2022 (8) TMI 87 - AT - Income Tax

Reopening of assessment u/s 147 - change of opinion - income for trading in shares and mutual funds - business income v/s capital gain - HELD THAT - As by issuing notice u/s 148 AO wanted to treat the entire income as business income and not as capital gain as computed by the AO in the original assessment order under section 143(3) of the Act dated 31.12.2010. We find that the assessee has fully and truly furnished all the details before the AO and by considering the details filed by the assessee, the assessment was completed u/s 143(3) dated 31.12.2010 and the AO has accepted the claim of the assessee in respect of capital gains. Subsequently, AO wanted to treat the very same capital gain as business income on the basis of the same material available on record. Obviously, the reopening is only a change of opinion and no new tangible material came to the notice of the Assessing Officer to come to a different conclusion and thus, the change of opinion is not permissible in law as the judgement in the case of CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT applies. CIT(A) has rightly held that the action of the AO in reopening the assessment does not satisfy the proviso to section 147 of the Act. We find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Treatment of income from the sale of shares and mutual funds as business income or capital gains.
3. Applicability of the proviso to Section 147 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The assessee filed its return for the assessment year 2008-09, which was initially assessed under Section 143(3) of the Income Tax Act, 1961. The Assessing Officer (AO) later reopened the assessment under Section 147 on the grounds that there was an escapement of income, arguing that the business income from the sale of shares and mutual funds was incorrectly taxed under capital gains. The AO issued a notice under Section 148, and after considering the assessee's objections, concluded that the income should be taxed as business income. The assessee challenged this reopening before the Commissioner of Income Tax (Appeals) [CIT(A)], who held that the reopening did not satisfy the proviso to Section 147. The CIT(A) observed that the reopening was based on the same set of facts and amounted to a "mere change of opinion," which is not permissible under the law as established by the Supreme Court in CIT v. Kelvinator of India Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the AO had no new tangible material to justify the reopening and that the reassessment was invalid beyond four years from the end of the relevant assessment year.

2. Treatment of Income from Sale of Shares and Mutual Funds:
The AO initially assessed the income from the sale of shares and mutual funds as capital gains. However, upon reopening the assessment, the AO argued that the income should be treated as business income, citing the substantial nature of transactions, the magnitude of sales, and the intention of profit-making as indicators of trading activity. The CIT(A) and the Tribunal found that the assessee had fully and truly disclosed all material facts in the original assessment, and the AO's subsequent attempt to reclassify the income was based on the same material facts, constituting a change of opinion. The Tribunal affirmed that the original assessment's classification of the income as capital gains should stand.

3. Applicability of the Proviso to Section 147:
The proviso to Section 147 stipulates that if an assessment is reopened after four years from the end of the relevant assessment year, it must be due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The CIT(A) and the Tribunal found that the assessee had disclosed all relevant facts during the original assessment, and the AO's reasons for reopening did not establish any failure on the part of the assessee. The Tribunal cited several judicial precedents, including decisions from the Supreme Court and various High Courts, to support the view that mere change of opinion does not justify reopening an assessment beyond four years. Consequently, the Tribunal concluded that the reopening of the assessment was invalid under the proviso to Section 147.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the reopening of the assessment was invalid as it did not satisfy the conditions laid down in the proviso to Section 147. The Tribunal dismissed the Revenue's appeal, affirming that the income from the sale of shares and mutual funds should be treated as capital gains, as originally assessed. The order was pronounced on 29th July 2022 at Chennai.