M/S SRU SECURITIES LTD.,LUDHIANA vs. ACIT, LUDHIANA

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against

the order dated 14.10.2016 of the Commissioner of Income Tax(Appeals)-4, Ludhiana [hereinafter referred to as ‘CIT(A)’].

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such, reassessment u/s 147/148 is merely a change of opinion.

challenging the addition made by the Assessing officer by way of

withdrawing a part of rebate given u/s 88E of the Income-tax Act,

1961 (in short 'the Act'), the assessee has also challenged the

reopening of the assessment by the Assessing officer u/s 147 of the

Act.

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that reopening of the assessment in this case was made by the

Assessing officer on the basis of Audit report of internal auditors.

He in this respect has invited our attention to the audit report and

objections of the Assessing officer thereto, which read as under:-

“Audit Objection: The assessee is a member of Ludhiana stock Exchange. In the computation of income the assessee has shown business income of Rs. 87,00,865/-. A perusal of the profit and loss account shows that the profit of the assessee includes interest income of Rs. 8,90,157/-. In the computation of income the assessee has claimed rebate u/s 88E amounting to Rs. 26,10,261/-. While computing the income of the assessee at the time of passing order u/s 143(3), rebate u/s 88E amounting to Rs. 26,10,261/- as claimed by the assessee has been allowed. Since, interest income is not a part of the income chargeable under the head profits and gains of business or profession arising from taxable securities Transactions, this was required to be reduced from m the business income from the assessee for calculating rebate u/s 88E by applying the average rate of income tax on taxable securities transactions as provided u/s 88E(2).

Reply of the Assessing officer: Objection raised by the audit party is not accepted. The interest income shown at Rs. 8,90,157/- is from the deposits made by him which are necessity to be deposited in form of cash, FDRs, or though bank guarantee from any of the approved bank (copy of letter dated 27.2.2013 received from LSE Securities Ltd. is attached). Hence, the income shown from interest by the

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assessee is from the deposits which are necessary to carry out the business and are part of the business. Hence, the rebate claimed by the assessee u/s 88E has rightly been allowed during the assessment. In view of above the objection raised by the audit party may kindly be dropped.”

dated 28.3.2013 of the Commissioner of Income tax (Audit) whereby

he declined to drop the audit objections on the ground that the

interpretation of the Assessing officer that the interest income earned

by the assessee on the amount which was mandatorily required to be

deposited with the approved bank / in the approved form to carry out

the security transactions from the approved exchange, was part of

the income from the security transactions business of the assessee,

was not correct. The Commissioner of Income Tax (Audit) was of

the view that the rebate u/s 88E of the I.T. Act was admissible up to

the extent of income tax payable on the income strictly relatable to

the taxable security transactions. Pursuant to the aforesaid rejection

of his objections to the audit report by the Commissioner (Audit),

the Assessing officer reopened the assessment u/s 147 of the Act and

made the impugned additions by way of withdrawing the rebate in

respect of tax payable by the assessee on the interest income earned

from deposits with the stock exchange.

had raised an objection on the interpretation / application of the

provisions of section 88E of the Act, to which the Assessing officer

at the first instance did not agree. However, when his reply /

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objections to the audit report were declined by the Commissioner of

I.Tax (Audit), he thereafter reopened the assessment u/s 147 of the

Act. The above facts reveal that despite a different interpretation

given in the audit report / given by audit party, the Assessing officer

still was not convinced that the income of the assessee had escaped

assessment . Hence, the mandatory requirement for reopening of the

assessment as provided u/s 147 of the Income tax Act that the

Assessing officer should have reason to believe that income of the

assessee has escaped assessment is missing in this case.

Secondly, the case of the assessee is squarely covered by the

decision of the Hon'ble Supreme Court in the case of ‘Indian and

Eastern Newspaper Society Vs. CIT’ (1979) 119 ITR 996 (SC)

wherein it has been held that the opinion of the internal audit party

on a point of law does not constitute information for the purpose of

section 147 of the Act. The Hon'ble Supreme Court observed that

the part of the note which embodied information of the audit party in

regard to the application or interpretation of the law cannot be taken

into account by the ITO, however, the part of the note (that part

alone) of an audit party which mentions the law which escaped the

notice of the ITO constitutes information within the meaning of

section 147(b). The ITO having considered the applicability of the

relevant provisions at the time of original assessment, a different

view taken by him afterwards as regards to the application of those

provisions constitutes change of opinion. Similar view has been

expressed by the Hon'ble Madras High Court in the case of ‘CIT Vs.

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Lucas TVS Ltd’ reported in 234 ITR 296 (Mad.), which has been further affirmed by the Hon'ble Supreme Court of India.

decision of the Hon'ble Supreme Court in the case of ‘Indian and Eastern Newspaper Society Vs. CIT’ (supra). In view of this, the reopening in this case is held to be bad in law, hence, the assessment order passed in the reopened assessment is hereby quashed and consequential additions, if any, are ordered to be deleted. In the result, the appeal of the assessee is hereby allowed. Order pronounced in the Open Court on 15/05/2018.

Sd/- Sd/-

(B.R.R.KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 15. 05.2018 Rkk

Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR