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Income Tax Appellate Tribunal, ‘A’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
Grounds taken by the assessee in this appeal which is against an order dated 18.11.2016 of ld. Commissioner of Income Tax (Appeals)-4, Chennai read as under: -
1. 1. The order of the Commissioner of Incometax (Appeals) is contrary to law, facts and circumstances of the case.
2. The Commissioner of Income tax (Appeals) erred in ITA No. 206/Mds/2017 :- 2 -: confirming the reopening the assessment u/s 147 by issuing notice u/s 148 on 31.03.2012.
2.1· The Commissioner of Income tax (Appeals) ought to have appreciated that the erstwhile partnership firm was dissolved during the year 2005; hence no return was filed for this assessment year. Issuing notice u/s 148 in the name of dissolved firm which was not served on assesse as per the time limit prescribed u/s 149 is bad in law and deserved to be quashed.
3. The Commissioner of Income tax (Appeals) erred in holding that amount of Rs.49,42,821 / - would be taxable as short term capital gain and there will be no cost of acquisition being bonus units. 3.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the above investment in Sundaram Mutual Fund is nothing but a switch over from an already existing investment in Sundaram Mutual Fund. Hence. cannot be taxable as short term capital gain. 3.2 The Commissioner of Incometax (Appeals) erred in holding that the provisions of Section 94(8) will not be applicable for the assessment year 2005- 06, being the year under appeal.
4. The Appellant craves leave to file additional grounds at the time of hearing’’.
It is clear from the above grounds that assessee is challenging the reopening of assessment done for the impugned assessment year and also assailing merits of an addition of Rs.49,42,821/- made under the head ‘’ short term capital gains’’.
Facts apropos are that assessee was issued notice u/s. 148 of the Income Tax Act, 1961 (in short ‘’the Act’’) on 31.03.2012 for the impugned assessment year, since it had not filed its return of ITA No. 206/Mds/2017 :- 3 -:
income within the time allowed under section 139 of the Act. Ld. Assessing Officer was having information that assessee had paid Rs.49,42,821/- for purchasing mutual fund units during the relevant previous year. The notice issued was returned back on 02.04.2012 with remarks that assessee had ‘’left’’. Thereafter the notice was served by affixture on the very same address. Subsequently, a show cause notice dated 06.12.2012 was issued to one of the partners of the assessee firm, who informed the Revenue that assessee firm stood dissolved on 31.03.2005. It was also informed that investment of Rs.49,42,821/- made in M/s.Sundram Mutual Fund during the relevant previous year was by exercise of ‘’Switch-in Switch Out’’ option of a primary investment made during the preceding financial year.
However, ld. Assessing Officer took a view that assessee was unable to support its claim with any evidence. An addition of Rs.49,42,821/- was made u/s. 69 of the Act considering the units as unexplained investments.
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). Contention of the assessee was that reopening done was invalid. According to the assessee, notice on the dissolved firm was not issued and served within the time prescribed u/s. 149 of the Act. On merits, it was argued that it had ITA No. 206/Mds/2017 :- 4 -:
initially subscribed to Sundaram Bond Saver Inst (Principal units) on 18.03.2004 for a value of Rs.1,00,00,000/-. As per the assessee on the said units, the mutual fund issued bonus units in March, 2004.
Such bonus units, as per the assessee was treated as dividend income for assessment year 2004-2005. Assessee pointed out that ld. Assessing Officer had applied Sec. 94(7) of the Act while doing the assessment for assessment year 2004-2005 and the loss incurred in sale of original units was disallowed, in the said year. Contention of the assessee was that there was no fresh investment done during the relevant previous year.
Ld. Commissioner of Income Tax (Appeals) after going through the objections of the assessee held that notice issued on 31.03.2012, last day of the six year period allowed u/s.149 of the Act, was a valid one relying on the judgment of Hon’ble Apex Court in the case of R.K. Upadhyaya vs. Shanabhai P. Patel 166 ITR 163. Viz-a- viz contention of the assessee was that there were no investments in units during the relevant previous year. Ld. Commissioner of Income Tax (Appeals) noted that even if this claim was accepted, assessee having switched out of the scheme on 28.09.2004, the whole of the sum was nothing but short term capital asset. He therefore upheld the ITA No. 206/Mds/2017 :- 5 -:
addition made by the ld. Assessing Officer, though under a different head namely ‘short term capital gains’.
Now before me, ld. Authorised Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that notice u/s.148 of the Act was issued on 31.03.2012 which was the last day of the six year period allowed u/s. 149 of the Act. As per ld. Authorised Representative the said notice was never served on the assessee. Service affected by affixture was after 31.03.2012 and hence according to him, reopening was done after statutorily allowed period. According to him the reopening done for the impugned assessment year was invalid.
Viz-a-viz treatment for the sum of Rs.49,42,821/-, as short 6. term capital gains, contention of the ld. Authorised Representative was that though the assessee had switched out of M/s. Sundraram Bond Saver Inst (Bonus units) on 28.09.2004, the resulting receipts of could not considered as short terms capital gains. According to him, in the immediately preceding assessment year, viz, assessment year 2004-05, short term capital loss arising on sale of the original units were not allowed to be carried forward, by applying Sec. 94(7) of the Act. As per ld. Authorised Representative the value of the bonus units were set off against such capital loss. Thus, according to him, bonus
ITA No. 206/Mds/2017 :- 6 -: units had a value of Rs.49,42,821/- equivalent to the loss set off, by application of Sec. 94(7) of the Act, in assessment year 2004-2005.
Once this cost was considered as per ld. Authorised Representative, there would be no short term capital gains for assessee.
Per contra, ld. Departmental Representative strongly 7.
supported the orders of the authorities below.
I have considered the rival contentions and perused the 8. orders of the authorities below. First contention of the ld. Authorised Representative is that the reassessment proceedings were invalid, notice having being issued and served beyond the time limit prescribed u/s. 149 of the Act. What I find is that the terminology used in Sub Section (1) of Sec. 149 of the Act is ‘’issued’’ and not ‘’served’’. Admittedly, notice was issued on 31.03.2012, which was within the six year period allowed under said section. Hence, in my opinion, ld. Commissioner of Income Tax (Appeals) was justified in relying on the judgment of Hon’ble Apex Court in the case of R.K.
Upadhyaya vs. Shanabhai P. Patel (supra) and holding that notice having issued within statutorily allowed time period, the reassessment was valid.
ITA No. 206/Mds/2017 :- 7 -:
Coming to the merits of the addition sustained by the ld. Commissioner of Income Tax (Appeals) under short term capital gains, though originally done by the ld. Assessing Officer u/s. 69 of the Act, assessee has filed copy of the accounts statement for its investment in Sundaram Bond Saver Inst Bonus (Principal units) as well as Sundaram Bond Saver Inst. Bonus (Bonus Units). There is no dispute that bonus units were issued to the assessee on 23.03.2004. There is also no dispute that ld. Assessing Officer had applied Sec. 94(7) of the Act in the assessment year 2004-2005. The relevant para of the assessment order for assessment year 2004-05 is reproduced hereunder:-
‘’The assessee has claimed a Short term capital gain of Rs.49,97,835/-- on account of the sale of Sundaram Mutual Fund Units, Relevant details of the purchase and sale of these Units have been brought on record. Accordingly, these Units were purchased just before the date of dividend declaration and the sale of these Units is immediately after the dividend declaration date. The dividend realised in the form or bonus Units allotted, The Bonus units allotted . are still retained by the assessee . However, the assessee has sold the original Units purchased 'by it. The purchase Value of these Units was Rs.l crore and sale value of these Units was Rs.50,02)64/-. Thus-the term capital loss of short Rs.49,97,835/- has been claimed by the assessee. Atthough, .this loss have not been set off against the other income during the year, a carry forward of this loss has been claimed by the assessee as per the Return of Income filed by it. On the facts of the 'case as. narrated above,' the provision of Sec.94(7) of the IT Act are squarely applicable to the case of the assessee. In view of this, the entire short term loss incurred by the assessee on account of these transactions in Sundaram Mutual
ITA No. 206/Mds/2017 :- 8 -:
Fund Units would be totally ignored and no carry forward of such loss would be allowed to the assessee’’.
However, what I find is that sub clause (b) of sub section (7) of Section 94 of the Act was substituted w.e.f. 01.04.2005 by Finance Act No.2, 2004. Obviously, ld. Assessing Officer could not have applied the said clause in assessment year 2004-2005. It may be true that the assessee had not filed any appeal against such order for assessment year 2004-05, nor Revenue initiated any rectification proceeding. Nevertheless, application of a provision which is not in the statute will not in my opinion cloth, the bonus units allotted on 22.03.2004 with any value. At this juncture, it will be apposite to reproduce Sec. 55(2) sub clause (aa) of the Act.
‘’(aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee-- (A) becomes entitled to subscribe to any additional financial asset ; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b)-- (i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset ;
ITA No. 206/Mds/2017 :- 9 -:
(ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee ; (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; (iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; and (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset ; Where a financial asset is allocated to a assessee without any payment, on the basis of holding of any other asset, the cost of the former has to be taken as Nil. In such circumstances, cost of the units received as bonus on 23.03.2004 was rightly considered by the ld. Commissioner of Income Tax (Appeals) as Nil. Since assessee switched out of the said units on 22.09.2004 and received a sum Rs.49,48,821/-, the said sum was, in my opinion rightly considered as short term capital gains. I do not find any reason to interfere with the ITA No. 206/Mds/2017 :- 10 -: order of the ld. Commissioner of Income Tax (Appeals).
In the result, the appeal of the assessee stands dismissed. 10.
Order pronounced on Wednesday, the 31st day of May, 2017, at Chennai.