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TMI Blog2013 (11) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... y of reopening on the basis of a subsequent decision of the jurisdictional bench of the Hon'ble ITAT. 4. That the Ld. CIT (A) erred in law and in the facts of the case in conforming the order of the AO in reopening the case on the basis of audit objection. 5. That the Ld. CIT (A) erred in law and in the facts of the case in conforming the order of the AO in treating the income from sale of investment as business income and not as short term capital gains as shown by the appellant. 6. Without prejudice to the above, the Ld. CIT (Appeal) should have directed to grant credit for Securities transaction tax (STT) paid in respect of such income. 7. That the Ld. CIT (A) erred in law and in the facts of the case in confirming the order of the Assessing Officer in charging interest u/s 234B of the act." 3. Grounds nos 1 to 4 regarding validity of reopening of the assessment. 3.1 The assessee company is engaged in the business of investment and trading in shares and securities. It furnished its return of income for the Assessment Year under consideration by disclosing the total income of Rs. 20,60,73,429/- on 14.11.2006. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Assessing Officer asked various details by issuing notice u/s 143(2) and 142(1) and the assessee, in response to the notices, filed all the relevant details including the books of account, vouchers, contract notes etc., before the Assessing Officer for verification. Thus, after examination and discussion of the issue, the Assessing Officer was satisfied with the claim of the assessee regarding LTCG and STCG on shares and mutual funds. The ld AR has referred the notices issued by the Assessing Officer u/s 143(2) and 142(1) placed at pages 36 to 40 of the paper book and submitted that the Assessing Officer issued a detailed questionnaire vide notice dated 11.6.2008 whereby the details of new investments during the year with source thereon, copies of bank statement along with reconciliation, details of profit on sale on mutual funds and the details of profit/capital gain on sale on shares and securities were called for. The Assessing Officer has also raised a question about the circular no.4/2007 regarding the income from share transactions as to whether the same should be treated as business or capital gain in nature. Accordingly, the Assessing Officer asked the assessee to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Assistant Commissioner of Income-tax v. ICICI Securities Primary Dealership Ltd. reported in 349 ITR 299 and submitted that after a mere re-look of accounts which were earlier furnished by the assessee, the Assessing Officer had come to conclusion that the income had escaped assessment, same was not permissible u/s 147 of the Act as it was clearly a change of opinion. 4.4 The ld AR then referred the decision of the Hon'ble jurisdictional High Court in the case of Asian Paints Ltd vs DCIT reported in 308 ITR 195 and submitted that as held by the Hon'ble jurisdictional High Court the Assessing Officer cannot take recourse to the provisions of sec. 147 for his own failure to apply his mind to the material which, according to him, is relevant and which was available on record. The ld AR has submitted that nothing new had happened and no new material has come to the knowledge of the Assessing Officer and even no new information had been received; it was merely a fresh application of mind by the Assessing Officer to the same sets of facts and therefore, as held by the Hon'ble Supreme Court, the reopening of the assessment on the basis of change of opinion which is not permissible. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod and borrowed funds utilized by the assessee. He has relied upon the order of the CIT(A). Since the reopening is within 4 years; therefore, the case of the assessee does not fall under the provisions of sec. 147 and there is no pre-condition that escapement of the income from assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary. 4.8 In rebuttal, the ld AR has submitted that there is no new fact came to the knowledge of the Assessing Officer after passing the initial assessment order u/s 143(3). All the facts and relevant records have been considered and examined by the Assessing Officer and therefore, reopening of the assessment is not sustainable as held by the Hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. Income-tax Officer reported in 106 ITR 1 5. We have considered the rival submissions and carefully perused the relevant material as well as the decisions relied upon by the parties. There is no dispute on the point that the Assessing Officer issued notice u/s 148 after the objections raised by the audit party. The reasons recorded for reopening of the assessment are as under: &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon. (xix) Your attention is drawn to the contents of CBDT Circular No.4/2007 regarding income from share transactions as to whether the same should be business or capital gain in nature, please furnish your submission vis-a-vis this circular." 5.2 The assessee reply the queries of the Assessing Officer by filing vide letter dated 18.6.2008 and the relevant part of the reply is as under: "7. Nature of business: The assessee company does not have any business or profession of trading manufacturing. The Company is engaged in the activity of Investment in Shares and Mutual funds. In the current year the company has undertaken Investment activities in the primary & secondary equity market. The company also invested in mutual funds." "13. Details of exempted income Rs. 1,92,24,566/-is asunder: Long Term Capital Gains Rs. 86,72,771/- - Exempt u/s 10(38), Dividend on shares and MF Rs. 102,38,780/-(Shares) Rs. 3,13,014/-(Mutual Funds) - Exempt u/s 10(34) and 10(35). During the year assessee company made long term capital gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of long term and short term capital gains. During the course of assessment proceedings your hoour asked us to justify the income arising out of purchase and sale of shares under the head capital gains. In the context it is submitted that assessee has been doing investment in shares since last several years. He is maintaining the books of accounts. The ledger account of shares investment is separately maintained and income arising on sale of such shares is shown under the head capital gain. These shares were purchased with the intention of investment only. On perusal of the Balance sheet filed with the return of income your honor would appreciate that the shares were shown under the head investment. The books of accounts clearly show that, the entries were made in a manner that there is a definite demarcation for shares held as investment. The question as to whether the shares sold were investment or stock in trade is determined on the basis of entries made in the assessee's book of accounts and when the shares purchased and held as investment, then the said entries clearly demonstrate the intention of the assessee with which the shares were purchased. The assessee is also gettin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your honor will see that shares sold during the year, were held by the assessee for the fairly long period and the same were appearing under the head investment in the earlier balance sheets. Your Honor's attention is also invited to the guideline given by the CBDT is in Circular no. 4/2007 dated 15/06/2007 on the issue of treatment of income arising out of sale of shares as Capital Gain or Business Income. The relevant portion of the said circular is reproduced herein below: ...................................................................................................... .................................................................................................... The CBDT circular is reproduced below ....................................... .................................. The assessee company relied on the decision of Mumbai ITAT in the case of Janak Rangwala v/s ACIT 11- SOT 627 in which it is held that magnitude of transaction does not change the nature of transaction hence it is nature of transaction which shall decide category of transaction and not frequency of sale. It is also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer accepted the claim of the assessee regarding STCG while passing the assessment order dated 29.12.2008 and observed in paras 2 & 3 as under: 2. Consequent to the assignment of the case, notices u/s.143(2) and 142(1) alongwith questionnaire was issued on 19.12:2007 which was duly served upon the assessee. In response to the said notices no one appeared nor filed any details thereof. Thereafter another letter was issued on 23.01.2008. In response to this, ShrLC.B.R. Murthy, C.A filed part details. Another letter dated 11.06.2008 alongwith notice u/s 142(1) was issued, but no one appeared nor filed the balance details. 3. After taking over the charge of AddLCIT.Rg.5(2), Mumbai, the undersigned issued fresh notices u/s 143(2) & 142(1) dated 18.09.2008 which was duly served on the assessee company on 22.09.2008. Again no one appeared nor filed any details called for. Further notices were issued u/s 142(1) on 22.10.2008 & 14.11.2008. In response to the notices, Shri C.B.R Murthy, C.A and authorized representative of the assessee attended and filed all the details called for from time to time. Books of account, vouchers, contract notes were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the segments as per the smaller quantity available to meet out the purchase quantity of the assessee, then a single transaction of purchase appears to be the many transactions, which has been considered by the authorities below as the number of transactions. When a single script though quantity of shares is large but purchased on a single day and executed also on a single day from the supply of quantity from various sellers, then the transaction is shown a bifurcated in various transaction. Therefore, the concept of entire purchase and sale of shares of transactions has been misunderstood by counting a single transaction as multiple transactions. Similarly, when a large quantity of shares is offered for sale, the execution is in small quantity shares in various segments. Therefore, a single transaction of sale appears to be number of transaction. 5.5 As it is clear from the facts that the real transaction of sale and purchase are much more less and even less half of the number of transactions, which are considered by the authorities below and therefore, the number of transactions as mentioned by the authorities below as 1062 are not factually correct. Hence, the very basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator [2002] 256 ITR 1 = (2003-TII-19-HC-DEL-INTL-LB) referred to above, has taken a clear view that reopening of assessment under section 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice under section 148." 6.1 In the above noted case, that the Hon'ble High Court has taken note of the fact that between the date of order of assessment sought to be reopened and date of forming of opinion by the Assessing Officer, nothing new has happened; therefore, no new material has came on record, no new information has been received, it is merely a fresh application of mind by the AO to the same set of facts. Therefore, forming of the opinion by the AO for reopening of the assessment on the basis of the material which was available on record while passi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has observed that mere production of account books from which material evidence could have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. The issue in the said case is entirely different which has no applicability in the case of the assessee before us, as there is no allegation of failure on the part of the assessee to disclose all material facts necessary for assessment. 7. In view of the above discussion as well as the facts and circumstances of the case, when the issue of nature of transaction whether investment or trading is debatable issue and the department right from the beginning had accepted the claim of the assessee by treading the transaction as investment and the gain arising out of the purchase and sale of shares as capital gain; therefore, the reopening on the issue which was examined and accepted by the Assessing Officer in the original assessment is based on change of opinion. Hence, we are of the considered view that the notice issued u/s 148 and subsequent reassessment u/s 147 is bad in law and accordingly, set aside. 8. Even on the merit, we note that the transaction in the earlier ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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