2020 (5) TMI 451 - AT - Income Tax

Reopening of assessment u/s 147 - long term investment into stock-in-trade during this assessment year and assessee has also offered the long term capital gain on the date of conversion - Speculation loss - HELD THAT - Assessee sold all the shares and incurred a huge loss and as per the records submitted before us, assessee has claimed it as the business loss considering the fact that assessee has treated the above shares which was sold during the year as stock-in-trade. As per the records brought to our notice by Ld. AR, it clearly indicates that all this information of conversion of shares into stock-in-trade were brought to the notice of the AO in the original assessment itself. All this information was very much available on assessment records and now the AO reopen the assessment on the same set off of information and we rightly notice that Ld. CIT(A) clearly observed that assessee has furnished the details of capital gain which are also on account of treatment of investment into stock-in-trade vide letter dated 31.10.11 before the AO. According to Ld. CIT(A), it cannot be said that AO has not verified this fact. Since the assessee has filed a copy of Board Resolution and workings of long term capital gain before the AO in the original assessment itself and it substantiates the findings of Ld. CIT(A) that all this information were very much available for the AO in the original assessment to complete. Therefore, in our considered view that the findings of Ld. CIT(A) seems to be in order. In the reasons for reopening, AO has not nowhere indicated that the business loss suffered by the assessee can be treated speculation loss and only in the revised assessment order, AO came to the conclusion that this loss can only be speculation loss. Therefore, we are inclined to accept the finding of Ld. CIT(A) that the re-assessment order is only a change of opinion. Accordingly, grounds raised by the revenue stands dismissed.

Issues Involved:
1. Condonation of delay in filing the cross objection (CO) by the assessee.
2. Validity of the reassessment proceedings initiated under section 147 of the Income Tax Act.
3. Treatment of loss on the sale of shares as business loss or long-term capital loss.
4. Whether the reassessment was a result of a change of opinion by the Assessing Officer (AO).

Detailed Analysis:

1. Condonation of Delay in Filing the Cross Objection:
The assessee filed the CO with a delay of 214 days, explaining the delay through an affidavit. The affidavit stated that the necessity of filing the CO was realized only during the hearing on 6th June 2019. The Department Representative (DR) objected to the delay, emphasizing that the law of limitation is meant for general welfare and should not be disregarded. The DR argued that delay could only be condoned if there was no gross negligence or deliberate inaction. However, after considering the reasons provided by the assessee, which were deemed reasonable, the delay was condoned.

2. Validity of the Reassessment Proceedings:
The original assessment was completed with a disallowance under section 14A, and the AO later issued a notice under section 148 for reassessment. The reassessment was based on the observation that the assessee had converted investments into stock-in-trade and claimed a significant loss as business loss. The AO contended that this should be treated as a long-term capital loss. The CIT(A) found that all relevant details were submitted during the original assessment, and the reassessment was initiated without proper reasons, thus invalidating the reassessment proceedings.

3. Treatment of Loss on Sale of Shares:
The AO observed that the assessee had converted investments into stock-in-trade and claimed the resulting loss as business loss. The AO argued that this should be treated as a long-term capital loss. The CIT(A) noted that the assessee had provided all necessary details during the original assessment, including the Board Resolution for conversion and relevant sale documents. The CIT(A) concluded that the AO had verified these facts during the original assessment, and there was no basis for reopening the assessment on this ground.

4. Reassessment as a Change of Opinion:
The CIT(A) observed that the reasons for reopening the assessment were different from the issues raised during the reassessment proceedings. The AO initially did not indicate that the business loss could be treated as speculation loss, which was only concluded in the reassessment order. This indicated that the reassessment was a change of opinion, which is not a valid ground for reopening an assessment. Therefore, the reassessment order was deemed invalid.

Conclusion:
The appeal filed by the revenue and the CO filed by the assessee were both dismissed. The reassessment proceedings were invalidated due to the lack of proper reasons and the change of opinion by the AO. The delay in filing the CO was condoned, and the loss on the sale of shares was treated as business loss, as initially claimed by the assessee.

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