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

TAXAP/749/2019HC GujaratGJHC24070600201910 December 2019Author: HONOURABLE MS. JUSTICE HARSHA DEVANI,HONOURABLE MS. JUSTICE SANGEETA K. VISHEN6 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s Gujarat State Financial Corporation, filed its return for Assessment Year (AY) 2006-07, declaring a loss. The original assessment under Section 143(3) was completed on December 16, 2008. Subsequently, the assessment was reopened under Section 147, and an addition of Rs. 159.46 Crores was made on March 4, 2013, for an amount credited directly to the capital reserve account. The Commissioner (Appeals) dismissed the assessee's appeal. The Income Tax Appellate Tribunal (ITAT) set aside the assessment order. The revenue, represented by the Principal Commissioner of Income Tax-2, appealed to the High Court against the ITAT's order.

What did the High Court hold?

The High Court held that the Tribunal's order did not suffer from any infirmity. Regarding the first issue, the Court noted that the assessment was reopened beyond four years from the end of the relevant assessment year, and a scrutiny assessment had already been made. In such cases, it is incumbent upon the AO to record in the reasons for reopening that there was a failure on the part of the assessee to disclose fully and truly all material facts. The reasons recorded by the AO did not contain any such whisper. Therefore, the assumption of jurisdiction beyond four years lacked validity. Regarding the second issue, while Explanation 1 to Section 147 permits reopening based on existing material from which new evidence could be discovered, the AO did not observe that the material was embedded in such a manner that it was not possible to notice it during the scrutiny assessment. Furthermore, the very same issue had already been scrutinized during the original assessment. Consequently, the appeal was summarily dismissed.

What were the issues?

1. Whether the Appellate Tribunal has erred in law and on facts in holding that the reopening of assessment under Section 147 was not justified and requires to be quashed? (Question of law and fact, turning on Section 147). 2. Whether the Appellate Tribunal has erred in law and on facts in holding that the issue of treating the amount of Rs. 159.46 Crores credited directly to the Capital Reserve account without crediting to the P&L account as cessation of liability under Section 41(1) of the Act, which was not dealt with in the original assessment proceedings, does not constitute ‘information’ within the meaning of Section 147(b) of the Act? (Question of law and fact, turning on Section 147(b)). Assessee's Contentions: The ITAT correctly held that the reopening of assessment was not justified. The Assessing Officer (AO) did not discover any new information and merely re-appreciated existing information. There was no allegation of the assessee failing to disclose material facts. The issue of crediting Rs. 159.46 Crores to the capital reserve account was already scrutinized during the original assessment. Revenue's Contentions: The Tribunal erred in holding that reopening was unjustified. The Tribunal's reliance on the absence of new information was incorrect in light of Explanation 1 to Section 147, which allows reopening based on material from which evidence could have been discovered. The AO's belief that income escaped assessment, even if not based on entirely new information, justified reopening.

Which sections of the Income-tax Act were involved?

Section 260A,Section 147,Section 143(3),Section 147(b),Section 41(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
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 fact

The order continues below.

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