TMI Blog2019 (6) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period in excess of 12 months immediately before sale. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and therefore, no income chargeable to tax had escaped assessment. The petitioner pointed out that the computation of income 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 14.2.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,141/-. Thus, there is a difference of ₹ 46,16,222/- which needs to be verified and reconciled. This can only be done in the course of reassessment proceedings. iv. For this reason, the contention of the assessee 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 han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the return. The principle of change of opinion, therefore, would have no applicability. It is also true that at the stage of issuance of notice, only question would be whether there was relevant material on which a reasonable person could have formed a requisite belief 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. 18. The Supreme Court held that so long as the ingredients of section 147 are fulfilled, 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the return, this transaction was duly reflected by the assessee. It was in this background that the assessee has been taking a ground that when the sale consideration did not give rise to any taxable income, mere error or oversight in not disclosing the transaction in the return of income would not give rise to the income chargeable to tax escaping assessment and if this be so, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. At this stage, learned counsel for the 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] 255 ITR 273 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 of the Act. 14. The above discussion would show that even prima facie, the counsel for the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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