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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-44, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-44/ACIT 32(3)/ITA 100/14-15 dated 09-09-2016. The Assessment was framed by the Assistant Commissioner of Income Tax, Circle 32(3), Mumbai (in short ACIT) for the assessment year 2007-08 vide order dated 30.01.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first issue in this appeal of Revenue is against the order of CIT(A) quashing the reassessment initiated under section 147 read with section 148 of the Act as bad in law. For this Revenue has raised following ground No. 1: -
1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in holding that reassessment order passed in the assessee's case u/s 143(3) r.w 147 on 30 01.2015, is bad in law and consequently annulling the same.”
Briefly stated facts are that for the relevant AY 2007-08, assessee filed its return of income on 31-10-2007. The assessee is engaged in the business of running clinic for health consultation under the name and style of ‘Kaya Kalp International’. The assessee filed return of income declaring the income under the head of business and profession of house property, other sources and short term capital gain in the year return of income for AY 2007-08. Original assessment was completed under section 143(3) by the AO vide order dated 30-11-2009. In the original assessment, income under the head of short term capital gain was assessed after making adjustments and subsequently, due to audit objection, the AO issued notice under section 148 of the Act dated 26-03- 2014 for the reason that income arising out of sale of shares should have been treated as business income instead of capital gain, which is declare by the assessee as capital gains. The copy of reasons recorded was supplied by the AO to the assessee vide letter dated 04-09-2014 and the relevant reasons recorded, as filed in assessee’s paper book at page 2, read as under: - “The assessee has filed return of income for A.Y. 2007-08 on 31.10.2007 declaring total income of Rs.1,28,77,180/-. The assessment u/s 143(3) was completed on 30.11.2009, determining total income of Rs. 1,33,75,740/-. The assessee is having income from Rent, Proprietary business and Short Term Capital Gain. During the year, assessee has shown Short Tent Capital Gain of Rs.83,27,560/-. Following details are filed regarding the Short Term Capital Gain earned by the assessee.
The STCG earned is by way of trading in 199 scripts.
2. The total number of transactions entered into during the year are more than 2000 Individual purchase and sale transactions.
3. Transactions have been entered into on particularly every working day.
The assessee has obtained finance of more than 2.10 crores for entering into these transactions from MIs. Nadi Finance & Investment Pvt. Ltd. Of which an amount of Rs.63.86 Lacs is outstanding on 31.t March, 2007.
S. The assessee has also taken loans amounting to Rs.1.20 crores from friends and relatives out of which an amount of Rs.43.60 Lacs is outstanding as on 31.03.2007.
6. The assessee has also entered into F& 0 transactions during the year the loss from which amounting to Rs. 1.30 Lacs has been claimed as a business toss.
7. The assessee has entered into share transaction with S different share brokers.
The maximum no of shares purchased are held for period less than 30 days.
No significant amount of dividend has been earned from the shares purchased.
From the given above facts it is clear that the assessee is indulging in trading of shares. Therefore, the income should have been shown as business income instead of Capital Gain.
Therefore, within the meaning of c(ii) of Explanation 2 of section 147, this is a case where income chargeable to tax has escaped assessment because such income of Rs.77,87,634/-(after deducting expenses of Rs.4,86,205/- & brought forward toss of Rs. 53,721/- from Rs.83,27,560/-) has been assessed at too low a rate for A.Y.2007- 08.
I am submitting a proposal in the prescribed pro- forma for your kind perusal and approval as per the provisions of Section 151(1) of the IT Act, 1961 for issue of notice u/s. 148 for A.Y. 2007-08.”
4. The AO completed the assessment treated the capital gain declared by assessee as business income amounting to ₹ 77,87,634/- as against the short term capital gain declared by assessee as ₹ 83,27,560/- . Before the AO as well as before CIT(A), the assessee challenged the re-opening and stated that the original assessment was completed under section 143(3) of the Act and the AO assessed the gain earned by assessee on share transactions as capital gain and all the detail of share transactions were filed during the assessment proceedings and in response to specific query as to why the gain earned by the assessee should not be assessee as business income, assessee filed its submission during the course of original assessment proceedings. The CIT(A) noted this fact that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for it assessment in for the relevant AY 2007-08 and hence, he quashed the reassessment by observing in Para 6.3 to 6.7 as under: - “6.3 In the present case it is an indisputable fact that original assessment was completed under section 143(3) of the Income Tax Act vide order dated 30.11.2009. It is seen from a perusal of the assessment order that the assessing officer had assessed short-term capital gain arising out of sale of shares. In this situation it needs to be examined whether during the course of original assessment specific submission of details related with the issue raised in the reason recorded was made by the appellant. It is seen from record that at the time of original assessment proceedings the appellant had filed note which describes in detail as to how the income arising out of sale of shares should be treated as short-term capital gain and not as business income. This is a detailed note consisting of 3 pages and the heading of the note itself says "detailed note on share transactions, whether capital gain or business." It has been accepted by the AO during remand proceedings that this note was submitted by the appellant on 27.11.2009 during the course of original assessment proceedings.
6.4 It is also seen from the facts of the case that reason to believe for issue of notice was based on audit objection. It is also worthwhile to mention here that the reason recorded by the assessing officer does not at all mention that income has escaped assessment because of failure of the assessee to disclose fully and truly all material facts. The substantive and procedural requirement for reopening of assessment has been clarified in many judgements of various high Courts and Tribunals. It has been repeatedly laid down by the courts, that if original assessment has been completed u/s 143(3) and where a notice is issued after four years, there should be an averment in the reasons recorded, that there was failure on the part of the assesse to disclose fully and truly material facts. In absence of such averment, jurisdiction will fail as was decided in Agilsys IT Services India P. Ltd. V. ITO (2013) 27 ITS (Trib) 244 (Mumbai) following Asst. CIT v. ICICI Securities Primary Dealership Ltd. (2012)348 ITR 299(SC), ICICI Bank Ltd. V. K.J Rao (2004) 268 ITR 203 (Bom), CIT v. Viniyas Finance and Investment P. Ltd. (2013) 357 ITS 646 (Del) and Hindustan Lever Ltd. V. R.B. Walkar, Asst. CIT (2004) 268 ITR 332(Bom).
6.5 The substantive position of law as given in the proviso to section 147 has been clarified in a number of judgements by various high courts and even by the supreme court of India. It is an accepted position of law that wherever the notice u/s 148 has been issued after four years from the end of assessment year seeking to reopen an assessment which has been completed u/s 143(3), the escapement of income has to be attributable to failure on part of assessee to disclose all material facts. Unless this is done the view taken by the AO on a subsequent assessment will be a mere change of opinion. Such change of opinion cannot be a reason to reopen as has been decided by the honorable supreme court of India in the case of CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561. It has been held by the jurisdictional Bombay high court in the case of United Shippers Ltd. v. ACIT 371 ITR 441(2015) that in absence of any failure on part of assessee to make full and true disclosure of all material facts the AO cannot initiate reassessment proceedings after expiry of 4 years from end of the relevant assessment year merely on the basis of change of opinion.
6.6 Similar view have been expressed by the jurisdictional high court in many cases and also by many other high courts on this issue. For example, by the Delhi high court in the case of NTPC Ltd. v. DCIT 360 ITR 380, by the Gujarat high court in the case of E-Info Chip v. DCIT 231 Taxman 838, by the Bombay High Court in the case of Bharat Jayantilal Patel v. Union of India 233 Taxman 98.
6.7 In the present case it has been argued by the AO that there was no change of opinion because the AO finalizing the original assessment had not formed any opinion on the reason recorded for reassessment. It is the contention of the AO that when the AO fails to examine a subject matter fully, he forms no opinion. The AO had also cited judgement given by the Delhi High court in the case of CIT v. Usha International. Ltd. wherein it was observed that the expression "change of opinion" postulates the formation of an opinion and then a change thereof. However, it is not correct to say that in the original assessment order the AO had not formed any opinion. In the assessment order u/s 143(3) dtd 13.11.2009, the AO has made a specific comment on computation of short term capital gain in para 4 of assessment order which is reproduced below for reference:
The assessee has claimed delay payment charges of Rs.3,51,4501- and membership/ subscription charges of Rs. 1,27,100/- against short term capital gain on sale of shares. The same are not allowable against capital gains under the provisions of s the Income Tax Act, 1961 and are thus disallowed.”
Finally, the CIT(A) concluded that the re-assessment order dated 30-01-2015 passed under section 143(3) read with section 147 of the Act is bad in law. Aggrieved, now Revenue is in second appeal before Tribunal
We have heard the rival contentions and gone through the facts and circumstances of the case. When a query was put to the learned Sr. Departmental Representative, he could not point out what is the failure of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year. And he could not answer the same. We have gone through the reasons recorded, which are already reproduced above, clearly states that the AO is reappraising the earlier completed assessment wherein the AO has already considered the issue of capital gains on the share transactions. The assessee in its paper book filed a detail note at pages 10 to 12, which was filed by assessee during the original assessment proceedings under letter dated 27-11-2009 as taxability of income under the head of capital gains vis-à- vis business income, wherein the assessee has clearly spelt out the nature of business and nature of share transactions regarding capital gain. It means that the AO during the course of original assessment proceeding, has gone through all the details and assessee has filed complete particulars. Hence, in our view there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the relevant AY 2007-08. Once, there is no failure, no reopening can be done under section 147 of the Act in view of the proviso to section 147 of the Act beyond four years. Admittedly, the Assessment Year is 2007-08 and notice under section 148 of the Act was issued dated 26-03-2014, which is beyond 4 years and original assessment was completed under section 143(3) after due deliberations. Even in the reasons recorded, there is no allegation by the Revenue that there is failure on the part of the assessee to disclose fully and truly all material facts relating to the assessment for the relevant assessment year. In view of the above, we affirm the order of CIT(A) and dismiss this issue of Revenue’s appeal. Once, we have adjudicated the issue of jurisdiction and confirmed the order of CIT(A), questioned the assessment, we need not go into the merits of the case. The appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 24-01-2018.