2017 (1) TMI 1722 - AT - Income Tax

Reopening of assessment u/s 147 - loss on sale of shares - nature of loss - business loss or capital loss - as per AO Loss on sale of shares was not a business loss but only capital loss - HELD THAT - Substantial part of loss claimed by the assessee was on account of loss in sale of shares which was debited in its profit and loss account as a specific item. It is not a case, where the ld. Assessing Officer was required to discover any material evidence with diligence. The entry was visibly available on the face of the record itself. Thus, we cannot say that ld. Assessing Officer had determined the loss of the assessee without verifying the profit and loss account filed by it. In a case where reopening is attempted after four years from the end of an assessment year, first proviso to Sec. 147 would clearly apply. Nothing has been brought on record by the Revenue to show that assessee had failed to disclose fully and truly all material facts necessary for the assessment. Further, hon ble Apex Court in the case of Kelvinator India Ltd 2010 (1) TMI 11 - SUPREME COURT had held that in the absence of fresh tangible material, reopening could not be done where original assessment was completed u/s.143(3) of the Act. Reopening done for the impugned assessment year was bad in law. Ex-consequenti the assessment is set-aside. - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment after four years from the end of the impugned assessment year, Nature of loss on sale of shares - Business loss or capital loss, Validity of reopening based on change of opinion.

Reopening after Four Years:
The appeal challenged the reopening of assessment after four years from the end of the impugned assessment year, contending it did not meet the requirements of the first proviso to Section 147 of the Income Tax Act, 1961. The Authorized Representative argued that as per the judgment in CIT vs. Kelvinator India Ltd, a reopening after four years without fresh tangible material would not be valid. The Departmental Representative, however, maintained that since the Assessing Officer did not form an opinion on the nature of the loss in the original assessment, the reopening was justified. The Tribunal observed that the original return included a specific item of expenditure for the loss on sale of shares, which the Assessing Officer would have reviewed. It was noted that the substantial part of the claimed loss was due to the sale of shares, clearly visible in the profit and loss account. As there was no evidence of failure to disclose material facts, and in line with the Kelvinator India Ltd judgment, the Tribunal deemed the reopening after four years as invalid, setting aside the assessment.

Nature of Loss on Sale of Shares:
The dispute revolved around whether the loss on the sale of shares should be treated as a business loss or a capital loss. The Assessing Officer considered it a capital loss, citing a previous year's profit claimed as long-term capital gains. The Commissioner of Income Tax (Appeals) upheld this classification, dismissing the appeal. The Tribunal noted that the profit and loss account clearly indicated the loss on sale of shares, and the Assessing Officer would have reviewed this information during the original assessment. The Tribunal concluded that the loss was visible, and the Assessing Officer had not determined it without verifying the filed accounts. As the loss was a specific item in the account, the Tribunal held that the Assessing Officer had the opportunity to consider it in the original assessment, leading to the decision that the loss on sale of shares was a business loss, not a capital loss.

Validity of Reopening Based on Change of Opinion:
The Appellant contended that the reopening was based on a change of opinion, which was not permissible under the law. The Commissioner of Income Tax (Appeals) disagreed, stating that the original assessment did not involve the Assessing Officer forming an opinion on the loss from share trading. The Tribunal concurred, highlighting that the Assessing Officer had the opportunity to review the profit and loss account, which clearly mentioned the loss on sale of shares. As the loss was a specific item and visible in the accounts, the Tribunal concluded that the reopening was not due to a change of opinion but rather a valid consideration of the nature of the loss.