2018 (2) TMI 1162 - HC - Income Tax

Reopening of assessment - business loss claimed by the assessee as previously accumulated on account of sale of shares - disallowance u/s 14A - eligibility of reasons to believe - Held that - Assessing Officer in the reasons had begun with expression verification of case records it is found that/seen that . Thus on both issues, AO was referring to the materials on record to form a belief that income chargeable to tax had escaped assessment. There was thus nothing extraneous to the record which led the Assessing Officer to form such a belief. On both counts thus, there was clear and ample material on the basis of which the assessee had made respective claims. When therefore the Assessing Officer was seeking to reopen the assessment beyond a period of four years from the end of the relevant assessment year, the question of failure on part of the assessee to disclose truly and fully all material facts for such assessment was an important aspect. Ignoring such additional requirement flowing from section 147 the Assessing Officer issued the impugned notice. There being no element of failure on part of the assessee to disclose true and full facts, the impugned notice could not have been issued. - Decided in favour of assessee

Summary

Issues:
1. Challenge to notice seeking to reopen assessment for the assessment year 2010-11.
2. Dispute regarding irregular allowance of prior-period item on account of conversion of stock-in-trade to investment.
3. Dispute regarding excess allowance of expenditure on account of expenditure relatable to exempt income.

Analysis:
1. The petitioner challenged a notice issued by the Assessing Officer to reopen the assessment for the year 2010-11. The reasons for reopening included disputes related to business loss claimed by the assessee and the expenditure claimed for earning exempt income. The Assessing Officer referred to specific case records to support the belief that income chargeable to tax had escaped assessment. However, the petitioner objected to the notice, arguing that there was no failure on their part to disclose all material facts for the assessment. The court noted that the Assessing Officer had sufficient material to form a belief based on the records. Since there was no failure on the part of the assessee to disclose relevant facts, the court quashed the notice as it was issued beyond the permissible period of four years.

2. The first dispute raised by the Assessing Officer was regarding the irregular allowance of a prior-period item due to the conversion of stock-in-trade to investment. The Assessing Officer contended that the business loss claimed by the assessee was not acceptable based on a Supreme Court judgment. The conversion of investment into stock-in-trade was analyzed, and the Assessing Officer believed that there was underassessment of income and a short levy of tax. However, the court found that there was no failure on the part of the assessee to disclose all material facts, and the Assessing Officer's notice to reopen the assessment was quashed.

3. The second dispute concerned the excess allowance of expenditure on account of expenditure related to exempt income. The Assessing Officer observed that certain expenses were not disallowed as required under section 14A of the Act, resulting in underassessment of income and a short levy of tax. The court, however, held that since there was no failure on the part of the assessee to disclose all relevant facts, the notice issued by the Assessing Officer to reopen the assessment was invalid and quashed accordingly.