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TMI Blog2011 (2) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT also directed the Assessing Officer to verify whether any expenditure had been incurred in regard to the impugned transactions towards brokerage and administrative expenses, and that if it were so found, the expenditure incurred was required to be adjusted against the dividend income earned in respect of the said units, for the purpose of computation of reliefs claimed by the assessee under section 80 M of the Act. 2. The department being aggrieved by the Tribunal's order has preferred the present appeal in the background of the following brief facts:- 2.1 The assessee filed its return of income for the relevant assessment year on 31.12.1992 declaring an income of Rs. 12,09,36,306/- . By an assessment order dated 24.03.1995, the taxable income was assessed at Rs. 13,75,08,630/-. 2.2 The CIT while scrutinizing the records pertaining to the assessee for the relevant assessment year, appears to have noticed that the assessee had evidently claimed that it had incurred a capital loss of Rs. 3,15,65,000/- in connection with purchase and sale of the aforementioned units. At that stage, it appeared to the CIT that the Assessing Officer had permitted the carry forward of the aforeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue was: whether the cost of retaining the legal ownership in the units had to be adjusted against dividend income earned by the assessee, in respect of which deduction was sought evidently by the assessee under section 80 M read with the provisions of section 80 AB and section 57(iii) of the Act. The learned counsel submitted that on a closer look, if the transactions are unscrambled, as was done by the CIT, it would show that what assessee had done, in effect, was to buy and sell the units (some of which had the same distinctive numbers) either on the same day or in close proximity to raise finance for himself; and therefore, the difference between the cost price and the sale price of the units was nothing but in sum and substance, a facet of interest paid by the assessee for retaining legal ownership of the units in issue. It was contended that the assessee had throughout accepted the position that the legal ownership, in respect of the units in issue, remained with the assessee as the units were never sent to UTI for effecting change of ownership. This device, according to the learned counsel was adopted by the assessee to give an impression that the transactions in issue were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to demonstrate that the Assessing Officer had allowed the assessee's claim to only "carry forward" the impugned short term capital loss. The attempt being to show that transactions were not novel. To buttress this submission, Mr. Mehta drew our attention to paragraph no.7 of the impugned judgment, wherein the Tribunal has adverted to the fact that the issue before them had received the attention of the CIT in the assessment year 1986-1987; and who, in his wisdom, had returned a decision in favour of the assessee, against which, the department had not preferred an appeal. 5.1 It was contended that the genesis of the notice issued by the CIT under section 263 of the Act was the enquiry made by the Assessing Officer with regard to the purchase and sale of the units by the assessee in the subsequent assessment year i.e., Assessment Year 1993-1994; which resulted in the Assessing Officer disallowing the claim of short term capital loss, on the ground that it constituted "speculative loss". In sum and substance, Mr. Mehta contended this material was obviously not available to the Assessing Officer at the stage when, the assessment order was passed for the relevant assessment year i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansal that the appeal can be argued based on the material available on the file of this court, decided to hear the mater on merits. We must express our anguish at the approach adopted by the department, especially with regard to matters which have been pending since long. 8. Moving on to the merits of this case, in our view the first and foremost aspect which would have to be kept in mind is that the assessment proceedings qua the assessee have been reopened by the CIT by taking recourse to the powers conferred upon him under Section 263 of the Act. It is now trite law that for invoking the provisions of Section 263 of the Act the CIT's enquiry should have led him to a conclusion that the order he seeks to revise is both erroneous and prejudicial to the interest of the revenue. It has to be borne in mind that the every loss to the revenue is not necessarily prejudicial to revenue [see M/s. The Malabar Industries Co. Ltd. Vs. CIT, Kerala State (2000) 2 SCC 18 & CIT Vs. Max India Ltd. (2007) 295 ITR 282(SC)]. With this parameter in mind, it would be necessary to appreciate important facets of the case which have emerged on perusal of the record. 8.1 Firstly, the fact that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest to the extent of funds borrowed for the business of the company but actually utilized in trading of Units - 64". 8.4 A reading of the operative part of the SCN would clearly demonstrate that the department impugned the transactions carried out by the assessee by dubbing them as transaction in the "nature of trading" as against the stand of the assessee that they were in the nature of "investments". The department went on to caricature the transactions as "ready forward transactions and speculative in nature". The department also objected to allowance of interest on borrowed funds on the ground that it was not utilized for the purposes of business but in effect utilized in carrying out trade in the aforementioned units. 9. Pursuant to the above, the assessee (as noticed by us in the earlier part of our judgment) filed its reply with the CIT. The reply filed by assessee is not on record. The department which is the appellant in the matter, has failed to file the complete record, though it is the appellant before us - even so, a perusal of the judgment of the Tribunal would show that the assessee had furnished information with regard to the units, starting from, the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fundamental aspect has stood uncontested then, the revenue cannot be allowed to change its view taken in earlier assessment years unless it is able to demonstrate a change in circumstances in the subsequent assessment year. The department in the instant case has not been able to bring to our notice any such changed circumstances which could have persuaded us to sustain the approach of the CIT taken in this case. On this aspect of the matter the observations of the Supreme Court in the case of M/s Radhasoami Satsang, Saomi Bagh, Agra vs CIT (1992) 1 SCC 659 at page 661 in paragraphs 16&17 being apposite, are for the sake of convenience extracted hereinbelow:" 16. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 17. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2007) 8 SCC 688. The Court speaking through Justice C.K. Thakker (as he then was) articulated the applicability of principle of res judicata broadly as follows: The proposition that the strict rule of res judicata as envisaged in Section 11 of the Code of Civil Procedure, 1908 has no application, cannot be debated. The crucial aspect which requires to be borne in mind is: whether the issue in question arose "directly" and "substantially" in a particular year or was it an issue which arose "incidentally" or "collaterally" in respect of which the revenue had taken a view one way or the other. If the issue arose "directly" and "substantially" in the earlier assessment years in respect of which the revenue had taken a view one way or the other then, it was not open to the department to change its opinion on "fundamental aspects" of the matter. (See observations made in paragraph 18 to 24 of the judgment). This would be truer, in our opinion, in a case where the revenue seeks to exercise revisional jurisdiction qua the assessee. 11. In addition we wish to refer to two more judgments. The first one being a judgment of the Bombay High Court in the case entitled CIT vs Gopal Purohit (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment could re-open an assessment based on a fresh inference of transactions which have been carried on by the assessee and accepted in-turn by the revenue for several preceding years on the pretext of dubbing them as erroneous. In our view the answer has to be in the negative otherwise. 12.1 In the case of CIT vs Associated Food Products P. Ltd & Popular Bread Factory (2006) 280 ITR 377 (MP) the Division Bench of the Madhya Pradesh High Court while considering the issue as to whether the CIT had correctly exercised its power under Section 263 of the Act by re-opening a block assessment, had cited with approval the following passage from the judgment of the Andhra Pradesh High Court in the case of Sirpur Paper Mills Ltd. vs Income-tax Officer (1978) 114 ITR 404 which somewhat summed up the scope of the power under Section 263 of the IT Act. "As observed in Sirpur Paper Mills Ltd. v. ITO : [1978]114ITR404(AP) by Raghuveer J. (as his Lordship then was), the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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