2014 (8) TMI 1029 - AT - Income Tax

Reopening of assessment - Held that - In the present case there is no argument put-forth from the side of the Revenue to say that any new tangible material came to the notice of the Assessing Officer in order to initiate proceedings u/s 147 of the Act. Therefore in our considered opinion the initiation of proceedings u/s 147 of the Act in the present case suffered from a legal infirmity which is in consonance with the judgement of the Hon ble Bombay High Court in the case of Shri Amitabh Bachchan (2012 (7) TMI 374 - BOMBAY HIGH COURT ). As a result the consequent assessment finalized on 15.12.2010 u/s 143(3) r.w.s. 147 of the Act is hereby quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income-tax Act, 1961.
2. Classification of income from the sale of shares as short-term capital gain or business income.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:

The primary issue raised by the assessee was the legality of the Assessing Officer's (AO) decision to reopen the assessment under Section 147/148 of the Income-tax Act, 1961. The assessee argued that there was no new tangible material that came to the AO's notice to justify the reopening of the assessment. The AO had initially assessed the income under Section 143(3) of the Act, determining the total income at Rs. 32,10,750/-. However, the AO later issued a notice under Section 148, claiming that certain income had escaped assessment.

The assessee contended that the reopening was based on the same set of facts available during the original assessment and thus amounted to a mere change of opinion, which is not permissible under the law. The assessee relied on the Supreme Court judgment in CIT vs. Kelvinator of India Ltd., which held that a mere change of opinion does not justify reopening an assessment.

The Tribunal examined the reasons recorded by the AO for reopening the assessment, which indicated that the AO believed the assessee's frequent purchase and sale of shares constituted a business activity rather than an investment, thus warranting taxation as business income at normal rates instead of the 10% rate applicable to short-term capital gains.

The Tribunal found that during the original assessment, the AO had scrutinized the details of the assessee's share transactions, including contract notes, proof of purchase, and Demat account extracts. The AO had also discussed short-term capital gains in the assessment order. Therefore, the Tribunal concluded that the AO's belief that income had escaped assessment was based on a reappraisal of existing material, without any new tangible material, rendering the reopening invalid.

2. Classification of Income from Sale of Shares:

Given the Tribunal's decision on the preliminary issue of the validity of the reopening of the assessment, the second issue regarding the classification of income from the sale of shares as short-term capital gain or business income was rendered academic. Consequently, the Tribunal did not adjudicate on this matter.

Conclusion:

The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings initiated under Section 147/148 of the Income-tax Act, 1961, due to the lack of new tangible material justifying the reopening. The other grounds of appeal concerning the merits of classifying the income from the sale of shares were dismissed as infructuous. The order was pronounced in the open Court on 26th August 2014.