2021 (11) TMI 712 - HC - Income Tax

Reopening of assessment u/s 147 - reassessment proceeding after 4 years - whether no failure on the part of assessee to disclose all material facts when it is apparent from records that it was never disclosed as to how the interest received from GOI Tax Free Bonds in the hands of the Estate of EF Dinshaw, will also be tax free on distribution to assessee by virtue of the said immunity of the scheme? - HELD THAT - ITAT has given a finding of fact that the computation of income for AY 2005-06 filed along with original income tax returns u/s 139(1) of the Act, personal balance-sheet and income and expenditure account filed along with returns u/s 139(1) of the Act contain entries relating to this amount received as interest on Tax Free Bonds. AO had also raised a query in this regard and the Assessee has given proper explanation before the AO and after considering the explanation, the earlier assessment order was passed u/s 143(3) - ITAT has concluded and it is quite evident by considering the order passed by the AO and CIT(A) that there was no new material in the hands of the assessing authority or there was any lapse on the part of the Assessee to disclose material facts before the assessing authority. CIT(A), in his order, states that the Appellant has failed to disclose fully and truly as to how the interest income is not exempt in the hands of the investor and as to how the exemption of interest has been granted by the legislature in the hands of transferee, i.e., the Respondent. According to CIT(A), Respondent has not placed any authority to establish the exemption of interest credited by Respondent in his books of accounts on such interest being earned on the corresponding Government of India Bonds. Therefore, we do not find anything wrong in the conclusion arrived at by the ITAT that there was no lapse on the part of the Assessee to disclose material facts. ITAT has not committed any perversity of applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that questions as pressed raise any substantial questions of law.

Summary

Issues:
Reopening of assessment beyond 4 years based on failure to disclose material facts.

Analysis:
The case involved the reopening of assessment for AY 2005-06 under Section 147 of the Income Tax Act, 1961. The Assessing Officer (AO) issued a notice under Section 148, and an order was passed subsequently. The Respondent challenged this order before the CIT(A), who dismissed the appeal. The Respondent then appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal, stating there was no new material or failure to disclose fully and truly material facts beyond 4 years. The Appellant contested this decision.

Upon review of the CIT(A) and AO's orders, it was established that the Respondent disclosed receiving a specific amount from the Estate of EF Dinshaw, claiming it as exempt from taxation. The Respondent showed a portion of this amount as interest on Tax Free Bonds and the rest from property sales. The ITAT found that the Respondent had indeed disclosed these amounts in the income computation for AY 2005-06. The AO had raised queries regarding the interest on Tax Free Bonds, to which the Respondent provided explanations. The ITAT concluded that there was no new material or failure to disclose on the part of the Assessee.

The CIT(A) noted that the Appellant failed to fully disclose how the interest income was not exempt in the investor's hands but was granted exemption in the hands of the transferee (Respondent). The CIT(A) found no authority presented by the Respondent to establish the exemption of interest earned on Government of India Bonds. Consequently, the ITAT's decision that there was no lapse in disclosing material facts was deemed appropriate.

The High Court upheld the ITAT's decision, stating that no perversity or incorrect principles were applied. The Court found that the questions raised did not present substantial questions of law. Therefore, the Appeal was dismissed as devoid of merit, with no order as to costs.