2019 (6) TMI 1185 - HC - Income Tax

Reopening of assessment u/s 147 - gain on sale of shares - profit out of sale of shares was taxable under the normal provisions or that it was excluded for the purpose of computing book profit u/s 115JB - HELD THAT - The same is a minor difference of 41.16 Lacs between the transaction amount of sale of shares and one contained in the statement filed by the assessee with objections. As correctly pointed out by the learned counsel for the petitioner this represents the brokerage component and has nothing to do with the taxability of the income. In so far as objection No. (ii) is concerned the Assessing Officer is plainly incorrect in law. Mere nondisclosure of receipt would not automatically imply escapement of income chargeable to tax from assessment. There has to be something beyond an unintentional oversight or error on the part of the assessee in not disclosing such receipt in the return of income. Even after non-disclosure if the documents on record conclusively establish that the receipt did not give rise to any taxable income it would not be open for the AO to reopen the assessment referring only to the non disclosure of the receipt in the return of income. AO virtually conceded to the assessee s contention that the shares of M/s. Piramal Healthcare were held by M/s. Savoy Finance and Investments Pvt Ltd for a period more than 12 months immediately preceding the date of the transfer. Having done so he thereafter resorts to further inquiries that may be needed during the course of assessment. As held repeatedly by this Court and other Courts reopening of assessment cannot be based on fishing or rowing inquiries or for carrying out further investigation. If there was any prima facie material suggesting that income chargeable to tax had escaped assessment surely the Assessing Officer was entitled to carry out further inquiries. The documents on record would show that the assessee had submitted its computation of book profit for the purpose of Section 115JB of the Act in which under caption other income sum of 13.41 Crores (rounded off) was included for computation of such profit. Same was elaborated in Schedule 7 and pertained to profit on sale of shares. Thus the assessee had for the purpose of computation of its book profit in terms of Section 115JB of the Act accounted the profit arising out of the sale of share which was in any case in tune with the first proviso to Section 10(38) of the Act and corresponding provisions of Section 115JB. Department submitted that this requires examination which can be done only during the course of reassessment. We are afraid such a contention will not be valid in view of the decision of the Supreme Court in case of Apollo Tyres Ltd Vs. CIT 2002 (5) TMI 5 - SUPREME COURT in which it was held that while determining the book profit under Section 115J (which is a predecessor provision to Section 115JB) the Assessing Officer cannot recompute the profit in the Profit Loss Account. It was held that the Assessing Officer cannot tinker with the audited accounts of the assessee while computing book profit under Section 115JB. Even prima facie AO was unable to demonstrate before us on the grounds stated and the reasons recorded that income chargeable to tax had escaped assessment. His i.e. Assessing Officer s attempt of further verification would amount to rowing inquiry. There is nothing on record prima facie suggesting that the profit out of sale of shares was taxable under the normal provisions or that it was excluded for the purpose of computing book profit under Section 115JB of the Act. Under these circumstances the impugned notice for reassessment is quashed - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice for reopening the assessment.
2. Exemption of long-term capital gains from tax under Section 10(38) of the Income Tax Act.
3. Assessment of book profit under Section 115JB of the Income Tax Act.
4. The difference in the sale consideration amount.
5. Non-disclosure of the receipt in the return of income.

Detailed Analysis:

1. Validity of the notice for reopening the assessment:
The petitioner challenged the notice of reopening dated 24.3.2018 for the assessment year 2011-12. The return filed by the petitioner was accepted without scrutiny under Section 143(1) of the Income Tax Act. The Assessing Officer issued the notice based on information that M/s. Savoy Finance and Investments Pvt Ltd, which amalgamated with the petitioner, had sold shares worth ?322.36 Crores and had not filed a return for AY 2011-12. The petitioner contended that no income chargeable to tax had escaped assessment, as the gain from the sale of shares was exempt under Section 10(38) of the Act. The High Court noted that even though the return was accepted without scrutiny, the Assessing Officer must have a valid reason to believe that income had escaped assessment. The Court found that the Assessing Officer's reasons lacked validity and quashed the notice for reassessment.

2. Exemption of long-term capital gains from tax under Section 10(38) of the Income Tax Act:
The petitioner argued that the shares of M/s. Piramal Healthcare Ltd were held for more than 12 months and sold through a recognized stock exchange with STT paid, thus qualifying for exemption under Section 10(38). The Assessing Officer initially did not address this contention but later conceded that the shares were held for more than 12 months. The High Court emphasized that the Assessing Officer cannot reopen the assessment based on fishing or rowing inquiries when the documents on record conclusively establish that the receipt did not give rise to any taxable income. Therefore, the exemption under Section 10(38) was valid.

3. Assessment of book profit under Section 115JB of the Income Tax Act:
The Assessing Officer contended that the long-term capital gains should be included in the book profit for calculating tax under Section 115JB. The High Court noted that the petitioner had included the profit from the sale of shares in its computation of book profit. The Court referred to the Supreme Court's decision in Apollo Tyres Ltd Vs. CIT, which held that the Assessing Officer cannot recompute the profit in the Profit & Loss Account while determining book profit under Section 115JB. Therefore, the inclusion of long-term capital gains in the book profit was correctly done by the petitioner, and there was no escapement of income.

4. The difference in the sale consideration amount:
The Assessing Officer pointed out a minor difference of ?46.16 Lakhs between the transaction amount of ?322.36 Crores and the amount reflected in the statement filed by the petitioner. The High Court clarified that this difference represented the brokerage component and had no impact on the taxability of the income. Thus, this objection was not valid for reopening the assessment.

5. Non-disclosure of the receipt in the return of income:
The Assessing Officer argued that the non-disclosure of the receipt in the return amounted to escapement of income chargeable to tax. The High Court held that mere non-disclosure of the receipt does not automatically imply escapement of income. If the documents on record conclusively establish that the receipt did not give rise to any taxable income, reopening the assessment based on non-disclosure alone is not justified. The Court found that the petitioner had disclosed the transaction in the computation of income filed along with the return, and there was no escapement of income chargeable to tax.

Conclusion:
The High Court quashed the notice for reassessment, holding that the Assessing Officer lacked valid reasons to believe that income chargeable to tax had escaped assessment. The petitioner's contentions regarding the exemption of long-term capital gains under Section 10(38) and the inclusion of such gains in the book profit under Section 115JB were upheld. The objections raised by the Assessing Officer were found to be invalid, and the reopening of the assessment was deemed unjustified.

← Previous Next →