2015 (7) TMI 813 - HC - Income Tax

Reopening of assessment - ITAT confirming that profit on sale of shares is to be assessed under the head income business and not under the head capital gains - Held that - Law mandates that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment for any assessment year to invoke the power to re-open assessments under section 147 Admittedly, assessments for the year 2006-07 were completed treating the income in question as capital gains Once the assessment for the year 2008-09 was completed and the income for that year was assessed as business income, the Assessing Officer had sufficient materials to believe that income chargeable to tax as business income for the assessment year 2006-07 had escaped assessment It was on that basis, proceedings under section 147 was initiated The initiation of such proceedings under section 147, according to us, is fully within the four corners of section 147 of the Act. The factual correctness of the findings of the Assessing Officer was not disputed at any stage of the proceedings It was on the basis of the assessment for the year 2008-09 that the assessment for the year 2006-07 was re-opened and the same standard has been applied in respect of the assessment for 2010-11 also These findings, the factual correctness of which has been concurrently confirmed by the first appellate authority and the Tribunal, when appreciated in the light of the principles laid down by the Apex Court in Commissioner of Income Tax, Nagpur v Sutlej Cotton Mills Supply Agency Ltd 1975 (7) TMI 2 - SUPREME Court , only leads to the conclusion that the assessee was engaged in trading in shares and was not holding the shares as stock-in-trade to contend that the accretions are only capital gains. In such circumstances, the questions of law raised will have to be answered in favour of the Revenue

Issues Involved:
1. Legality of reopening the assessment under Section 147.
2. Classification of income from the sale of shares as "business income" versus "capital gains."
3. Availability of material or documents to justify the Tribunal's finding that the appellant is engaged in trading activity.
4. Justification of assessing similar income differently for different assessment years.
5. Tribunal's disregard for decisions of various High Courts without providing reasons.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147:
The court examined the scope of the Assessing Officer's power under Section 147, which allows reopening an assessment if there is "reason to believe" that income has escaped assessment. The court cited precedents, including *Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers P Ltd* and *Commissioner of Income Tax v Kelvinator of India Ltd*, to affirm that "reason to believe" requires tangible material and cannot be based on a mere change of opinion. The court concluded that reopening the assessment for the year 2006-07 was justified because the assessment for 2008-09 treated similar income as business income, providing sufficient material to believe that income for 2006-07 had escaped assessment.

2. Classification of Income from Sale of Shares:
The court referred to the principles laid down by the Apex Court in *Commissioner of Income Tax, Nagpur v Sutlej Cotton Mills Supply Agency Ltd* and other cases, emphasizing that the nature of the transaction (capital gain vs. business income) depends on the totality of circumstances. Factors such as the frequency of transactions, holding period, and the systematic and organized manner of trading were considered. The court noted that the assessee's activities indicated a trading nature rather than investment, thus justifying the classification of income as business income.

3. Availability of Material or Documents:
The court found that the Assessing Officer had sufficient material to justify the finding that the appellant was engaged in trading activity. The frequency of transactions, the short holding periods, and the infrastructure for trading supported the conclusion that the assessee was conducting a business in shares.

4. Justification of Different Assessments for Different Years:
The court rejected the argument that the Department should maintain consistency in assessments across different years. It cited *Dwarakadas Kesardeo Morarka v Commissioner of Income Tax*, stating that each year's assessment is independent and not bound by previous years' decisions. The court also noted that assessments for 2007-08 and 2009-2010, where losses were reported, were not reopened because no income chargeable to tax had escaped assessment.

5. Tribunal's Disregard for High Court Decisions:
The court dismissed the contention that the Tribunal disregarded decisions of various High Courts without providing reasons. The court emphasized that the Tribunal's findings were based on the specific facts and circumstances of the case, which were consistent with the legal principles and precedents cited.

Conclusion:
The appeals were dismissed, with the court upholding the reopening of assessments under Section 147 and the classification of income from the sale of shares as business income. The court found that the Assessing Officer had sufficient material to justify the findings and that the Department's approach was consistent with legal principles. The court also clarified that consistency in assessments across different years is not mandatory if the facts and circumstances justify a different treatment.

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