ARCHWAY INVESTMENT COMPANY LTD,MUMBAI vs. ITO 2(1)(1), MUMBAI

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ITA 5829/MUM/2011Status: DisposedITAT Mumbai08 July 2016AY 2005-064 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the reopening of assessment was based on a change of opinion, as the information regarding the share transactions and the claim of loss was already available to the AO during the original assessment. Therefore, the reopening was bad in law.

What were the facts?

The assessee claimed a loss on sale of equity shares against short-term capital gains. The Assessing Officer (AO) reopened the assessment, believing income had escaped due to this claim being speculative. The assessee argued that all relevant information was available during the original assessment.

What were the issues?

Whether the reopening of assessment under Section 147/148 was valid when the Assessing Officer had already considered the relevant information during the original assessment, indicating a change of opinion.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(3),Section 73

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

For Appellant: Shri Ronak G. Doshi, AR
For Respondent: Shri S. C. Tiwari, DR

This appeal by the assessee is arising out of the order of CIT (A)-4 Mumbai vide appeal No. CIT (A) -4/IT-50/DC.2(1)/2010-11, dated 14-04-2011. Re-assessment was framed by the DCIT, Circle-2(1), Mumbai for assessment year 2005-06 vide his order dated 20-08-2010 u/s 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). Original assessment was completed by the ACIT (OSD)-2, City-2, Mumbai for assessment year 2005-06 vide his order dated 28-07-2007 u/s 143 (3) of the Act.

2.

The only issue in this appeal of the assessee is against assumption of jurisdiction by the AO u/s 148 r.w.s. 147 of the Act for reopening of assessment on change of opinion.

3.

Brief facts relating to the above issue are that the assessee is a private limited company engaged in the business of investment activities. Original assessment was completed under section 143 (3) of the Act vide order dated 28.12.2007. Subsequently, the assessing officer recorded reasons for reopening of assessment in assessee’s case by issuing notice under section 148 of the act. The reasons recorded by the AO reads as under:-

“In this case, assessment was completed u/s.143(3) of the IT Act on 28.12.2015 assessing total income at Rs. 27,75,130/-. On further verification of records, it was noticed that the assessee has shown short-term capital gain of Rs. 40,09,782/-. Out of that of Rs. 18,00,160/-towards purchase and sale of shares through broker viz., Bombay Capital Services had been claimed and balance of Rs.22,09,622/-has only been offered for taxation. Further, as seen from the broker note and statement of purchase and sale of shares that assessee had purchased the scripts and sold on the same day (these transactions had taken place during 05.01.05 to 28.02.05). Daily loss worked out of Rs. 19,82,837/-whereas the profit for 4 days was to Rs.1,82,677/-. ----- Thus the net loss worked out to Rs. 18,00,159.75 and claimed as deduction from short-term capital gain. The loss of Rs. 18,00,160/- allowed was not correct as per explanation to section 73 of IT Act. These transactions are speculative in nature and not allowable to deduct from the other head of income. In view of the above, I have reason to believe that income chargeable to tax has escaped assessment for AY 2005–06 by reason of the failure on part of the assessee to disclose fully and truly all material facts necessary for assessment for AY 2005–06. Hence, notice u/s 148 is being issued.”

4.

In view of the above reasons, the learned Counsel for the assessee stated that the AO on verification of records of purchase and sale of shares noticed that this claim by the assessee as deduction from Short Term Capital Gain in respect of shares is hit by Explanation to Section of the Act. The learned Counsel for the assessee stated that the AO has required the assessee to explain the claim of loss of Rs.18,00,160/- to be set off against Short Term Capital Gain which is filed in assessee’s paper book at page 31. The learned Counsel for the assessee further stated that complete information regarding computation of capital loss on equity shares were available before the AO during the course of original assessment proceedings including the names of companies whose shares were purchased along with date and amount. The learned Counsel for the assessee also drew our attention to page 40 of the assessee’s paper book wherein the AO, during the course of original assessment proceedings, required the assessee to explain the differential amount of Rs.18 lacs should not be treated as unexplained credit being difference between the original computation and revised computation. The learned Counsel for the assessee also drew our attention to page 30 of assessee’s paper book wherein complete computation of Short Term Capital Gain and capital loss arising out of equity shares and set off of the same were filed before the AO during the course of original assessment proceedings. In view of the above, the learned Counsel for the assessee stated that thus reopening of the assessment by the AO is clearly based on change of opinion and nothing else.

5.

On the other hand, the learned Sr. DR relied on the orders of the lower authorities.

6.

We have heard the rival contentions and gone through the facts and circumstances of the case. The facts are clear that the assessee claimed loss on sale of equity shares and claimed the same against Short Term Capital Gains arising out of sale of shares. We find that this information was available before the AO during the course of original assessment proceedings and this information was filed by the assessee in lieu of questionnaire raised by the AO. In such circumstances, we are of the view that this issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT Vs Kelvinator India Ltd. reported in 320 ITR 561 (SC) wherein it is held that as under:- “After the amendment the Assessing Officer has to have reasons to believe that the income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of change of opinion must be treated as an inbuilt test to check the abuse of power."

7.

In view of the above, we are of the view that reopening of the assessment is bad in law and hence we quash the same.

8.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 08/07/2016.

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