A general statement that escapement of income is due to failure of assessee not enough

A general statement that escapement of income is due to failure of assessee to disclose fully and truly all material facts necessary for his assessment is not enough and is change of opinion. Hon’ble Supreme Court dismisses SLP of Department

ABCAUS Case Law Citation
ABCAUS 3609 (2022) (08) SC

Important Case Laws relied upon by parties
Crompton Greaves Ltd. v/s. Assistant Commissioner of   Income Tax

In the instant case, the Hon’ble High Court had set aside the notice issued under Section 148 of the Income Tax Act, 1961 (the Act) seeking to re-open the assessment already completed u/s 143(3) of the Act.

The reasons stated for the said reopening was the assessee had issued its shares at a very high premium which exceeded the Fair Market Value (FMV) of the shares and therefore liable to be taxed as the difference between the aggregate value of the shares and FMV u/s 56(2) (viib) of the Act.

The Hon’ble High Court observed that the reasons recorded were based on speculation and conjecture. The Assessing Officer had not even indicated what according to him should be the fair market value of the shares and how he arrived thereat. The Assessing Officer had also not mentioned why according to him the valuation of shares done by company were based on projections of profitability computed on unrealistic future growth projections. Moreover, it did not even indicate what was the material fact which was not truly and fully disclosed by the assessee during the assessment proceedings.

The Revenue relied on the decision of the Hon’ble High Court and submitted that even if the reason for reopening does not specifically state that there was any failure on the part of petitioner to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year, it will not be fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act.

However, the Hon’ble High Court pointed out that the reliance placed by the Revenue is subject to the rider that there must be cogent and clear indication in the reasons supplied, that in fact there was failure on the part of the assessee to disclose fully   and truly all the material facts necessary for its assessment. If the factum of failure to disclose can be culled down from the reasons in support of the notice seeking to reopen assessment, that will certainly not be fatal to the assumption of jurisdiction under Sections 147 and 148 of the said Act.

The Hon’ble High Court further noted that during the Assessment Proceedings u/s 143(3) the Assessing Officer had called upon petitioner to produce the evidence in support of increase of authorised share capital, produce the evidence of   share allotment and name and address of the parties from whom share premium was received etc. and the same was duly furnished by the assessee.

The Hon’ble High Court stated that it is not permissible for an   Assessing Officer to reopen the assessment based on the very same material with a view to take another view without   consideration of material on record one view is conclusively taken by the Assessing Officer. It is also not permissible to reopen purely on change of opinion.

The Hon’ble High Court held that mere a general statement   that the escapement of income is by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment is not enough, the AO should indicate what was the material fact that was not truly and fully disclosed to him.

Not to mention that Petition was allowed by the Hon’ble High Court and the notice issued u/s 148 of the Act was set aside.

However, the Revenue approached Hon’ble Supreme Court by filing a Special Leave Petition (SLP).

The Hon’ble Supreme Court observed that earlier the Assessing Officer had called upon the   petitioner(s) to produce the evidence in support   of increase of authorised share-capital, produce   the evidence of share allotment and names and addresses of the parties from whom share-premium   was received, among other things andt hereafter, the AO finalised the assessment and passed Assessment Order, the subsequent re-opening can be said to be change of opinion.

The Hon’ble Supreme Court upheld the action of the Hon’ble High Court in setting aside the reopening.

Accordingly, the Special Leave Petition was dismissed

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