INCOME TAX OFFICER-WARD-7(1), KOLKATA, KOLKATA vs. M/S ASKA INVESTMENTS PVT. LTD., KOLKATA

This appeal by the Revenue is directed against the order dated 02-09-2013 of the Commissioner of Income Tax(Appeals),XXXII, Kolkata for the assessment year 2004-05.

Abirchand Firm v. CIT (SC) 70 ITR 74, thereby, making the deletion of perverse, unlawful and unjustified.

"On scrutiny of records, it appears from the Profit & Loss Account that the assessee debited a sum of Rs.56,11,539.85 as "Loss on sale of Share" and the same was allowed in the assessment. It was also noticed from the Tax Audit Report of the assessee company was engaged in Financing and not dealing in trading of share shown as opening stock, purchase, sales and closing stock of shares in the assessee for the Financial Year 2003-2004. It was also seen from the assessment record that assessee was a frequent purchaser and seller of shares which was not at all a part of its business. Only the total loss on sale of share was shown in the Profit & loss on sale of share as claimed by the assessee was allowed at the time of assessment.

I have reason to believe that the wrong claim of loss on sale of shares, chargeable to tax has escaped assessment within the meaning of Section 147 of the 1. T. Act, 1961."

5. The AO was of the view that the Assesee treated loss on shares separately in all the subsequent year A.Y’s 2005-06, 2006-07 and 2007-08 and shown as Long Term Capital Loss in the Computation of Income and sought no set off against business income in such A.Y’s. The claim of loss of M/s. Aska Investments Pvt.Ltd 2 Rs.56,11,539.85 was disallowed. The relevant portion of which is reproduced herein below:

The assessee maintained that the said loss of Rs.56,11,539.85 which was adjusted against the business income was a business loss and not loss on Short Term Transactions in shares because they treat the said activity as their business. However, in order to determine the true nature of assessee's business in shares, it is pertinent to take a look at the treatment, it has made to gains/losses in shares in other years. From the perusal of records available with this office, it is found that in all the subsequent years, that is, Assessment Years 2005-06, 2006-07 and 2007-08, the loss on shares have been shown separately in the Computation of Income as Long Term Capital Loss and have not been set off against business income. The assessee has not even been maintaining different portfolios for investment and trading. In the light of these facts, it can not be held that assessee has been treating the same as absolutely business transactions. Thus the loss of Rs.56,11,539.85 can not be adjusted against the business income of the assessee, and are disallowed.

"The company was surprised to receive another notice U/s. 148 dt.02/12/2008 for alleged escapement of income resulting from loss on sale of shares to the extent of Rs.56,11,540/- which was debited in the P&L A/c and allowed earlier. The appellant contested the initiation of reassessment proceeding through written reply dated 09/12/2008 and requested to treat the earlier return as a return U/s.147. In response to statutory notices VIs 143(2) & 142(1), the company reiterated its stand regarding invalid assumption of jurisdiction U/s. 147 and submitted written explanation pointing out the factual as well as legal position with supporting documents. In the background of above facts on record, we make detailed submissions on various grounds. Ground No. 1 (a) to 1 (c) All these grounds have been preferred to contest the invalid assumption of jurisdiction U/s. 147 of the Act. The re- assessment proceeding initiated through issue of notice Uls.148 dt. 011212008 is ab-inito void and without valid assumption of jurisdiction for reasons explained below: . (1) The power conferred by Section 147 and 148 is not unbridled one. It is hedged with several safe guards conceived M/s. Aska Investments Pvt.Ltd 3 in the interest of eliminating room for abuse of this power by the Assessing Officer. Reliance is placed to the decision in Sri Krishna (P) Ltd -vs- CIT,221 ITR 538 (SC). (2) The powers of the Assessing Officer to reopen assessment though wide are not plenary. The words of the statute are 'reason to believe' and not 'reason to suspect '. The belief entertained by Assessing Officer must not be arbitrary or irrational. It must be based on reasons which are relevant and material. (3) The expression 'reason to believe' must be in good faith; it cannot merely be q pretence as opined in the case of S. Narayanappa -vs-CIT,63 ITR 219 (SC). (4) The words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds but not on mere suspicion, gossip or rumor. (5) Without prejudice to the above, we like to add that Ld. A.O. has exceeded his jurisdictional limit to initiate proceeding U/s. 147 for the second time on 02/12/2008 by mere change of opinion. This is not permitted in law. In this context, we invite your attention to the decision of Apex Court in the case of CIT- vs-BHanji Lavji reported at 79ITR 582 (SC). So far as factual position to suggest that re-assessment proceeding was initiated on mere change of opinion, we like to draw your attention to letter No. 41 dated 1610512006 (Copy enclosed) issued by the previous officer in course of earlier re- assessment proceeding. In the said letter No. 41 dtd. 16/05/2006, Assessing officer asked for specific particulars and the query remained as under:

The above query was complied by the appellant company vide letter dated 08/-8/2006 ( copy enclosed). The then AO was satisfied with the details and documents and allowed such loss while making re-assessment U/s.143(3)/147 on 27/11/2006 except loss of Rs.7,617/- which was held as long term loss. In view of the factual and legal position explained above, we sincerely believe that Your Honour may not hesitate that the re-assessment proceeding initiated for the second time on 02/12/2008 is void and not maintainable in law.”

M/s. Aska Investments Pvt.Ltd 4

As the facts of the present case leave no doubt that the AO. had specifically raised the issue of Loss on Sale of Shares in the first reassessment order, the second reassessment order is nothing but a change of opinion as explained in the various decisions above. Therefore the assessee's Ground of Appeal No I (a), l(b) & l(c) are allowed and the second reassessment order is held to be invalid and is cancelled.

9. Heard rival submissions and perused the relevant material on record. We find that the original assessment order was completed U/Sec 147 r/w 143(3) of the Act. In such proceedings the AO found from profit & loss account and raised a doubt how the assessee suffered loss when it sold shares valuing of Rs.11,59,207/- and when no purchase and sale activity disclosed in the profit & loss account. Accordingly the AO, the ACIT, Circle-7 had issued a questionnaire U/S 142(1) vide letter F.No. ACIT/Cir- 7/Kol/AACCA1005C/2006-07/41 dated 16-5-06. The assessee replied vide letter dated12.05.06 mentioning that it also deals in share and securities and does sales & purchase in capital market and submitted the details of shares sale, purchase & loss. The AO examined and verified such details of share transactions giving quantity and rates of opening stock, inward & outward transactions and profit/loss. The AO also conducted inquires from the share brokers Shri N. M. Lohia & Smt Renu Poddar u/s 133(6) M/s. Aska Investments Pvt.Ltd 5 of the Act AND accepted the contentions of assessee and held that a loss of Rs. 7,617/- as long term capital loss on sale of shares and passed reassessment order u/s 147/143(3) to that effect on 27.11.06. These are the facts are admitted and undisputed by the parties. It is also noticed from the record that, in spite of, objections raised by the Assessee, the AO did not refer to the same in 2nd reassessment proceedings and made an addition of Rs.56,11,539/- without any basis, in our opinion, is a change of opinion when all the details were provided under 142(1) of the Act in the 1st reassessment proceedings. In this regard we may refer to the decision of Hon’ble High Court in the case of Tupperware India P.Ltd (supra) is squarely applicable. The relevant finding of which is reproduced herein below for better understanding:-

“12. At the outset it requires to be factually noticed that the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have ‘reasons to believe that the income had escaped assessment.”