2017 (5) TMI 1698 - AT - Income Tax

Reopening the assessment u/s 147 - period of limitation - notice having being issued and served beyond the time limit prescribed u/s. 149 - HELD THAT - Terminology used in Sub Section (1) of Sec. 149 of the Act is issued and not served . Admittedly, notice was issued on 31.03.2012, which was within the six year period allowed under said section. Hence, in my opinion, ld. Commissioner of Income Tax (Appeals) was justified in relying on the judgment of Hon ble Apex Court in the case of R.K. Upadhyaya vs. Shanabhai P. Patel 1987 (4) TMI 5 - SUPREME COURT and holding that notice having issued within statutorily allowed time period, the reassessment was valid. Addition sustained by CIT(Appeals) under short term capital gains , though originally done by the ld. Assessing Officer u/s. 69 of the Act, assessee has filed copy of the accounts statement for its investment in Sundaram Bond Saver Inst Bonus (Principal units) as well as Sundaram Bond Saver Inst. Bonus (Bonus Units). There is no dispute that bonus units were issued to the assessee on 23.03.2004. There is also no dispute that ld. Assessing Officer had applied Sec. 94(7) of the Act in the assessment year 2004-2005. Where a financial asset is allocated to a assessee without any payment, on the basis of holding of any other asset, the cost of the former has to be taken as Nil. In such circumstances, cost of the units received as bonus on 23.03.2004 was rightly considered by the ld. Commissioner of Income Tax (Appeals) as Nil. Since assessee switched out of the said units on 22.09.2004 and received a sum ₹ 49,48,821/-, the said sum was, in my opinion rightly considered as short term capital gains - Decided against assessee

Summary

Issues:
1. Validity of reopening of assessment.
2. Merits of addition made under short term capital gains.

Validity of Reopening of Assessment:
The appellant challenged the reopening of assessment for the impugned year, contending that the notice was not served within the prescribed time limit under Section 149 of the Income Tax Act, 1961. The notice was issued on 31.03.2012, within the statutory six-year period. The Tribunal upheld the validity of the reassessment, citing the judgment in R.K. Upadhyaya vs. Shanabhai P. Patel. The contention that the notice was served after the allowed period was dismissed, emphasizing the distinction between "issued" and "served" under Section 149.

Merits of Addition under Short Term Capital Gains:
Regarding the addition of ?49,42,821 under short term capital gains, the appellant argued that the sum should not be considered as such due to the switch out of the investment. The appellant highlighted that the bonus units received were set off against capital loss in the previous assessment year, and thus, the cost should be adjusted accordingly. However, the Tribunal noted that the application of Section 94(7) in the previous year was not valid due to a subsequent amendment. As per Section 55(2)(aa) of the Act, the cost of the bonus units received was considered as Nil, leading to the amount being rightly treated as short term capital gains. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in this regard, dismissing the appeal of the assessee.

In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the validity of the reassessment and the addition under short term capital gains. The judgment provided a detailed analysis of the legal provisions and previous rulings to support the decisions on both issues raised in the appeal.