment Year 2007-08.
2. Justification of denial of benefit under Section 54EC of the Income Tax Act, 1961.

Issue 1: Reopening of assessment for Assessment Year 2007-08

The respondent assessee filed a return of income for the Assessment Year 2007-08, declaring a total income of ?24.69 lakhs, which was accepted under Section 143(1) of the Act. Subsequently, the Assessing Officer received information about the sale of a property in 2006, leading to a notice under Section 148 to reopen the assessment for the said year. The reason for reopening was to assess the sale of the property in the A.Y. 2007-08, as it was assessed in the hands of another entity in that year. The respondent challenged the notice, arguing that the entire consideration was already offered to tax in the earlier assessment year, along with claiming the benefit of Section 54EC of the Act. The Assessing Officer, however, did not accept these objections and brought to tax an amount of ?6.21 crores. On appeal, the CIT(A) also dismissed the assessee's appeal. The Tribunal held that the Assessing Officer had no valid reason to believe that income had escaped assessment, as the transaction had been examined in the earlier assessment year and accepted. The Tribunal also noted that the reopening seemed to be aimed at denying the benefit of Section 54EC due to an amendment in the Act from A.Y. 2007-08 onwards. The High Court agreed that the reopening was unjustified, considering the facts and the earlier assessment, terming it a case of change of opinion. The Court held that the trigger for the reopening was the change in the exemption limit under Section 54EC and dismissed the appeal.

Issue 2: Justification of denial of benefit under Section 54EC of the Income Tax Act, 1961

The Tribunal found that the reopening notice was without jurisdiction, and the High Court did not interfere with this finding. Consequently, the Revenue's grievance regarding the merits of the Tribunal's order was considered academic. The High Court concluded that the proposed question did not give rise to any substantial question of law and hence was not entertained. Therefore, the appeal was dismissed with no order as to costs.

This analysis highlights the key arguments, findings, and conclusions of the High Court's judgment regarding the reopening of assessment and the denial of benefits under Section 54EC of the Income Tax Act, 1961 for the Assessment Year 2007-08.