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TMI Blog2019 (6) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the hands of the said company, therefore, these shares formed long term capital asset in terms of Section 2(29A) of the Income Tax Act, 1961 ("the Act" for short). M/ s. Savoy Finance and Investments Pvt Ltd amalgamated with the petitioner company w.e.f. 1.4.2010 which was approved by the order of this Court dated 26.11.2010. 2.2 The petitioner had also sold shares of M/s. Piramal Healthcare Ltd during the period relevant to the assessment year in question. This had given rise to short term as well as long term capital gain. Short term capital gain was offered to tax and reflected in the return of income filed by the petitioner on 28.9.2011 for the said assessment year 2011-12 declaring total income of ₹ 57.87 Lakhs (rounded off). 2.3 The return of income filed by the petitioner was accepted without scrutiny in terms of Section 143(1) of the Act. Respondent No. 1 - Assessing Officer, thereafter, issued impugned notice on 24.3.2018 to reopen the petitioner's assessment for the said assessment year 2011.12. Strangely, two days later i.e on 26.3.2018, he issued yet another notice for the same purpose. Copies of these notices are annexed at Exhibit "E" and Exhibit "B" to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome filed along with the return disclosed the exempt long term capital gain of ₹ 599.72 Crores under Section 10(38) of the Act. This included capital gain arising out of sale of shares of M/s. Piramal Healthcare. The petitioner also pointed out that the sale of shares of M/s. Piramal Healthcare fetched ₹ 322.36 Crores whereas consideration showed by the petitioner was ₹ 321.90 Crores which were attributable to the security transaction tax. In short, the main ground of the petitioner in the objections raised was that no income chargeable to tax had escaped assessment. 2.6 The Assessing Officer disposed of the said objections vide order dated 2.11.2018 asserting that the reason to believe that the income chargeable to tax had escaped assessment did exist. He, however, did not comment on petitioner's contention that the entire receipt was exempt from tax. At that stage, the petitioner filed Writ Petition No. 3390 of 2018 challenging the notice of reopening of assessment. This petition was disposed by an order dated 14.2.2019, relevant portion of which reads as under:- "9. It is undoubtfully true that in the present case assessee's return has been accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 11. In facts of the present case, therefore, we ask the Assessing Officer 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. The Assessing Officer 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. For a period of four weeks after such order is communicated to the petitioner, reassessment shall stand stayed. Petition disposed of accordingly." 2.7 In terms of the said order of the High Court, the petitioner filed additional submissions before the Assessing Officer on 5.4.2019 and reiterated its position that in facts of the case, it cannot be said that any income in the hands of the petitioner chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that since it has only earned LTCG that are exempted from tax, there is no escapement of income is not correct. Non-disclosure of receipts is prima facie escapement of assessment of income and would require deeper examination and enquiries which cannot be done at the stage of disposing of objections but can only be undertaken in the course of (re)assessment proceedings. Without prejudice to the above, as directed by the Hon'ble HC, prima facie it appears from the documents submitted by the assessee as part of its objections that the shares of Piramal Healthcare Limited were held by Savoy for a period of more than 12 months immediately preceding the date of transfer. However, the matter requires further investigation / enquiries which can only be undertaken in the course of reassessment proceedings and not at the stage of disposal of objections." 3. This order of the Assessing Officer has given rise to the fresh petition at the hands of the petitioner. Learned counsel for the petitioner submitted that from the material on record, the petitioner was able to demonstrate before the Assessing Officer that no income chargeable to tax had escaped assessment. The reasons rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief that income chargeable to tax had escaped assessment. Whether such material conclusively proved the escapement cannot be gone into at that stage. These principles flow from the decisions of the Supreme Court in the case of Rajesh Zhaveri Stock Brokers P Ltd (supra) and Raymond Woollen Mills Ltd (supra). 6. Despite such position, it is also settled through the decisions of the High Courts that even in a case where the return of the income of an assessee is accepted without scrutiny, the fundamental requirement of the income chargeable to tax having escaped assessment must be satisfied. If from the material on record, it can be gathered that this fundamental requirement is not satisfied, the Court would intercept and quash the notice of reopening of assessment since the Assessing Officer would lack the jurisdiction in such a case to reopen the assessment. Reference in this respect can be made to a decision of the Division Bench of this Court in case of Prashant S. Joshi Vs. ITO (Bom) in which the Court observed as under:- "17. Counsel for the revenue submitted before the Court that in the present case, no assessment has taken place and at the stage of section 143(1), there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render him powerless to initiate reassessment proceedings even when an intimation under section 143(1) had been issued. In other words, when an intimation has been issued under section 143(1), the Assessing Officer is competent to initiate reassessment proceedings provided that the requirements of section 147 are fulfilled. In such a case as well, the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment." Similar view has been taken by Gujarat High Court in case of Inductotherm (India) P Ltd Vs. M. Gopalan, Deputy CIT (Guj) (2013) 356 ITR 481 (Guj) making following observations:- "13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer had no occasion to reopen the assessment. Through multiple submissions made before the Assessing Officer, the assessee has been pressing this point. The Assessing Officer's response can be best gathered from his order dated 12.4.2019 disposing of said objections after the High Court placed the issue back before the Assessing Officer for considering this specific point. His reaction to the petitioner's contention in this respect, we have reproduced in earlier portion of the judgment. His objections flowing from the said order can be summerized as under:- (i) The sale transaction is reported to be worth ₹ 322.36 Crores whereas the statement filed by the assessee along with objections reflected consideration of ₹ 321.90 Crores. Thus, there was difference of ₹ 46.16 Lacs between two figures; (ii) The assessee was not correct in contending that since long term capital gain from sale of shares was exempted from tax, there was no escapement of income chargeable to tax since in the opinion of the Assessing Officer, non disclosure of the receipt would amount to escapement of income chargeable to tax; (iii) According to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her inquiries. In the present case, however, the Assessing Officer does not dispute the following vital aspects:- (a) The shares of M/s. Piramal Healthcare Ltd were held by M/s. Savoy Finance and Investments Pvt Ltd for a period of more than 12 months immediately preceding the date of transfer; (b) The transaction of sale of shares was carried out through recognized stock exchange and; (c) The STT was paid on said transaction; Plainly, therefore, in terms of Section 10(38) of the Act, such income was exempt from tax. 12. The Assessing Officer's sole surviving ground is that for the purpose of computing assessee's book profit under Section 115JB of the Act, such receipt would not be excluded. In this context, learned counsel for the Department is correct in drawing our attention to the first proviso to Section 10(38) of the Act. Section 10(38) of the Act exempts from tax any income arising from the transfer of long term capital asset, being an equity share in a company subject to the conditions contained therein. The first proviso to Section 10(38) provides that the income by way of long term capital gain of a company shall be taken into account in computing the book ..... X X X X Extracts X X X X X X X X Extracts X X X X
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