Mere non-disclosure of exempt income doesn’t construe income escaped from assessment

Swastic Safe Deposit and Investments Ltd. (Petitioner) v. ACIT (Bombay High Court)*

Facts of the case:

1. During the assessment year (AY) 2011-12, SFIPL had sold shares held for more than 12 months of PHL for a total consideration of Rs. 322.36 crores through recognized stock exchange after payment of securities transaction tax.
2. SFIPL amalgamated with the petitioner w.e.f. 1.4.10. Petitioner had also sold shares of PHL during the AY 2011-12. This gave rise to short term as well as long term capital gain (STCG and LTCG) in the hands of the amalgamated petitioner company.
3. STCG was offered to tax in the income tax return (ITR) filed by the petitioner for the said AY. The ITR filed by the petitioner was accepted without scrutiny in terms of Section 143(1) of the Income Tax Act, 1961 (“the Act”). Thereafter, AO issued impugned notice on 24.3.2018 to reopen the petitioner’s assessment for the said AY. Petitioner appealed against the said notice.

Reasons for issue of impugned notice by the Assessing Officer (AO):

1. The sale transaction is reported to be worth Rs. 322.36 crores whereas the statement filed by petitioner reflected consideration of Rs. 321.90 crores, thus, there was difference of Rs. 46 lakhs.
2. The assessee was not correct in his contention that since LTCG from sale of shares was exempted from tax, there was no escapement of income chargeable to tax.
3. Transfer of shares of PHL held by SFIPL for a period of more than 12 months required further examination.
4. Under normal computation, the sale consideration is exempt from tax but the same would form part of the petitioner’s book profit for the purpose of computing tax under section 115JB of the Act.

Held by the Hon’ble Bombay High Court:

1. The difference of Rs. 46 lakhs between the transaction amount (Rs. 322.36 crores) and one contained in the statement filed by the petitioner (Rs. 321.90 crore) represents the brokerage component which has nothing to do with the taxability of the income.
2. Even after 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 Assessing Officer to reopen the assessment referring only to the non-disclosure of a particular receipt. Reopening of assessment cannot be based on fishing or rowing inquiries or for carrying out further investigation. Since all the vital aspects of section 10(38) have been complied with, such income was exempt from tax.
3. The contention of the AO is correct but the documents on record were clearly evident that the assessee had disclosed such income for the purpose of section 115JB of the Act.

Thus, the impugned notice for reassessment is quashed and petition is disposed of in favour of assessee.

Conclusion:

It can be concluded from the above that mere non-disclosure of receipt would not automatically imply escapement of income chargeable to tax from assessment. There has to be some reasons beyond an unintentional oversight or error on the part of the assessee in not disclosing such receipt in the return of income.

Source: [2019] 107 taxmann.com 421 (Bombay)