2019 (2) TMI 1208 - HC - Income Tax

Reopening of assessment - crux of the petitioner s objection to the notice of reopening of assessment was that there is no income chargeable to tax which had escaped assessment - liability to pay capital gain tax on the proceeds of sale of shares - HELD THAT - Minute perusal of the reasons recorded would show the ground pressed in service by him is that the petitioner had earned capital gain out of sale of shares which was not disclosed and therefore, income chargeable to tax had escaped assessment. This was also the line adopted by the Assessing Officer in the order disposing of the objection. As perused the detail objections raised by the petitioner and the documents produced alongwith the same and also the order passed by the Assessing Officer disposing of such objections. We do not find that the Assessing Officer had dealt with the contention of the petitioner that the petitioner is in a position to establish that the shares in question were held by Savoy Finance for a period in excess of one year and therefore, there was no liability to pay capital gain tax on the proceeds of sale of shares. In facts of the present case, therefore, we ask the AO to consider this objection of the petitioner and give his specific finding through a speaking order. For this limited purpose, we place the matter back before the Assessing Officer. AO shall pass a further order dealing with this specific objection of the petitioner. In facts of the case, the Assessing Officer may give personal hearing to the authorized representative of the petitioner. Further order may be passed preferably within two months from today.

Summary

Issues:
1. Challenge to notice of reopening of assessment
2. Allegation of income escaping assessment
3. Validity of reasons recorded by Assessing Officer
4. Consideration of objections raised by petitioner
5. Requirement of forming a belief for reopening assessment

Issue 1: Challenge to notice of reopening of assessment
The petitioner challenged a notice of reopening of assessment dated 24th March, 2018, which was issued by the Assessing Officer based on reasons recorded. The petitioner contended that there was no income chargeable to tax that had escaped assessment, despite the Assessing Officer's belief that a substantial sum from the sale of shares had not been reflected in the return filed for the assessment year.

Issue 2: Allegation of income escaping assessment
The Assessing Officer alleged that income chargeable to tax had escaped assessment due to the sale of shares by Savoy Finance, which later merged with the petitioner company. The Assessing Officer's belief was based on the discrepancy between the sale consideration amount declared in the return and the actual amount received from the sale of shares, leading to the initiation of the reassessment process.

Issue 3: Validity of reasons recorded by Assessing Officer
The petitioner raised objections to the notice of reopening, arguing that the Assessing Officer did not consider the evidence provided regarding the holding period of the shares in question, which could exempt the capital gain tax liability under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer's order disposing of the objections did not address this contention, leading to a challenge on the sufficiency of the reasons recorded.

Issue 4: Consideration of objections raised by petitioner
The petitioner submitted detailed objections along with supporting documents to contest the reopening of assessment. The objections emphasized the exemption from capital gain tax based on the holding period of the shares and sought a fair consideration of the evidence presented. However, the Assessing Officer's response did not adequately address these objections, prompting the petitioner to seek judicial intervention.

Issue 5: Requirement of forming a belief for reopening assessment
The High Court emphasized the necessity for the Assessing Officer to form a belief that income chargeable to tax had escaped assessment, even in cases where the return had been accepted without scrutiny. The court highlighted the importance of fulfilling this requirement and directed the Assessing Officer to consider the petitioner's objections regarding the holding period of the shares and provide a detailed response through a speaking order within a specified timeframe.

In conclusion, the High Court directed the Assessing Officer to reevaluate the objections raised by the petitioner regarding the tax liability on the sale of shares, emphasizing the need for a thorough consideration of the evidence presented before proceeding with reassessment.