Long-Term Capital Gains Exempted From Income Tax, Non-Disclosure Doesn't Amount To Loss Of Revenue: Gauhati High Court
The Gauhati High Court has held that the long-term capital gains are exempt from income tax, and the non-disclosure while computing the long-term capital gains cannot result in causing prejudice to the department.The bench of Justice Kaushik Goswami has observed that the Principal Commissioner of Income Tax has initiated the proceedings simply on the basis of the proposal of the...
The Gauhati High Court has held that the long-term capital gains are exempt from income tax, and the non-disclosure while computing the long-term capital gains cannot result in causing prejudice to the department.
The bench of Justice Kaushik Goswami has observed that the Principal Commissioner of Income Tax has initiated the proceedings simply on the basis of the proposal of the subordinate authority and has not applied his mind after perusal of the records called for by him, and the very initiation of the proceeding is illegal, without jurisdiction, and not tenable in law.
The petitioner/assessee has filed its original return for the assessment year 2017–18, declaring a total income. Later on, the case of the petitioner was selected for “limited scrutiny” under Computer-Assisted Scrutiny Selection (CASS). During the course of the assessment proceedings, a show cause notice dated September 29, 2018 was issued by the then-assessing officer, and it was duly replied to by the petitioner. The then-assessing officer passed the final assessment, accepting the returned income.
However, after completion of the assessment, the respondent directed the petitioner to show cause as to why the order should not be passed under Section 263 for revision of the assessment order passed by the then-assessing officer.
The only allegation made in the Show Cause Notice was that an amount of Rs. 5,30,257 only being the difference between long-term capital gains from the sale of shares credit at Rs. 36,89,039 only shown in the computation of income at Rs. 31,58,782 only had not been brought to tax in the original assessment proceedings under Section 143(3).
By Show Cause Notice, the petitioner was directed to furnish a reply and appear for hearing by giving only one day to the petitioner to respond to the notice. Due to such a short span of time, the petitioner could not attend the show cause notice. The respondent held that the assessment order was erroneous and prejudicial to the interests of the revenue.
The assessee contended that the power of suo moto revision under Section 263 is in the nature of supervisory jurisdiction, and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of suo moto revision under Section 263: the order is erroneous, and by virtue of the order being erroneous, prejudice has been caused to the interest of revenue. There must be material available on record called for by the Commissioner to satisfy him prima facie that the two requisites are present. If the two conditions are not present, the Commissioner shall have no authority to initiate proceedings under Section 263 inasmuch as exercise of powers under Section 263 for suo moto revision under such circumstances will amount to arbitrary exercise of powers.
The department contended that the petitioner filed his return of income for the assessment year 2017-18, declaring a total income of Rs. 43,95,310 only. In the capital account, an amount of Rs. 36,89,039 only was shown as long-term profit on the sale of shares, while in the computation sheet, an amount of Rs. 31,15,782 only has been claimed as exempt under Section 10(38), leaving a discrepancy of Rs. 5,30,257 only, which was not offered to tax.
The issue raised was whether the assessment order can be said to be erroneous and prejudicial to the interest of the revenue for non-disclosure as long-term profit in the computation sheet, though it is shown in the capital account, warranting exercise of revisional jurisdiction under Section 263.
The court noted that the suo moto revision proceedings under Section 263 can be exercised only when the Revisional Authority considers the Assessment Order to be erroneous in so far as the same is prejudicial to the interest of revenue. Thus, merely if the assessment order is erroneously done is not sufficient for exercising revisional jurisdictional power unless and until it is prejudicial to the interest of revenue.
The court held that in the absence of any prejudice being caused to the revenue, the impugned proceedings initiated under Section 263 are wholly without jurisdiction, illegal, and erroneous. Therefore, it is bad-in-law. Hence, the impugned ex-parte order is unsustainable in law.
Counsel For Petitioner: A. Saraf
Counsel For Respondent: S. Chetia
Case Title: Karan Jain Versus The Union Of India
Case Citation: 2024 LiveLaw (Gau) 30
Case No.: Case No. : WP(C)/3999/2021