If there is no failure on the part of assessee to disclose income, there was no escapement of income

CIT Vs. Bhushan Capital and Credits Services Ltd. ITA No. 751/2011, Date of Decision: 01-02-2013, High Court of Delhi

We find from a perusal of the assessment order that the assessee had declared the amount of Rs. 5,10,130/- in its return of income as short term capital gains on sale of shares. In the reopened assessment, the AO has  taken the view that the amount in fact did not represent any capital gains on sale of shares, but represented the undisclosed income of the assessee brought in by means of an accommodation entry given by My Money Security Pvt. Ltd. Accordingly he brought the amount to tax with the narration undisclosed income introduced under guise of short term capital gains. The fact however remains that the amount had been declared in the return of income as capital gains and what the AO did was only to change the nomenclature from “capital gains” to “undisclosed income”. The assessment has been reopened after a lapse of about 8 years from the end of the relevant assessment year as noted by the Tribunal in paragraph 10 of the impugned order. If the assessment is sought to be reopened after a period of four years from the end of the relevant assessment year, it is incumbent upon the AO, under the first proviso to section 147, to show that the escapement of income was on account of failure of the assessee to file the return of income or to furnish fully and truly all material facts relating to the assessment. As we have already noted, according to the revenue the assessee had declared the amount of Rs.5,10,130/- as capital gains in the return of income. There was thus no failure to disclose the income. Consequently, there is no  escapement of income. The change of the nomenclature from “capital gains” to “undisclosed income” does not result in any escapement of income since the rate of tax is the same under both heads. In the relevant assessment year, there was no difference in the rate of tax applicable to capital gains. Therefore, neither is there any escapement of income nor is there any under assessment. It is not a case covered by special sub-clause (ii) of clause (c) of Explanation (2) below section 147 which speaks of the income being assessed at too low a rate. The primary condition for invoking section 147 is that there should be escapement of income. It appears to us from the facts of the case that there was no escapement of income chargeable to tax. In this view of the matter, we find no infirmity in the ultimate decision of the Tribunal that the reassessment was without jurisdiction. No substantial question of law arises from the order of the Tribunal. Both the appeals of the revenue in ITA Nos. 1462 and 1463 of 2010 are accordingly dismissed with no order as to costs.