2022 (7) TMI 1141 - AT - Income Tax

Reopening of assessment u/s 147 - Penalty levied u/s. 271(1)(c) - sale of shares to be treated as capital gain or income from business - Valid sanction by authority u/s. 151 - HELD THAT - Sub-section (1) of Section 151 deals with the cases of reopening of assessment within four years wherein the respective Joint Commissioner is the sanctioning authority for reopening of such assessment. The reopening of assessment after the expiry of four years period, the sanctioning authority are either Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner only. In this case no doubt for the Assessment Year 2005-06 and reopening of notice was issued in 2012 which is beyond four years period but however Joint Commissioner of Income Tax, Range-7 by his letter dated 9.3.2012 sanctioned for the reopening proceedings, which is clearly against the provisions of Section 151. Therefore, the entire reopening assessment itself is vitiated and against the provisions of Section 151 of the Act. Therefore the entire reopening of assessment vis- -vis quashed. Though there is merits in the arguments of the assessee that the reasons recorded by the Assessing Officer is also not clear relating to which assessment year the income is said to be escaped or taxation. As we have quashed the entire assessment proceedings on the point of sanctioning authority u/s. 151. We are not addressing the other aspects of the reopening of assessment. Furthermore this has attained finality by the Jurisdictional High Court in the assessee's own case for the A.Y. 2006-07 holding that the sale of shares to be treated as Long Term Capital Gains only and not as Business Income . In the result, the appeals filed by the Assessees are allowed consequently the Revenue appeals are dismissed.

Summary

Issues Involved:
1. Whether the sale of shares should be treated as "capital gain" or "income from business."
2. Validity of reopening the assessment under Section 148 of the Income Tax Act beyond a period of 4 years.
3. Rate of tax applicable on long-term capital gains from the sale of shares.
4. Levy of interest under Sections 234B and 234C of the Income Tax Act.
5. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Treatment of Sale of Shares:
The primary issue in these cases was whether the sale of shares should be treated as "capital gain" or "income from business." The Revenue treated the income from the sale of shares as "income from business" and taxed it at a higher rate. The assessee argued that the income should be treated as "long-term capital gain" and taxed at a lower rate. The Tribunal noted that the transactions were suspicious and orchestrated to manipulate share prices, leading to the conclusion that the income should be treated as "business income." However, the Tribunal ultimately ruled in favor of the assessee, treating the sale of shares as "long-term capital gain," in line with the decision of the Hon'ble High Court of Gujarat in a related case.

2. Validity of Reopening the Assessment:
The assessee challenged the reopening of the assessment under Section 148 of the Income Tax Act, arguing that it was done beyond the permissible period of four years without proper jurisdiction. The Tribunal found that the sanction for reopening was given by the Joint Commissioner of Income Tax, whereas, after four years, such sanction should have been given by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner as per Section 151 of the Act. Consequently, the Tribunal quashed the reopening of the assessment, deeming it invalid and against the provisions of Section 151.

3. Rate of Tax on Long-Term Capital Gains:
The assessee contended that the tax rate on long-term capital gains from the sale of shares should be 10%, while the CIT(A) held that it should be 20% as per Section 112 of the Income Tax Act. The Tribunal did not specifically address this issue in detail, as the primary matter of reopening the assessment was quashed, rendering this issue moot.

4. Levy of Interest under Sections 234B and 234C:
The assessee argued that the levy of interest under Sections 234B and 234C was not justified. The Tribunal did not specifically address this issue, as the primary matter of reopening the assessment was quashed, rendering this issue moot.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The penalty proceedings under Section 271(1)(c) were initiated based on the assessment order passed under Section 147. Since the Tribunal quashed the reopening of the assessment, the penalty order had no basis to stand on. Consequently, the Tribunal dismissed the appeal related to the penalty proceedings.

Conclusion:
The Tribunal quashed the reopening of the assessment under Section 148 due to improper sanctioning authority as per Section 151 of the Income Tax Act. Consequently, the sale of shares was treated as "long-term capital gain," and the penalty proceedings under Section 271(1)(c) were also dismissed. The Tribunal's decision was in line with the Hon'ble High Court of Gujarat's ruling in a related case.