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Judgment
J.P. Devadhar, J.—Whether the Income Tax Appellate Tribunal was justified in holding that the reopening of the assessment in the case of the Assesses for assessment year 200102 was invalid is the question raised in this appeal.
The Assesses who is a nonresident, had filed its return of income on 22nd October 2001 declaring income of Rs. 138.96 crores. The assessment order u/s 143(3) of the Income Tax Act, 1961 (''Act'' for short) was passed on 25th March 2004, assessing the income at Rs. 142.85 crores.
Thereafter, by a notice dated 29th March 2006 the said assessment was sought to be reopened on the ground that the rate of tax on the long term capital gain of Rs. 142.85 crores was erroneously taxed at ten per cent u/s 112(1) of the Act, whereas it should have been taxed at the rate of twenty per cent. The Assesses objected to the reopening of the assessment. However, the assessing officer rejected the contention of the Assesses and held that the capital gains were liable to be taxed at the rate of twenty per cent. The appeal filed by the Assesses against the reassessment order was also dismissed by the Commissioner of Income Tax (Appeals). On further appeal, the Income Tax Appellate Tribunal by the impugned order dated 24th June 2009 held that the reopening of the assessment was bad in law. Challenging the aforesaid order, the present appeal is filed by the Revenue.
The reasons recorded by the Assessing Officer for reopening of the assessment reads thus:
In this case, the assessment u/s 143(3) was completed on 25032004 assessing the total income at Rs. 1,42,85,91,610/as against returned income of Rs. 1,38,96,03,850/which represents Long Term Capital Gain. The A.O. during the course of assessment proceedings, noticed that Assessor''s working of taxable capital gains is incorrect and accordingly worked out the taxable long term capital gains u/s 48(1)(1). The Ld. CIT (A) upheld the view taken by the Assessing Officer by holding that in the present case, cost of acquisition will be the cost at which the assets were required and No. indexation is to be allowed separately.
The said long term capital gain of Rs. 1,42,85,91,065/was taxed @ 10% as per provisions to Section 112(1). However, as per the provisions of Section 112(1)(c)(ii), the amount of income tax calculated on such long term capital gains should be at the rate of twenty percent, except as provided in the proviso below Section 112. The provisions of Section 112(1)(c)(ii) are reproduced herein under for reference:
Tax on long term capital gains:
112 (1) Where the total income of an Assesses includes any income arising from the transfer of a long term capital asset, which is chargeable under the head "Capital Gains", the tax payable by the Assesses on the total income shall be the aggregate of
(a)...
(b)...
(c) In the case of a nonresident (not being a company), or a foreign company,
(i)...
(ii) The amount of income tax calculated on such long term capital gains at the rate of twenty percent;
Therefore, I have reason to believe that the incorrect application of rate of tax has resulted in short levy of tax of Rs. 20,05,42,421/including interest of Rs. 5,76,83,260/under Section 234B. In other words, the income is escaped chargeable to tax to that extent. Accordingly, the assessment for A.Y. 200102 is being reopened and notices u/s 148 of the I.T. Act, is being issued.
From the aforesaid reasons, it is clear that the only reason for reopening the assessment was that u/s 112(1)(c)(ii) of the Act, the long term capital gains are liable to be taxed at twenty percent, where as, in the present case, the tax has been levied u/s 112 at ten per cent.
Section 112, to the extent relevant, reads thus:
Tax on long term capital gains.
(1) Where the total income of an Assesses includes any income, arising from the transfer of a long term capital asset, which is chargeable under the head "Capital gains", the tax payable by the Assesses on the total income shall be the aggregate of,
(a)...
(b)...
(c) In the case of a nonresident (not being a company) or a foreign company,
(i) the amount of income tax payable on the total income as reduced by the amount of such long term capital gains, had the total income as so reduced been its total income;
and
(ii) the amount of income tax calculated on such long term capital gains at the rate of twenty per cent;
(d)...
Provided, that where the tax payable in respect of any income arising from the transfer of a long term capital asset, being listed securities or unit or zero coupon bond, exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to Section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the Assesses.
Thus, u/s 112 of the Act the tax payable by a nonresident on long term capital gains is twenty per cent. However, the proviso to Section 112(1) provides that in cases specified therein the long term capital gains in excess of ten per cent shall be ignored. In the present case, the assessing officer in the original assessment order, after considering the second proviso to Section 48 of the Act has held that on the long term capital gains income, the Assesses is liable to pay tax at ten per cent. Obviously, the long term capital gains were taxed by the assessing officer at ten per cent by invoking the proviso to Section 112 of the Act.
The reasons recorded for reopening of the assessment, neither record that the proviso to Section 112 is not applicable to the case of the Assesses nor does it record that the long term capital gains earned by the Assesses do not fall in any of the categories specified in the proviso to Section 112 of the Act. Thus, the reasons recorded for reopening of the assessment merely states that u/s 112(1)(c)(ii), the long term capital gains tax payable by a nonresident is twenty per cent and does not find fault with the original assessment order, wherein ten per cent tax has been levied by invoking the proviso to Section 112 of the Act. Therefore, in the absence of any reasons recorded to the effect that the proviso to Section 112 is not applicable to the case of the Assesses or that the income of the Assesses does not fall in any of the categories specified in the proviso to Section 112, the reopening of the assessment cannot be said to be valid in law.
The argument of the learned Counsel for the Revenue was that the proviso to Section 112(1) refers to the second proviso to Section 48 and the second proviso to Section 48 is not applicable to a nonresident and, therefore, in the original assessment the proviso to Section 112(1) could not be invoked in the case of the Assesses. We see No. merit in the above contention, because, that was not the ground on which the assessment was sought to be reopened. The validity of the reopening of the assessment has to be judged on the basis of the reasons recorded for reopening of the assessment. If the reasons recorded do not even remotely suggest that the assessing officer was not justified in invoking the proviso to Section 112 of the Act, it would not be open to the Revenue to justify reopening of the assessment on the grounds which are not recorded in the reasons for reopening the assessment. In the present case, it is relevant to note that in the original assessment order, the assessing officer has specifically referred to the second proviso to Section 48 and thereafter applied the proviso to Section 112 of the Act. Assuming that the assessing officer was wrong in invoking the proviso to Section 112, in the absence of any reason recorded to the effect that the proviso to Section 112 has been wrongly invoked by the assessing officer, it cannot be said that the assessment has been validly reopened.
In these circumstances, we see No. merit in the appeal and the same is hereby dismissed with No. order as to costs.