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TMI Blog2015 (10) TMI 2048X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and conjunctures and not based on any particular material fact or circumstance which can be considered to be a deciding factor for such a treatment. Second reason regarding the applicability of amended section 94(7) is concerned, we find that the amendment brought by the said section was applicable from the assessment year 2005-06. Even the condition imposed in the said amendment is that if the assessee buys or acquires any securities or units within a period of three months prior to the record date of dividend and sells or transfers such units within a period of nine months after such date, then the loss is to be disallowed. However, we find that during the year under consideration the assessee had not sold or transferred the securities/mutual funds. The loss arrived at by the assessee was on account of diminution in the value of the stock as compared to the market value. The units were lying in the stock of the assessee at the close of the financial year. Under such circumstances, the provisions of section 94(7) were not attracted in this case. So far as the forming of reasons as to the applicability of section 94(7) for the year under consideration is concerned, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) on 24.03.05. The case was selected for scrutiny and the assessment under section 143(3) was completed on 19.12.06. Thereafter, the AO reopened the assessment observing that the income of the assessee has escaped assessment. In the reasons recorded for reopening dated 20.01.09, it has been mentioned that the assessee had credited the P L account with an amount of ₹ 21,96,630/- on account of profit on sale and purchase of shares and units. The said profit was set off against the loss from redemption of mutual funds amounting to ₹ 5,21,76,870/-. The AO observed that the loss from the sale of mutual funds was to be computed under the head Capital gains/capital loss as the said loss was incurred by the assessee from investment activity in mutual funds. The AO further observed that the assessee had sold/redeemed the mutual funds within 9 months of the record date of dividends. Hence, the provisions of section 94(7) as amended vide Finacne Act, (2) of 2004 w.e.f. 01.04.05 were applicable and the loss so incurred was liable to be disallowed/ignored. The above said reasons for reopening of assessment dated 20.01.09, for the sake of ready reference, are reproduced as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 19,37,656 Principal Index Fund- Div. (- )78,41,587 (-)37,69,664 (-)1,16,11,251 71,60,474 Reliance Growth Fund Div. (-)1,03,82,093 (- )39,45,195 (-)1,43,27,289 1,03,82,093 Total (-)2 77,07,832 (-)93,02,041 (-)3,70,01,935 2,70,51,345 These losses were incurred on account of redemption of units of mutual funds purchased during F.Y.2003-04 and included in the closing stock of the assessee as on 31.03.2004. These were redeemed during F.Y.2004-05 and such redemption was made within 9 months of the record date of dividends. The purchase of these units was also within 3 months of record date of dividend. The provisions for redemption of units of mutual funds within a period of 9 months were introduced by the Finance Act (2) of 2004 from A.Y.2005-06 and it was applicable for the redemptions made from and after 01.04.2004. Hence, the losses incurred by the assessee on account of redemption of mutual fund are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e viz. the intention of the assessee at the time of purchasing/dealing in shares or units; the number of scripts dealt in with; frequency of transactions and magnitude of investment; duration and length of time for which the said units are held by the assessee; the nature of transactions involved; the intention of the assessee to earn quick profits; the treatment and characterization with the securities in the books of accounts of the assessee etc. He submitted that the entire details of sale and purchase of shares and mutual funds were submitted to the AO during the time of original assessment. Though the AO has not specifically discussed the issue as to whether the investment in mutual funds was to be treated as investment activity or as trading activity, however, the claim of the assessee was accepted by the AO after due application of mind. In relation to the second reason, the Ld. A.R. has submitted that the amended provisions of section 94(7) were applicable prospectively for assessment year 2005-06 and not to the year under consideration. Hence, the second reason recorded by the AO was factually and legally wrong and the reopening on the basis of amendment brought subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) in the impugned order. The Hon ble Bombay High Court in the case of Asian Paints Ltd. vs. DCIT (2009) 308 ITR 195 (Bom.), while relying upon the full bench decision of the Hon ble Delhi High Court in the case of CIT vs. Kelvinator India Ltd. (2002) 256 ITR 1, has observed that when a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. Such a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act that judicial and official acts have been regularly performed; to hold that an order has been purportedly without application of mind conferring jurisdiction upon the AO to reopen the proceedings without any new or further information or material available to him, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. The Hon ble Bombay High Court has, thus, held that the AO cannot take advantage of his own wrong to reopen the assessment by taking recourse of the provisions of section 147 of the Act. It may be noted that the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted in this case. As per the accounting practice prevalent to value the stock in trade at cost or market price whichever is lower, the loss was arrived at, after valuing the units at market price and the same was claimed business loss. Neither the amended provisions of section 94(7) were applicable for the year under consideration nor otherwise attracted in this case. We find that even the AO was also of the view that the provisions of section 94(7) were contingent upon the redemption of units. While framing assessment for A.Y. 2005-06 wherein the AO had formed the view to reopen the assessment for A.Y. 2004-05 i.e. for the year under consideration, the AO has observed in para 4.1.0 of the order dated 28.12.07 that the anticipated loss arrived at for A.Y. 2004-05 could have been taken into consideration in A.Y. 2005-06 at the time of actual redemption of the mutual fund units and the difference between the two could have been taken for consideration/computation of income/loss for the A.Y. 2005-06. In view of this, the AO had made protective addition on the same issue for A.Y. 2005-06 also. We find that so far as the actual redemption of the unit during the subsequent year is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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