DCIT 7(3), MUMBAI vs. ARVIND RAJKISHORE SHARMA, MUMBAI

आदेश ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the revenue against impugned order dated 18.09.2012, passed by Ld. CIT(A)-13 Mumbai, for the quantum of assessment passed under section 143(3) for the assessment year 2006-07. In the grounds of appeal

2. The Learned CIT (A) has erred on facts and in law in not appreciating that this is a case where no opinion was formed by the Assessing Officer and therefore reopening was outside the scope of change of opinion.

3. The Learned CIT (A) has erred on facts and in law in not properly अर�वंद राज�कशोर शमा� 2 Arvind Rajkishore Sharma Delhi High Court decision in the case of CIT vs Usha International Ltd (Delhi High Court – Fu Bench). 4. The Learned CIT (A) has erred on facts and in law in not properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer in reasons recorded for reopening the Assessment. 5. These grounds are independent of each other and without prejudice to each other”.

 Hon. Madras High Court in CIT Vs. S.P. Balasubramaniam in 250 ITR 0127.  The Hon. Andra Pradesh High Court in CIT Vs. Raja Dhanraj Girji in 079 ITR 0563.  The Supreme Court of India in Raja Bahadur Kamakhya Narain Singh Vs. CIT in 77 ITR 253.  Madras High Court in Amirtham Ammal Vs. CIT 74 ITR 739.  The Hon. Bombay High Court in Rajputana Textile (Agencies) Ltd, Vs. CIT, 24 ITR 46.Hon. Allahabad High Court in ITO Vs. Rani Ratnesh Kumarib, 123 ITR 343.

It is to be mentioned here that mere entries in the books of account owing some shares as “stock-in-trade” and some shares as “investment” are not conclusive proof to decide the real nature of transaction whether the income is from business or form capital gains. In the following cases it has been held that entries in the books of accounts alone are not conclusive proof to decide nature of income  Tuticorin Alkali Chemicals and Fertilizers Ltd vs CIT (SC) reported in 227 ITR 172.  Chowringhee Sales Bureau Pvt Ltd. 87 ITR 548 (SC).  Punjab Distilling Industries Ltd. 35 ITR 523 (SC).  Supreme Court’s CIT vs Provincial Farmers (P) Ltd. (Cal) in 35 ITR 223.  CIT vs. J D. Italia 141 ITR 953 (AP).  CIT vs Bazpur Co-op Sugar Factory Ltd 172 ITR 330.

Circular No.4/2007 dated 1 5.06.2007 issued by CBDT subsequent to Supreme Court decisions in the cases of :- CIT (Central) Calcutta Vs. Associated Industrial Development Company (P) Ltd (82 ITR 586), CIT, Bombay Vs. H. Hock Larsen (160 (TR 67) also offer appropriate guidance and directions on this issue.

Therefore I have reason to believe & I am satisfied that the income of the assessee chargeable to tax, has escaped assessment for A.Y.2006-07. Proceedings u/s.147 of the Act are therefore initiated. Issue notice u/s.1 48 of the Act. (XXX) Dy. Commissioner of income Tax - 7(3), Mumbai”.

अर�वंद राज�कशोर शमा� 4 Arvind Rajkishore Sharma In response to the notice under section 148, the assessee filed detailed submissions and submitted that, he has already explained this aspect during course of the original assessment proceedings, as to why the income from sale of shares is taxable as capital gain and not as business income. The assessee has also raised the objection for reopening the case merely on the ground of “change of opinion” and in support relied upon the decision of Apex Court in the case of CIT vs Kelvinator of India Limited, reported in [2010] 320 ITR 561. On merits also, the assessee filed his detailed submissions which has been incorporated by the AO at page 4 of the assessment order. However, the AO without any proper reasoning, held that the income shown by the assessee under the head “on account of sale of shares” is to be treated as “business income” instead of ‘short-term-capital-gain’.

Thus, the AO in the original assessment proceedings had specifically enquired from the assessee, as to why the capital gain on sale of shares and mutual-fund should not be treated as business income. After examining the assessee’s reply and material placed before him, he accepted the assessee’s stand that, the said gain from transaction of sale of shares and mutual funds is to be assessed under the head “capital-gain” and not as “business income”. The AO while recording the reasons has not referred to any tangible material coming on record having live-link-nexus with the income chargeable to tax having escaped assessment. From the perusal of the “reasons recorded”, it is seen that the AO himself has noted that, “the necessity of exploring these transactions in the nature of adventure and business for the purpose of earning profit and taxing it under the head business income @ 30% has been left out”. From the above, it is quite evident that, he went to take a different view by exploring the possibility of taxing the income under a different head. This cannot be held to be in the realm of अर�वंद राज�कशोर शमा� 6 Arvind Rajkishore Sharma 143(3), which has attained finality. Such a reasons clearly amounts to “change of opinion”, which is not permissible in law as held by Hon’ble Supreme Court in the case of Kalivantor of India (supra). Otherwise also, here in this case the AO in the course of the original assessment proceedings has specifically raised a query and has applied his mind and then given his conclusion, therefore, the AO cannot take a different view without any material information coming on record to show that, the earlier order and the conclusion drawn by the AO is incorrect on facts. Thus, the finding of the CIT(A) which for the sake of ready reference is reproduced below: 3.0. I have considered the facts of the case. In the Return of Income, the Appellant had shown income from salary and also the capital gains. Such capital gain were earned by the appellant on sale /purchase of share transaction. Such sale/purchase of shares were carried out through portfolio management with whom the funds were placed by the Appellant. The Appellant's return of income was selected for scrutiny. During the original assessment proceedings, the AG asked the Appellant various questions and details. The Appellant filed submissions to the AG vide his letter dated 21/11/08.Vide para 2 of the said letter, the Appellant explained to the AG that provisions of Sec.94(7) were not applicable and the Appellant filed details of Mutual Fund sold, purchase and date of acquisition, sales and other details. Vide para 3 of the said letter, the Appellant also explained to the AO that investments were made through portfolio management Account with Kotak Securities. In response to query raised by the AO regarding assessment of capital gain as Business Income, the Appellant vide point No.7 of the said letter explained to the AO as to why the income earned on the sale /purchase of shares/mutual funds was required to be assessed as capital gain only. The AO passed the assessment order u/s.143(3) of the Act in which the short term capital gain shown by the assessee were accepted as short term capital gain. Thus, it is evident from the record that during the original assessment proceedings the AO had examined the issue of assessability of income earned on sale/purchase of shares/mutual funds as capital gains or Business Income. The AO has reopened the assessment on the ground that "necessity of exploring these transactions in nature of adventure of business for the purpose of earning profit and taxing it under the head Business Income @ 30% has been left out". These reasons were not sufficient for reopening the assessment. As per provisions of Sec. 147of the Act, a completed assessment can be reopened if the AO has "Reason to Believe" that income chargeable to tax had escaped assessment. Thus, there should be reason and on the basis of such reasons a prima-facie belief अर�वंद राज�कशोर शमा� 7 Arvind Rajkishore Sharma could be formed that income chargeable to tax had escaped assessment. There should be rational nexus between the reason and the formation of belief that income chargeable to tax has escaped assessment. Though, the sufficiency of reasons cannot be examined at that stage, but there should be at least reason which can lead to formation of a prima-facie belief that income chargeable to tax had escaped assessment. The reasons should be bona fide and relevant based on which a reasonable person could have formed requisite belief that income chargeable to tax had escaped assessment. In the case under consideration, the reason recorded by the AO could not have led to formation of belief that income chargeable to tax had escaped assessment. The reading of reasons shows that the completed assessment was being reopened to explore the possibility of assessing the profit on sale purchase of shares as Business Income as against short term capital gain shown by the Appellant. As per provisions of Sec.147 and the decisions of courts and Tribunals, exploration of possibility cannot be a ground for reopening of assessment. The "reasons recorded" does not show that the A.O formed a belief that the profits on sale/purchase of shares/mutual funds were assessable as business income. The A.O wanted to explore such possibility by making further enquiries. As per decisions of court and tribunals, re-opening cannot be made for making enquiries. Thus, reopening of assessment was made on the basis of inappropriate reason. As explained in above paras, the reopening was made only on the issue of assessability of profit on sale /purchase of shares under the head "Business Income" as against capital gain shown by the Appellant. As explained above, during original assessment proceedings the AO has examined this issue. During original assessment proceedings, the Appellant has filed explanation/ details on this issue . In the original assessment order the AO has not made any adverse remarks/ observations on this issue which amounts to acceptance by the AO of Appellant's submissions regarding assessment of profit on sale /purchase of shares as capital gain. Thus, during the original assessment proceedings, this issue has been examined by the AO. The completed assessment has been reopened by the AO on this issue only. After completion of original assessment order, no new facts or information had come on record to the AO. Thus, on the same set of facts, the present AO has taken a different view which amounts to change of opinion. As per the decisions of courts and Tribunal including the Supreme Court's decision in the case of Kelvinator of India Ltd (supra), reopening of completed assessment on the basis of change of opinion is not allowed. Since the case under consideration, completed assessment had been reopened on the basis of change of opinion, therefore reopening of assessment was bad in law and therefore is quashed. In the result, assessment framed on the basis of such invalid and in appropriate reasons is also quashed”. is affirmed and accordingly, the ground raised by the revenue is dismissed.

अर�वंद राज�कशोर शमा� 8 Arvind Rajkishore Sharma