2016 (7) TMI 529 - HC - Income Tax

Reopening of assessment - nature of adventure in trade OR investment - Held that - The reasons recorded by the Assessing Officer there is no averment of any failure on part of the assessee to disclose truly and fully all material facts. The reasons referred to material already on record and referred to the sale and purchase transactions of shares by the assessee. On the basis of such materials, the Assessing Officer recorded that frequency and volume of transaction was quite substantial. The assessee had sold 82% of its total purchases during the year itself. The balance unsold shares were purchased before two to three months of the year ending. The assessee had not held any stock for more than six months. According to the Assessing Officer, he therefore concluded that the assessee had made purchase and sale of shares with the motive to earn profit and the activity was, therefore, in the nature of adventure in trade and not by way of investment. We are not required to judge the validity of the Assessing Officer s prima facie conclusion that the petitioner was trading in shares and not investing to earn dividend. We only find that, in absence of failure on part of the petitioner-assessee to disclose truly and fully all materials facts, reopening of assessment, which was previously framed after scrutiny, could not have been done. Only on this count, the keeping petitioner s contention of change of opinion aside, impugned notice is quashed. - Decided in favour of assessee.

Summary

Issues Involved:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for the assessment year 2008-09 based on the classification of income from share trading as business income instead of short term capital gain.

Analysis:

1. Reopening of Assessment:
The petitioner challenged a notice issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, reopening the assessment for the year 2008-09. The petitioner had initially declared a total income of ?97.89 lacs, which was later revised to ?48.49 lacs, including short term capital gain from the sale of shares. The Assessing Officer had accepted the revised return after scrutiny. However, the officer issued the impugned notice based on the volume and frequency of share transactions, treating the income as business income instead of short term capital gain.

2. Reasons for Reopening:
The Assessing Officer cited guidelines from the CBDT and the substantial volume of transactions to justify treating the income as business income. The officer noted that the petitioner had sold 82% of total purchases during the year, with no stocks held for more than six months, indicating a profit motive and an adventure in trade rather than an investment for dividends. The misclassification led to a short levy of tax and interest.

3. Objections and Court's Decision:
The petitioner objected to the reopening, but objections were rejected. The High Court analyzed the situation and found that the notice for reopening was issued beyond the four-year limit from the end of the assessment year. Moreover, there was no failure on the petitioner's part to disclose material facts fully and truly. The court concluded that as the assessment was previously scrutinized and there was no failure in disclosure, the reopening was unwarranted. The court quashed the notice, allowing the petition.

In conclusion, the High Court ruled in favor of the petitioner, emphasizing that without a failure to disclose material facts, the reopening of the assessment could not be justified. The court highlighted the importance of adhering to legal requirements and the absence of grounds for reopening assessments based on the Assessing Officer's conclusion alone.