By TIOL News Service

AHEMDABAD, JAN 04, 2017: THE issue is - Whether a wrong grant of benefit or exemption by the AO during assessment, can be the sole basis to reopen such assessment beyond the period of four years. NO IS THE VERDICT.

Facts of the case:

The assessee is an individual. It had filed his return declaring his total income at Rs.18,82,800/-. The assessee did not claim any exemption arising from the long term capital gain by sale of shares, as according to the assessee she had not sold any shares. Subsequently, the return was selected for scrutiny and notice u/s 143(2) was issued and duly served upon the assessee and further notice u/s 142(1) was issued alongwith the questionnaire. Statement of income was filed during the scrutiny. It was the case on behalf of assessee that by some inadvertent error, Rs.1,38,25,000/- was shown as income from sale of shares and claimed as exempt while submitting the revised computation. It was the case on behalf of assessee that the assessee also produced relevant documents / materials while submitting the revised computation of income. AO framed the assessment order u/s 143(3) at Rs.20,68,860/-, allowed the exemption arising from the LTCG by sale of shares. Thereafter, beyond the period of four years, AO issued the impugned notice u/s 148 to reopen the assessment for the AY 2009-10. At the request of the assessee, it had been served with the reasons for reopening of the assessment.

On appeal, the HC held that,

++ so far as the first reason to reopen the assessment is concerned, it is required to be noted that the AO has sought to reopen the assessment on the ground that though in the return of income assessee did not claim the exemption on long term capital gain and though no revised return was filed, AO was not justified in granting exemption. However, it is required to be noted that after the original return of income was filed, the assessee submitted the revised computation of income claiming the exemption on LTCG. Thereafter, AO granted exemption. If that be so, it cannot be said that there was any failure on the part of the assessee in not disclosing true and correct facts necessary for the purpose of assessment. If, on the material on record, AO grants some benefit / exemption, that cannot be the ground to reopen the assessment beyond four years. A wrong grant of benefit / exemption by the AO cannot be the sole ground to reopen the assessment beyond four years for reopening of the assessment beyond four years. What is required is that there shall be non disclosure of true and correct facts by the assessee, which were required for assessment. Under the circumstances, without further entering into the larger question whether without filing the revised return of income and /or without claiming the exemption in the return of income whether such exemption can be allowed or not, on the aforesaid ground alone i.e on the ground that the conditions precedent, which are required under the provisions of Section 147 to reopen the assessment beyond the period of four years are not satisfied, the impugned reopening proceedings deserves to be quashed and set aside.

(See 2017-TIOL-21-HC-AHM-IT)