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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
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)’].
The assessee has taken the following grounds of appeal:-
That the Ld. CIT(A) has erred in confirming the reopening of the case by issuance of notice u/s 147 of the Income Tax Act 1961. . 2. That the Ld. CIT(A) erred in not considering the fact that the assessment has already been framed u/s 143(3) by full application of mind where all the facts and circumstances were explained and, as
ITA No.12/Chd/2017- M/s SRU Securities Ltd., Ludhiana 2
such, reassessment u/s 147/148 is merely a change of opinion.
That the Ld. CIT(A) has erred in eyes of law and facts of the case by withdrawing the rebate u/s 88E of the Income Tax Act amounting to Rs. 2,62,224/-. 4. Notwithstanding above grounds, it is submitted that the Ld. CIT Appeals) has erred by ignoring the fact that interest income was earned in the ordinary course of business of the assessee and hence the same was the business income within the meaning of Section 88E of the Act. 5. Without prejudice to the above, even if it is taken that interest income should be reduced from the business income for calculation of rebate u/s 88E, in that case the assesses rely upon the "Computation of Rebate" furnished by the assessee before the Assessing Officer during the course of assessment proceedings , in which case, even after excluding the interest income along its related expenses, from the business income, there is no change in the computation of tax as per detail in para 2 of the assessment order.
That the Ld. CIT (Appeals) has completely ignored the various judicial pronouncements cited by the assessee in its submission which has complete relevance to the facts and circumstances of the present case of the assessee.
That the penalty u/s 271(1) (c ) has wrongly been initiated by the Assessing Officer and interest u/s 234B has wrongly been charged.
The perusal of above grounds of appeal reveal that apart from
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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At the outset, the Ld. Counsel for the assessee has submitted
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.”
The Ld. counsel has further brought our attention to the letter
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.
A perusal of the above facts clearly reveals that the audit party
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.
In the case before us, it is not the relevant provisions which has escaped the attention of the Assessing officer, rather, it is case of the application and interpretation of the provisions by the Assessing officer to which the audit party raised objections. In the circumstances, 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’ (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