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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
The assessee has filed this appeal challenging the order dated 15-11-2016 passed by Ld CIT(A)-3, Mumbai for assessment year 2007-08, wherein he has confirmed the re-opening of assessment and also assessment of Short term capital gain arising on sale of shares as business income of the assessee.
The assessee company is an investment company. Its assessment for the year under consideration was completed u/s 143(3) of the Act on 06-11-2009 accepting the Short term capital gains declared by the assessee. Thereafter, the AO reopened the assessment by issuing notice u/s 148 dated 29-03-2012 by recording following reasons:- “It is observed that the assessee is only engaged in the business of share trading and regularly doing purchase and sale of shares. The assessee has manipulated the affairs in such a way that where script has been sold
2 M/s. Abhishek Securities Limited (Now Known as XIO Financial Services Ltd.) within twelve months, it is claimed as short term capital gains and taxed at a lower rate by applying section 111A. As assessee is engaged in share trading activity only, all the income/receipts should be treated as business income including short term capital and long term capital gain. Reliance is also placed on the Board’s Circular No.4 dated 15.6.2007.
In view of the above, I have reason to believe that income chargeable to tax has escaped assessment for AY 2007-08 by reason of the failure on part of the assessee to disclose fully and truly the income under the correct head and all material facts necessary for the assessment of income, resulting in the income being assessed at low rate/claimed exempt.”
Accordingly the AO assessed the Short term capital gains as business of the assessee in the reopened assessment.
The Ld A.R submitted that the AO has reopened the assessment after expiry of four years from the end of the assessment year. He submitted that the assessee had submitted all the details relating to Short term capital gains during the course of original assessment proceedings, which were accepted by the AO. Accordingly he submitted that there is no truth in the allegation of the assessing officer that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. He submitted that the assessing officer’s allegation that the assessee has manipulated the affairs is a wild allegation. He submitted that there was no failure on the part of the assessee to disclose all the materials relating to the short term capital gains. He also submitted that the change of “head of income” would result in change in computation of tax only and the same would not result in any “escapement of income” as contemplated u/s 148 of the Act. He submitted that the AO has not brought any new tangible material on record to support his opinion. In any case, it is a clear case of change of opinion and hence the reopening of assessment is not valid in the eyes of law as held by the co-ordinate benches in 3 M/s. Abhishek Securities Limited (Now Known as XIO Financial Services Ltd.)
the following cases, wherein the decision rendered by the Hon’ble Delhi High Court in the case of Kelvinator India Ltd (320 ITR 561) and other decisions have been followed:- (a) Motilal R Todi Vs. ACIT (ITA No.2910/Mum/2013 dated 22-09-15) (b) ACIT Vs. Reliance Industrial Infrastructure (ITA No.5972/M/2012 dated 23-09-2015).
On the contrary, the Ld D.R strongly placed reliance on the decision rendered by Ld CIT(A), wherein the Ld CIT(A) had held that the AO has reopened the assessment on proper reasons.
I heard the parties and perused the record. I find merit in the contentions of the assessee. The reopening has been done after expiry of four year from the end of the assessment year. Even though the AO has recorded that there was failure on the part of the assessee to disclose fully and truly all the material facts, yet he has not specified the facts, which were not disclosed during the course of original assessment proceedings. I notice that the AO has reopened the assessment only to change the head of income, i.e., the assessing officer has proposed to assess the gains arising from sale of shares under the head “Business income” instead of “Capital gains”. I find merit in the contentions of the assessee that mere change in head of income would not result in any escapement of income as contemplated u/s 147 of the Act. The AO has also not brought on record any fresh material to support his view that there was manipulation as specified in the reasons for reopening. When the Long term capital gain is exempt from taxation, I am unable to understand as to why a prudent business man should manipulate his affairs to sell the shares before the expiry of one year and pay tax on the gain? Instead he will wait for one year and avoid tax. Hence I am of the view that the said allegation of the AO was wild guess and the same cannot be considered to be “a valid reason” for 4 M/s. Abhishek Securities Limited (Now Known as XIO Financial Services Ltd.)
reopening of assessment. In any case, the short term capital gain declared by the assessee has been accepted in the original assessment proceedings, wherein the assessee had furnished all the details relating to the same. Accordingly, I am of the view that the AO has reopened the assessment merely on change of opinion and also without any valid reasons. The case laws referred above, support the case of the assessee. Accordingly I am unable to agree with the order passed by Ld CIT(A) on this issue.
Accordingly I set aside the order passed by Ld CIT(A) and hold that the reopening is bad in law. Accordingly the impugned assessment order is liable to quashed. I order accordingly. In view of the above, there is no necessity to dispose the grounds urged on merits.
In the result, the appeal of the assessee is allowed. Order has been pronounced in the Court on 4.5.2017.