2015 (12) TMI 144 - HC - Income Tax

Reopening of assessment - unaccounted sale and purchase of a scrip - Held that - The transactions of purchase and sale which is the basis of the reopening is factually not correct. The transactions of purchase and sale were of 62 scrips during the year. The sale and purchase of a scrip in large number when placed by the assessee on the electronic system of Stock Exchange appear broken in different transaction in view of multiple buyers and sellers of the same. Therefore, a single transaction of purchase or sale which may appear as many transactions when in fact it is not so. Be that as it may, so far as reopening of assessment is concerned, the same can only be done on the satisfaction of the provisions of Section 147 of the Act. In the present facts, the issuing of reopening notice is a clear case of change of opinion on the part of the Assessing Officer as the order under Section 143(3) of the Act in the regular assessment proceedings had been passed on examination of the very issue now being raised in the reopening notice. As observed by the Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd., (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) a power to reassess is not a power to review. Therefore, an assessment cannot be reopened on a mere change of opinion in the absence of any fresh tangible material. - Decided in favour of assessee.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal under Section 260A of the Income Tax Act for the Assessment Year 2006-07.
2. Justification of the Tribunal's decision on the nature of purchase and sale of shares and mutual funds as investment or trading activity.
3. Validity of setting aside the notice issued under Section 148 and subsequent reassessment under Section 147.

Analysis:

Issue 1:
The appeal filed by the Revenue challenges the order of the Income Tax Appellate Tribunal (the Tribunal) for the Assessment Year 2006-07. The main question raised is whether the Tribunal was justified in accepting the assessee's claim regarding the nature of purchase and sale of shares and mutual funds as investment activity rather than trading activity. The Tribunal's decision is crucial in determining the tax treatment of the income generated from these transactions.

Issue 2:
The respondent-assessee is involved in the business of investment and trading in shares and securities. The Assessing Officer initially accepted the claim of the assessee under the head of "Long term capital gain" and "Short term capital gain." However, a reopening notice was issued based on the volume and frequency of transactions, suggesting that the income should be treated as business income rather than capital gains. The Tribunal's decision to set aside the notice was based on the lack of fresh tangible material and the principle that reassessment cannot be done solely on a change of opinion without new evidence.

Issue 3:
The respondent contested the jurisdiction of the Assessing Officer to reopen the assessment, arguing that it was a mere change of opinion as the same issue had been examined during the regular assessment proceedings. The Tribunal upheld the respondent's contention, emphasizing that the reopening notice lacked merit and was issued based on a change of opinion without any additional evidence. The Tribunal's decision aligns with established legal principles that reassessment must be supported by fresh tangible material and cannot be solely based on a change of opinion.

In conclusion, the High Court of Bombay dismissed the appeal by the Revenue, upholding the Tribunal's decision to set aside the reopening notice and subsequent reassessment. The judgment underscores the importance of adhering to legal principles in reassessment proceedings and highlights that reassessment cannot be initiated solely on a change of opinion without new tangible material.