2014 (4) TMI 567 - AT - Income Tax

Recording of reasons u/s 147 of the Act Validity of issue of notice u/s 148 of the Act Held that - Scrutiny of assessment was made but notice u/s.148 was issued within four years Relying ACIT vs. Rajesh Jhaveri 2007 (5) TMI 197 - SUPREME Court - in case of case processed u/s. 143(1)(a), no opinion has been formed by the AO - thus, no question of change of opinion is there - The reasons recorded by the AO are of subjective satisfaction of the AO and within the realism of him - notice u/s. 148 was within four years and assessee has not demonstrated with evidence that this issue even has been touched by the AO in first scrutiny assessment - The AO has ample power to reopen where scrutiny assessment had been made previously Decided against Assessee. Confirmation of loss as speculative loss Held that - Assessee has only furnished computation of capital loss along with the return and explanation with details but without any evidence and he concluded that the nature of transaction is without delivery and covered u/s. 43(5) of the IT Act assessee has not produced any evidence by which he can demonstrate that nature of transaction is short term capital loss - In absence on evidence, it is difficult to ascertain the nature of the transaction - There is no evidence of past from the assessee s record which substantiate assessee s claim thus the matter is remitted back to the AO for fresh consideration Decided in favour of Assessee.

Issues Involved:
1. Validity of Notice Issued under Section 148 of the Income Tax Act.
2. Validity of Re-assessment Order Passed under Section 147 of the Income Tax Act.
3. Method of Accounting: Cash Method vs. Mercantile Method.
4. Classification of Income: Interest Income vs. Short Term Capital Gain.
5. Classification of Loss: Speculative Loss vs. Short Term Capital Loss.
6. Levy of Interest under Sections 234A, 234B, and 234C of the Income Tax Act.
7. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued under Section 148 of the Income Tax Act:
The appellants contended that the notices issued under Section 148 were invalid as there was no tangible material to justify the reopening of assessments. The Assessing Officer (A.O.) had initiated action under Section 147 based on the belief that income had escaped assessment. The reasons recorded included incorrect booking of short-term capital loss and speculative transactions without delivery. The Tribunal upheld the validity of the notices, citing the Supreme Court's decision in ACIT vs. Rajesh Jhaveri, which held that in cases processed under Section 143(1), no opinion is formed by the A.O., and thus, the question of change of opinion does not arise. The Tribunal found that the A.O. had relevant material to form a belief of escapement of income.

2. Validity of Re-assessment Order Passed under Section 147 of the Income Tax Act:
The appellants argued that the re-assessment orders were invalid as the original assessments were not scrutinized under Section 143(3). The Tribunal dismissed this ground, noting that the original returns were processed under Section 143(1), and therefore, no opinion was formed by the A.O. The Tribunal emphasized that the formation of belief by the A.O. is subjective and within his discretion, and the re-assessment was justified based on the material available.

3. Method of Accounting: Cash Method vs. Mercantile Method:
The appellants contended that they were following the cash method of accounting, but the A.O. assessed their income based on the mercantile method. The Tribunal noted that the appellants did not seriously press this issue and did not provide any substantial argument or evidence to support their claim. Consequently, this ground of appeal was dismissed.

4. Classification of Income: Interest Income vs. Short Term Capital Gain:
In the case of Jethiben K. Patel Discretionary Trust, the A.O. classified the income from vyaj badla transactions as interest income instead of short-term capital gain. The Tribunal upheld the A.O.'s decision, noting that vyaj badla transactions are akin to lending transactions with a fixed rate of return and no price risk, and therefore, should be treated as interest income.

5. Classification of Loss: Speculative Loss vs. Short Term Capital Loss:
The A.O. classified certain transactions as speculative losses under Section 43(5) since no delivery of shares was taken or given. The Tribunal found that the appellants did not furnish adequate evidence to substantiate their claims of short-term capital losses. The Tribunal set aside this issue to the A.O., directing the appellants to produce all relevant evidence within 30 days for reconsideration.

6. Levy of Interest under Sections 234A, 234B, and 234C of the Income Tax Act:
The appellants argued against the levy of interest under Sections 234A, 234B, and 234C. The Tribunal held that the levy of interest is consequential to the findings on the other issues and did not require separate adjudication.

7. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The appellants contested the initiation of penalty proceedings under Section 271(1)(c). The Tribunal noted that this issue is also consequential to the findings on the other issues and did not require separate adjudication.

Conclusion:
The appeals were allowed for statistical purposes, with the Tribunal directing the A.O. to reconsider the classification of losses based on additional evidence to be provided by the appellants. The other grounds of appeal were dismissed, upholding the validity of the notices and re-assessment orders, and confirming the classification of income and method of accounting as determined by the A.O.

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