2024 (4) TMI 315 - AT - Income Tax

Reopening of assessment u/s 147 - Valid approval/sanction for the order under section 148A (d) granted or not? - information is received that assessee has indulged in the sham scheme just to avail fictitious loss which has resulted in escapement of taxable income of the assessee for the assessment year under consideration as to it was found that assessee had invested in the scheme of mutual fund - The claim of the assessee is that the principal chief Commissioner of income tax should have granted such approval as more than three years have elapsed - HELD THAT - As submitted that for the identical as the year in case of Siemens financial services private limited 2023 (9) TMI 552 - BOMBAY HIGH COURT as per order dated 25 August 2023 has held that under section 151 'specified authority' for the purposes of section 148 and section 148A Shall be , if three years or less than three years have elapsed from the end of the relevant assessment year, principal Commissioner or principal director of Commissioner or director. If more than three years have elapsed from the end of the relevant assessment year, then principal chief Commissioner or the principal director general of chief Commissioner or director general. Admittedly in this case also the approval/sanction for the order under section 148A (d) was obtained from principal Commissioner of income tax (C) 1, Mumbai and not principal chief Commissioner of income tax despite more than three years have left from the end of the relevant assessment year. Accordingly, respectfully following the decision of the honourable Bombay High Court we allow ground number 1 and 2 of the appeal quashing reassessment proceedings. Dividend income and allowability of capital loss - The assessee purchased mutual fund of ₹ 300 lakhs (11,36,316.29 units). The assessee earned dividend on 18/6/2015 of ₹ 5,397,502/ . Further on December 21, 2015, and notice was issued by the mutual fund for declaration of dividend of Rs. 4 per unit. The record date was fixed on 26 December 2015. In both the notices issued by mutual fund clearly state that after payment of dividend, the power unit NAV of the dividend options of the scheme will fall to the extent of the payout and statutory levies (if applicable). Therefore, naturally if anybody is selling after the dividend earned by the unitholder the redemption value will fall. Assessee sold all those mutual funds at redemption amount which resulted into a short-term capital loss. Thus, the assessee acted on a publicly available notice issued by the mutual fund, both the notices are placed before us, it cannot be said that transaction entered into by the assessee is fictitious or sham. With respect to the applicability of provisions of section 94 (7) of the act, the lower authorities have also accepted that the assessee fulfils the condition by which the transaction insecurities cannot be considered for avoidance of tax. Assessee purchased such securities and 17/6/2015 when the record date was 18 June 2015 and securities were sold on 28/3/2016. The lower authorities have denied the exemption of dividend income and allowability of capital loss despite transaction is not falling u/s 94 (7) of the act holding it to be sham and fictitious transaction is devoid of any merit. Accordingly on the merits also, orders of the lower authorities are reversed and ground number 4 7 of the appeal are allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment u/s 147.
2. Legitimacy of dividend income and short-term capital loss claims.

Summary:

Issue 1: Validity of Reopening the Assessment u/s 147

In ITA No. 3218/Mum/2023, the assessee, Goldiam International Limited, challenged the reopening of the assessment u/s 147. The grounds included the notice being based on external information, change of opinion, and being barred by limitation. The assessee argued that the approval for reopening should have been obtained from the Principal Chief Commissioner of Income Tax, as more than three years had elapsed from the end of the relevant assessment year, citing the Bombay High Court decision in Siemens Financial Services Private Limited. The Tribunal quashed the reassessment proceedings, holding that the approval was improperly obtained from the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax, following the precedent set by the Bombay High Court.

Issue 2: Legitimacy of Dividend Income and Short-Term Capital Loss Claims

On the merits, the assessee contended that the dividend income and short-term capital loss were genuine transactions based on publicly available information and not sham or fictitious. The Tribunal noted that the assessee had invested in JM Balanced Fund after public notices of dividend declarations, fulfilling the conditions specified in section 94(7) of the Act. The Tribunal found no merit in the lower authorities' conclusions that the transactions were sham or fictitious and reversed the disallowance of the dividend income exemption and short-term capital loss claims.

ITA No. 3219/M/2023:

For the sister concern, Goldiam Jewelry Limited, with identical facts and circumstances, the Tribunal similarly quashed the reopening of the assessment and allowed the claims for dividend income exemption and short-term capital loss.

Conclusion:

Both appeals were partly allowed, quashing the reassessment proceedings and reversing the disallowance of dividend income exemption and short-term capital loss claims.