DCIT 8(3), MUMBAI vs. UNITOP CHEMICALS P.LTD, MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in quashing the proceedings u/s 147 of the Act without appreciating that the principle of res-judicata does not apply to income tax proceedings and therefore, the Assessing Officer was justified in invoking the provisions of Section 148 of the Act." 2."On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in relying on various decisions of the Hon'ble ITAT, Mumbai, and the decision of the Honble Bombay High Court in the case of Gopal Purohit without appreciating that no principle has been laid down in any of these decisions and the facts of each case merit, individual examination and scrutiny. 3."On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating the ratio of the decision in the case of Radials International Vs. ACIT, Circle 27(1), New Delhi (2012)

18. Taxmann.com (Delhi ITAT 'F' Bench) A.Y. 2006-07 dated 16.12.2011 wherein on comparable set of facts, share transactions through PMS were treated as business."

The return of income was filed by the assessee company on 31 10.2005. declaring total income at Rs. 1,93,54,8701- The case was scrutinized u/s. 143(3) of the income Tax Act, 1961 on 12.12.2007, assessing the total income at Rs 2,02, 57,300/-. It is observed that during the previous year relevant to A.Y.2005-06. the assessee company earned profit of Rs.27,40,718/- on the funds kept with ICICI through AMC under portfolio management scheme. The assessee offered the said profit as short term capital gain/loss on each transaction. The AMC indulges in purchase and sale of securities on behalf of its clients to give assured returns to the clients for which management fees/custodian fees etc. are charged. The purchase and sale is done on behalf of the client and, therefore, the profit earned from PMS should be treated as Income from Business. This has resulted in tinder assessment of income by Rs.27,40,718/- In view of the above facts, I am satisfied that this is a fit case for issue of Notice u/s. 148 of the Income Tax Act, 1961.

4 Unitop Chemicals P. Ltd 3.1. We find that Ld. CIT(A) has passed well reasoned order while accepting the claim of the assessee for quashing the reopening done by the AO relevant portion of order of Ld. CIT(A) is reproduced below: “4.2. From the perusal of the submissions and facts of the case it is undisputed that assessment u/s 143(3) was made in the present case on 24.12.2007. Secondly, again it is undisputed that the assessee has shown income from Portfolio Management Scheme under the head capital gains. Thirdly it is also undisputed that in the earlier assessment years and in subsequent years the income from Portfolio Management Scheme shown under the head capital gains is accepted while passing the order uls.143(3). Fourthly, it is again undisputed that no new information was received by the AO from any agency to form his opinion that the income was escaped in this case. From the perusal of the reasons recorded the AO has admitted this fact that the assessee has offered the profit from Portfolio Management Scheme as short term capital gains. In view of these facts it is clear that the AO has no new information to prove that it was a case of concealment of income. The AR of the appellant has relied on the decision of Hon'ble Supreme Court in the case of Kelvinator of India Limited and the Hon'ble Bombay High Court in the 5 Unitop Chemicals P. Ltd case of Mrs. Pravin P. Bharucha (supra) where it is held that – “when all facts are available on record and application or interpretation of a statute cannot lead to a conclusion that tax has escaped assessment and reopening is nor sustainable and fresh application of mind by assessing officer on the same set of facts amount to change of opinion and did not warrant reopening”

In view of these facts and circumstances it is held that the case of the appellant is squarely covered by the decision of Honble Supreme Court in the case of Kelvinator of India and jurisdictional High Court in the case of Mrs. Pravin P. Bharucha that the AO has no new information for reopening of the assessment it is only a change of opinion. Therefore, the issue of notice u/s. 148 is held as bad in law and without jurisdiction. Thus, this ground of appeal is allowed.

3.2. It is noted by us that original assessment order was passed u/s 143(3), and reopening has been done after the expiry of 4 years from the end of relevant A.Y. 2005-06, thus reopening could have been done subject to proviso to section 147. As per the said proviso, no reopening shall be done after the expiry of 4 years unless there was a failure on the part of the assessee in disclosure of material facts in the original assessment proceedings. The perusal of the aforesaid ‘Reasons’ reveal that there is no allegation made by the AO 6 Unitop Chemicals P. Ltd that there was any failure on the part of the assessee in disclosure of the material facts. This issue is now well settled in various judgments, wherein it has been held that in absence of allegation of the AO in the ‘Reasons’ about failure of the assessee in disclosure of material facts, reopening shall be invalid. Immediate reference can be placed on the judgment of Hon’ble Bombay High Court in the case of Idea Cellular Ltd vs DCIT 301 ITR 407 and ICICI Bank Ltd. vs DCIT 268 ITR 203 (Bom). Thus, action of Ld CIT(A) in quashing the reopening is in accordance with law and facts.

3.3. It is further noted by us that in the original assessment order passed u/s 143(3) dated 24.12.2007 complete facts were disclosed by the assessee, as would be evident from the perusal of computation of income made in the assessment order at page 4, wherein Ld. AO has specifically considered profit on sale of investment under PMS as ‘income from capital gains’. It is further noted by us that on merits also Ld. CIT(A) has passed well reasoned order for accepting the claim of the assessee that income derived by the assessee on sale of shares under portfolio management scheme was assessable as ‘income from the capital gain’ and not as ‘income from business’ as was done by the AO. The detailed findings of Ld. CIT(A) are reproduced below: “5.3. I have considered the submissions of the appellant, order of the AO and facts of the case carefully. It is noticed that the AO has treated the Portfolio Management Scheme income of the 7 Unitop Chemicals P. Ltd assessee under the head 'business income in place of capital gain shown by the appellant. On the other hand the AR of the appellant has submitted that the case of the appellant is squarely covered by the decision of Hon’ble Mumbai Tribunal in the case of ITO vs. Radha Birju Patel 11 Taxmann.com 293 where it is held that "whether the assessee had given her surplus funds to one A for investment in shares under the Portfolio Management Scheme gain on sale of shares was capita. gain and Assessing Officer was wrong in treating same as income from business' Secondly, the AR of the appellant has submitted that in the earlier years and subsequent years the income from Portfolio Management Scheme is assessed under section 143(3) by accepting the income under the head capital gains'. The AR has also relied on the decision, of Hon'ble Mumbai Tribunal in the case of Sunil Kumar Ganeriwal v. Deputy Commissioner of Income tax 16 taxmann.com 311 (Mumbai-Trib.) where it is held that IT: Once Assessing Officer accepted transaction of shares as investment in earlier year and also in subsequent years, then, in absence of any glaring material change in facts and circumstances, Assessing Officer ought to have maintained consistent view on issue".

Moreover, the Hon'ble Bombay High Court in the case of 8 Unitop Chemicals P. Ltd Gopal Purohit has held as under: "3. Insofar as question (b) is concerned, the Tribunal has observed in para 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question" 5.4 In view of these facts and circumstances and the decision of Hon'ble jurisdictional Tribunal and Bombay High Court the facts of the case are squarely covered that in the earlier years and subsequent years the income earned from Portfolio Management Scheme has been accepted under the head 'capital gains' and there 9 Unitop Chemicals P. Ltd was no information with the AO to change his opinion. Therefore, the decision of the AO for treating this income under the head ‘business income’ in placed of ‘capital gains’ is rejected and ground of appeal is allowed.”

3.4. In our view, Ld CIT(A) has correctly analysed the facts and applied correct position of law for deciding that amount of gain earned by the assessee on sale of shares under Portfolio Management Scheme should be assessable under the head ‘income from capital gains’. We find that the order of Ld. CIT(A) with respect to legal grounds as well as with respect to merits is in accordance with law, no interference is called for therein, therefore same is upheld. Thus grounds raised by the Revenue are dismissed.

Order pronounced in the open court on 6th January, 2016.