THE PRINCIPAL COMMMISSIONER OF INCOME TAX-2 V. M/S GUJARAT STATE FINANCIAL CORPORATION

TAXAP/749/2019

AI Insights

The case involves the Principal Commissioner of Income Tax-2 appealing against the Gujarat State Financial Corporation concerning the reopening of an income tax assessment for the year 2006-07. The original assessment was completed under section 143(3) of the Income Tax Act, 1961, and later reopened under section 147, leading to an addition of Rs.159.46 Crores to the assessee's income, which was credited to the capital reserve account. The Tribunal set aside this reassessment, leading to the current appeal. The main legal issues revolved around the justification for reopening the assessment after a significant delay and whether the assessee had adequately disclosed all material facts during the original assessment.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 727881 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 10-12-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Capital reserve account; Cessation of liability; Income chargeable to tax has escaped assessment; Reopening of assessment; Scrutiny assessment
• Section: 147; 143(3); 260A; 41(1)

Judgement Text

"C/TAXAP/749/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 749 of 2019 ========================================================== THE PRINCIPAL COMMMISSIONER OF INCOME TAX-2 Versus M/S GUJARAT STATE FINANCIAL CORPORATION ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN Date : 10/12/2019 ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) the appellant – revenue has challenged the order dated 4.6.2019 passed by the Income Tax Appellate Tribunal, Ahmedabad, Bench ‘A’ (hereinafter referred to as “the Tribunal”) in ITA No.2637/Ahd/2014 for assessment year 2006-07 by proposing the following two questions stated to be substantial questions of law:- “[A] Whether the Appellate Tribunal has erred in law and on facts in holding that the reopening of assessment u/s 147 was not justified and requires to be quashed? [B] Whether the Appellate Tribunal has erred in law and on facts in holding that the question of treating the amount of Rs.159.46 Cr credited directly to Capital reserve account without crediting to the P & L account as cessation of liability u/s 41(1) of the Act, which was not dealt with in the original assessment proceedings does not constitute “information” Page 1 of 6 C/TAXAP/749/2019 ORDER within the meaning of Section 147(b) of the Act?” 2. The assessment year is 2006-07 and the relevant accounting period is the previous year 2005-06. 3. The assessee filed its return of income on 27.12.2006, declaring total loss of Rs.137,02,37,406/-. The original assessment proceedings under section 143(3) of the Act had been completed on 16.12.2008 determining total loss at Rs.12,00,85,426/-. Thereafter, the assessment came to be reopened under section 147 of the Act and an assessment came to be framed under section 143(3) read with section 147 of the Act on 4.3.2013 making addition of Rs.159,46,05,271/- on account of the amount directly credited to the capital reserve account. 4. The assessee carried the matter in appeal before the Commissioner (Appeals), who dismissed the appeal relying upon her own decision on a similar issue in the assessee's own case for assessment year 2009-10. 5. The assessee carried the matter in appeal before the Tribunal which set aside the assessment order. 6. Ms. Mauna Bhatt, learned senior standing counsel for the appellant invited the attention of the court to the impugned order passed by the Tribunal, to submit that the Tribunal has held that the assessment in a case where scrutiny assessment has been made cannot be reopened after a period of four years unless it is established that on account of failure of the assessee to disclose all material facts fully and truly, income had escaped assessment. It was pointed out that the Tribunal Page 2 of 6 C/TAXAP/749/2019 ORDER has inter alia held that the Assessing Officer was not able to lay his hands on any new information and has only re- appreciated the information already possessed by him and considered in the scrutiny assessment and that there is no allegation against the assessee of withholding any information. Reference was made to Explanation 1 to section 147 of the Act, which provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. It was submitted that therefore, merely because the Assessing Officer has placed reliance upon the record of the case and his belief that income chargeable to tax has escaped assessment is not based on any new information, the Tribunal was not justified in holding that the reopening of assessment is not justified. It was, accordingly, urged that the matter requires consideration on the questions as proposed or as may be formulated by this court. 7. A perusal of the assessment order dated 1.7.2014 passed by the Commissioner (Appeal) reveals that in paragraph 6.1.5 thereof, the Commissioner (Appeals) has recorded that pursuant to the query as to whether the assessee had reported capital reserve gain on restructuring of principal debts of Rs.159,46,05,271/- and to submit complete details thereof with its impact on the total income, the authorised representative of the assessee, during the course of regular scrutiny assessment for assessment year 2006-07, had submitted reply to question No. (C)(1)(4) vide letter dated 13.12.2008, under point No.4 wherein, it is stated thus:- Page 3 of 6 C/TAXAP/749/2019 ORDER “The Corporation was passing through severe liquidity crunch and accumulated losses are of Rs.872.48 crores as on 31/03/2005. It could not repay to its lenders and hence it has restructured its liabilities. The Corporation has made amicable settlement with SIDBI and other banks. Accordingly, Corporation was required to pay Rs.400.00 crores to SIDBI in four instalments against principal outstanding of Rs. 537.46 crores and Rs.21.57 crores to other banks against principal outstanding of Rs.43.14 crores. The Corporation thus got remission of Rs.159.05 crores in principal outstanding of loan liabilities. The transaction between the Corporation and SIDBI and other banks are of the nature of loan transaction. These transactions are therefore on Capital Account. The waiver or remission of the liabilities towards loan is therefore of Capital Receipt and hence Corporation has therefore credited these amounts to Capital Reserve. The details of the principal loan amounts waived by SIDBI and other banks are given in Annexure-B.” 8. Thus, it is evident that the issue proposed vide question [B] had been scrutinized at the time of the original scrutiny assessment under section 143(3) of the Act. Subsequently, the Assessing Officer has reopened the assessment to examine the very same issue, which has already been scrutinized at the time of scrutiny assessment. 9. The Tribunal, in the impugned order, has recorded that a perusal of the reasons would reveal that the Assessing Officer Page 4 of 6 C/TAXAP/749/2019 ORDER nowhere recorded that on account of failure of the assessee to disclose fully and truly all material facts, income chargeable to tax has escaped assessment. In this regard, a perusal of the reasons recorded as reflected in paragraph 6 of the impugned order shows that the Assessing Officer has recorded facts on the basis of which he has formed the belief that income chargeable to tax has escaped assessment and thereafter, has recorded that he has reason to believe that the income of the assessee is under-assessed by an amount of Rs.159,46,05,271/-. However, in the entire reasons recorded there is not even a whisper that there is any failure on the part of the assessee to disclose fully and truly all material facts. It being an admitted position that the assessment is sought to be reopened beyond a period of four years from the end of the relevant assessment year in a case where a scrutiny assessment has been made under section 143(3) of the Act, it was incumbent upon the Assessing Officer to record, in the reasons itself, as to whether there was any failure on the part of the assessee to disclose fully and truly all material facts. In the absence of any such finding in the reasons recorded for reopening the assessment, the assumption of jurisdiction on the part of the Assessing Officer, beyond a period of four years from the end of the relevant assessment year, lacked validity. Under the circumstances, no infirmity can be found in the impugned order so as to give rise to any question of law, much less, a substantial question of law. 10. Insofar as the finding recorded by the Tribunal that the Assessing Officer could not lay his hands on any new information and has re-appreciated the information already possessed by him and considered it in the scrutiny Page 5 of 6 C/TAXAP/749/2019 ORDER assessment, as rightly pointed out by the learned senior standing counsel for the appellant, in the light of the provisions of Explanation 1 to section 147 of the Act, there is no bar against the Assessing Officer on reopening the assessment on the basis of information contained in the material which was already placed before the Assessing Officer. However, the information has to be such as is contemplated in the Explanation 1 to section 147 of the Act. In the present case, there is no observation of the Assessing Officer that the material on record was embedded in such a manner that it was not possible for the Assessing Officer to notice the same at the time of scrutiny assessment. Moreover, as recorded earlier, the very same issue had already been scrutinized during the course of scrutiny assessment. Under the circumstances, no infirmity can be found in the impugned order warranting interference. 11. The appeal therefore, fails and is accordingly summarily dismissed. HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) BINOY B PILLAI Page 6 of 6 "