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TMI Blog2014 (11) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... re in furnishing material facts truly and fully is either visible or evident from the reasons recorded - It is clearly evident the assessment has been reopened primarily on the basis of the order passed by CIT u/s 263 for AY 2006-07, which was upheld by ITAT and only for the purpose of assessing the gain derived from share transaction as profits and gains of business or profession in stead of capital gain as claimed by assessee and accepted in the original assessment - as there is no failure on the part of assessee to disclose fully and truly all material facts necessary for its assessment, the reopening of assessment beyond a period of four years is in violation of statutory provision, hence, invalid in law - there are no fresh and tangible material before the AO on the basis of which AO could have formed belief that income has escaped assessment - the foundation on which assessment was reopened do not survive - the finding of the CIT(A) with regard to the validity of reopening u/s 147 has to be sustained - thus, the order of the CIT(A) is set aside – Decided against revenue. Capital gains on sale of shares - STCG or business income - Held that:- CIT(A) was of the view that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in purchasing and selling of shares pertaining to the AY 2005-06 is purely of business in nature. 5. The Hon ble CIT(A) ought to have appreciated the fact that the order of Hon ble High Court for the AY 2006-07 is based on the specific facts and transactions corresponding to that particular year and is not in tune with that for the AY 2005- 06. 6. The Hon ble CIT(A) erred in applying the decision of the Hon ble High Court order for the AQY 2005-06 without analyzing the nature of transactions. 7. Any other ground(s) that may be urged at the time of hearing. 3. As can be seen, ground nos. 1 7 are general in nature, hence, not required to be adjudicated. 4. In ground No. 2, department has challenged the finding of the CIT(A) that the initiation of proceeding u/s 147 to be invalid. Ground Nos. 3 to 6 are on the issue as to whether CIT(A) was justified in treating the transactions in shares by assessee as investment only and thereby treating the gain there from as capital gain in stead of business income as held by AO. 5. Briefly the facts are, assessee a company is engaged in the business of buying and selling of shares and scrips and units of mutual funds. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Director s report wherein it was stated as under: In the directors report while reviewing the operations of the company director writes that during the year, the market was upbeat and the sensex was at 6492.82 and Nifty at 2035.65 as on 31 March and as such your company s investment in shares and mutual funds have yielded good result. This shows that the main sole operation of the company is tracking movement of sensex and accordingly buying and selling of shares. The AO noted that assessee has been regularly buying and selling shares and units of mutual funds on a very high volume through out the year. He further noted that as the assessee is doing buying and selling of shares and units on a day-today basis, it shows that assessee is monitoring the stock markets and buying at dips and selling at highs with an intention to make profit form these transactions. He observed that assessee has been consistently investing in shares and rotating the funds again and again in various scrips to make profit. He opined that this intention to make profit in the share market has to be held as carrying on business activity. AO observed that earning dividend income is incidental to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by AO do not disclose any such fact and only relying on the observations of the CIT in order passed u/s 263 for the AY 2006-07, assessment was reopened. In course of hearing, it was submitted by assessee that not only at the time of recording of reasons, but, in the assessment order also, AO has heavily relied upon the finding of CIT in his order u/s 263 for AY 2006-07, which was confirmed by ITAT. However, Hon ble High Court of AP, in judgment dated 21/02/12 in ITTA NO. 512 of 2011, had set aside the orders of ITAT as well as of CIT while accepting assessee s claim that income derived from share transactions is to be assessed as capital gain. 7. The CIT(A) after considering the submissions of assessee and examining the facts on record found that reopening of assessment was made after a period of four years from the end of the assessment year, which attracts proviso to section 147. She noted that though AO has stated in his order that assessee has failed to make full and true disclosure of material facts, but, he has not specified what are those facts. CIT(A) observed that the reasons recorded by AO do not show any such failure on the part of assessee in making full and true d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sults indicates that it is only doing trading activity as there is nothing in these circumstances to show that the assessee cannot be an investor. 4.10 I, therefore, hold that the reasons recorded by the AO do not show presence of any tangible material to conclude that there was escapement of income. 8. So far as the merits of the issue as to whether the gain from share transactions and units of mutual funds to be treated as profits and gains of business or income from capital gain, learned CIT(A) observed that in para 9 of the reasons recorded for reopening the assessment, AO has referred to the fact that facts in assessee s case for the impugned assessment year are similar to AY 2006-07. In this context, learned CIT(A) referred to the judgment of the Hon ble High Court in assessee s case for AY 2006-07 wherein the Hon ble High Court accepted assessee s claim that gain derived from share transactions is to be assessed as income from capital gains on the following reasons: a. The closing stock was valued at cost and not at cost or market price, whichever is lower. b. The appellant had earned substantial dividend, ₹ 38,24,976 during the year. c. The LTCG wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner and mode of investment in transaction in shares and units remained consistent from the date of inception itself and which has been accepted by AO till the assessment order was revised for AY 2006-07 by CIT u/s 263 and even latest assessment order passed for AY 2011-12, there is no reason to reopen the assessment only for the purpose of assessing the income from transactions in shares and units as income from business or profession. 11. We have heard the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. The undisputed facts are, assessee is transacting in shares and units from the inception itself. Income shown by assessee from transactions in shares and units as capital gain was also accepted by the AO till the assessment year 2006-07. Assessment completed for AY 2006-07 was revised by CIT u/s 263 by holding that income from share transactions to be assessed as business income of assessee. ITAT also dismissed assessee s appeal while confirming the order passed by CIT u/s 263. It is quite evident from the facts on record that on the basis of the order passed by CIT u/s 263 for AY 2006-07 assessments for AY 2008-09 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dulged in repetitive purchases and sales of the same scrip, but, he has not given a single instance where the same share purchased by assessee was sold either on the same day or within a short duration. Only, because assessee had frequently purchased and sold shares of the same company does not mean that the same share was sold. Further, the statement made in director s report in no way helps in coming to a conclusion that the share transactions are in the nature of trading activity and not investment. It is further to be noted that AO has also observed that the very name of the assessee company indicates that the activity in share transaction is in the nature of business activity. In this context, he relied upon the order of the Tribunal in assessee s own case for AY 2006-07. Thus, from the aforesaid facts it becomes clear that while coming to the conclusion that transactions in shares and units are in the nature of trading activity, AO more or less has adopted the observation/finding of CIT and ITAT for AY 2006-07. However, the aforesaid finding of both CIT and ITAT were found to be devoid of merit by the Hon ble AP High Court while deciding assessee s appeal for AY 2006-07. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent from the reasons recorded as well as assessment order that only on the basis of the order passed in case of assessee for AY 2006-07, AO has concluded that income derived from transactions in shares and units should be assessed as income from business activity. As the Hon ble AP High Court has upheld the assessee s claim for AY 2006-07 and the department has failed to bring any material before us to show that facts obtaining in the impugned assessment year are different from the facts considered by the Hon ble AP High Court in AY 2006-07 or for that matter, the parameters laid down by the Hon ble High Court in 2006-07 do not apply to the facts of the present case, we do not find any reason to interfere with the order of learned CIT(A). Accordingly, we dismiss the grounds raised by department. 13. In the result, appeal of the department is dismissed. ITA NOs. ITA Nos. 1060 to 1062/Hyd/2012 by the department 14. The facts and issues involved in these appeals of the department are identical. The only difference being, in assessment year 2007-08 reopening made is within a period of four years whereas AY 2009-10 and 2010-11, are regular assessments. However, the inference d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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