Income-tax Officer, V. Smt. Kashimira U. Patel, Pune

ITA 1571/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7427 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 13-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Business income; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 68; 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1571/PUN/2014 / ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, (INTL. TXN) - I, BO BHAVAN, SR.NO.47, PLOT NO.1, PUNE SATARA ROAD, PUNE 411009. . / APPELLANT V/S SMT. KASHMIRA U. PATEL, SHRUSHTI, 10 & 11, MANTRI KISHORE PARK, RANGE HILL ROAD, BHOSALE NAGAR, PUNE. PAN : ACWPP6647G. . / RESPONDENT ASSESSEE BY : SHRI SHARAD A. VAZE. REVENUE BY : SHRI ACHAL SHARMA, ADDL.CIT. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) - IT/TP, PU NE DT. 15.05.2014 FOR THE ASSESSMENT YEAR 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- / DATE OF HEARING : 28.08.2017 / DATE OF PRONOUNCEMENT: 22.09.2017 2 ASSESSEE IS A NON-RESIDENT INDIAN. SHE FILED HER RETURN O F INCOME FOR A.Y. 2007-08 ON 27.07.2007 DECLARING TOTAL INCOME AT RS.7,40,730/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE REAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE OR DER DT.10.11.2009 ACCEPTING THE INCOME DECLARED IN THE RETURN OF INCOME. SUBSEQUENTLY ON PERUSAL OF THE PAST RECORDS, AO WAS OF THE VIEW THAT ASSESSEE WAS ENGAGED IN TRADE OF SHARES AND INVESTMENTS ON REGULAR BASIS AND THEREFORE ACCORDING TO HIM THE INCOME SHOWN DURING THE IMPUGNED YEAR UNDER THE CAPITAL GAINS HAD TO BE TAXED AS BUSINESS INCOME. HE ACCORDINGLY ISSU ED NOTICE U/S 148 OF THE ACT ON 31.03.2012 AND RE-OPEN ED THE ASSESSMENT. THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DT.28.03.2013 AND THE TOT AL INCOME WAS DETERMINED AT RS.1,73,73,730/-. AGGRIEVED BY T HE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.15.05.2014 (IN APPEAL NO.PN/CIT(A)-IT/TP/ITO (IT)- I/5/2013-14) ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEV ED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD.CIT(A) ERRED IN DECLARING THE RE-OPENING DON E BY THE AO UNDER SECTION 147 OF THE ACT AS INVALID; NOT BEI NG IN ACCORDANCE WITH THE PROVISIONS OF LAW. THE DECISION OF THE LD. CIT(A) IS CONTRARY TO THE PROVISIONS OF LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) FAILED TO APPRECIATE THE REASONS REC ORDED IN ITS CORRECT PERCEPTIVE. REASONS RECORDED SPEAK FOR THEMSELVES AS REPRODUCED ON PAGE 2 OF THE ASSESSMEN T ORDER. WHILE RECORDING REASONS, PAST RECORDS OF THE ASSESSEE WAS CAREFULLY CONSIDERED. IT WAS ALSO A RE ASON TO BELIEVE THAT CLAIM OF EXEMPTION MADE U/S. 54EC WAS ILLEGAL. HENCE, ACTION OF AO IN INITIATING ACTION U /S. 147 WAS AS PER LAW. THE LD. CIT(A)'S ORDER BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE OBSERVATIONS OF THE LD. CIT(A) IN PARA 2.2.6 OF THE HIS ORDER ARE NOT CORRECT. AO RELIED UPON MUMBAI ITAT'S 3 JUDGMENT IN ARVIND M, KARIA, WHICH PLACED RELIANCE ON TWO SUPREME COURT JUDGMENTS ITSELF, PROVES BEYOND DOUBT THERE WAS SUFFICIENT MATERIAL AND LEGAL SUPPORT TO TAX THE INCOME UNDER SECTION 68 OF THE ACT, 1961. ORDER OF THE LD. CIT(A) IN THIS RESPECT IS CONTRARY TO THE PROVISION S OF SECTION 250(6) OF THE ACT. THE LD. CIT(A)'S ORDER BEING NOT ACCORDING TO LAW BE SET ASIDE AND WELL REASONED ORDER OF THE AO BE RESTORED. 3. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETHER. 4. AO NOTICED THAT ASSESSEE WAS WORKING AS SOFTWARE ENGINEER AND WAS A GREEN CARD HOLDER. SHE HAD PURCHAS ED SHARES OF KALPA VRUKSHA PLANTATIONS PRIVATE LTD. FROM SH RI VIJAY R. NAHAR IN EARLIER YEARS (THE DETAILS OF SHARES PURCHASE D ARE LISTED AT PAGE 9 OF THE ASSESSMENT ORDER). HE NOTICED TH AT THE AFORESAID 187 SHARES WERE SOLD TO GOOFY GRAPHICS PVT. LT D., ON 23.06.2006 FOR SALE VALUE OF RS.1,81,39,000/- AND SHE HAD ALSO SOLD 1600 SHARES OF M/S. SHAPEWELL ENGINEERING LIMITED FOR 13,60,000/-. AO CONCLUDED THAT ASSESSEE WAS ENGAGED IN T HE ACTIVITIES OF PURCHASE AND SALE OF SHARES AND THEREFORE IT CAN BE SAID THAT SHE WAS ENGAGED IN THE BUSINESS OF SHARE TRA DING ACTIVITY. HE NOTICED THAT ASSESSEE HAD DECLARED THE GA INS EARNED ON SALE OF SHARES AS CAPITAL GAINS AND HAD ALSO CLAIMED DED UCTION U/S 54EC OF THE ACT. THE SUBMISSION OF THE ASSESSEE THA T THE GAINS WERE RIGHTLY TREATED AS CAPITAL GAINS WAS NOT FOUN D ACCEPTABLE TO THE AO. HE TREATED THE TRANSACTION EARN ED ON PROFIT ON SALE OF SHARES TO BE AS BUSINESS INCOME AS AGAINST THE CLAIM OF CAPITAL GAINS BY THE ASSESSEE AND ALSO DENIED THE CLAIM OF DEDUCTION U/S 54EC OF THE ACT. IN THE ALTERNATIVE AO N OTICED THAT THE ASSESSEE HAD INVESTED IN THE SHARES OF UNLISTED COMPANY IN WHICH HER FATHER SHRI U.V. PATEL WAS THE GENERAL POWER OF 4 ATTORNEY HOLDER. THE SHARES WERE PURCHASED IN UNLISTED COMPANY FOR A PITTANCE IN WHICH HER FATHER WAS A DIRECTOR , THE SHARES WERE SOLD IN OFF MARKET TRANSACTIONS AND THE VAL UE AT WHICH THE SHARES WERE SOLD WAS NOT EXPLAINED BY THE ASS ESSEE. HE ACCORDINGLY IN THE ALTERNATIVE, HELD THE SALE CONSIDER ATION AS BOGUS AND TREATED IT AS UNEXPLAINED MONEY U/S 68 OF TH E ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A). LD.CIT(A) ON THE ISSUE OF RE-OPENING OF ASSESSMENT , DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 2.1.10 I HAVE CONSIDERED THE FACTS AND LEGAL POSI TION. I HAVE CAREFULLY CONSIDERED THE DECISIONS RELIED ON B Y THE APPELLANT. I FIND ON PERUSAL OF THE REASONS RECORDE D THAT THE LEARNED AO HAS NOT MENTIONED ANY MATERIAL ON THE BA SIS OF WHICH; HE FORMED BELIEF FOR RE-OPENING OF THE ASSES SMENT. IT IS SETTLED THAT EVEN AFTER THE AMENDMENT TO THE SEC TION 147 ON 01.04.1989, MAN INGREDIENTS OF RE-OPENING HAVE N OT UNDERGONE CHANGE. IT IS FUNDAMENTAL THAT REASON TO BELIEVE IS STRONGER THAN REASON TO SUSPECT. THER EFORE, BELIEF IS FORMED ON A MATERIAL WHICH WOULD ACT AS A LINK WITH REASON TO BELIEVE. IT IS HELD BY THE COURTS THAT THE MATERIAL ON THE BASIS OF WHICH BELIEF IS FORMED SHO ULD EXIST IN THE RECORDED REASONS AND THE SAME CANNOT FOUND EXTERNALLY. 2.1.11 IN THIS CASE, I FIND THAT THERE IS NO MATER IAL BROUGHT ON RECORD THE BASIS OF WHICH REASON TO BELIEVE IS F ORMED. IN MY VIEW, THIS IS A CASE OF RE-APPRAISAL OF THE EXIS TING FACTS. ACCORDING TO MY UNDERSTANDING OF LAW, RE-OPENING OF THE ASSESSMENT WITHOUT NEW MATERIAL IS NOT PERMISSIBLE EVEN IF ORIGINAL RETURN WAS PROCESSED U/S.143(1) AND ORDER WAS NOT PASSED U/S. 143(3). IN THIS CASE, ORIGINAL ASSE SSMENT WAS COMPLETED U/S.143(3). 2.1.12 FOR MY CONCLUSION, I DERIVE SUPPORT FROM T HE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFT LIMITED (2013) 3541TR 536 (DELHI). I DO NOT F OLLOW THE DECISION IN THE CASE OF SEVAK RAM VS. ITO (2010) 23 6 CTR (P&H) 462 FAVOURING REVENUE AS I FIND THAT THE DECI SION OF ORIENT CRAFT DECIDES THE ISSUE AFTER COMPREHENSIVE DISCUSSION OF THE SUBJECT MATTER AS AGAINST THE CAS E DECIDED BY PUNJAB & HARYANA HIGH COURT. 2.1.13 IN VIEW OF THE ABOVE, I HOLD THAT THE RE-OP ENING DONE BY THE LEARNED AO IS NOT IN ACCORD1NG TO THE PROVISIONS OF THE LAW AND HENCE IS INVALID. 5 ON THE ISSUE OF MERITS OF THE ADDITION, LD.CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 2.2.4 I HAVE CONSIDERED THE FACTS AND THE ARGUMENT S OF THE LEARNED AO AS WELL OF THE APPELLANT. I HAVE ALREADY HELD THAT RE-OPENING DONE BY THE LEARNED AO TO BE INVALI D IN LAW. THEREFORE, DECIDING THE ISSUE ON MERITS MAY NO T BE WARRANTED, HOWEVER, I PROCEED TO DECIDE THE ISSUE O N MERITS. 2.2.5 I FIND THAT THE PERIOD OF HOLDING THIS CASE IS MORE THAN A YEAR AND FREQUENCY OF SHARE TRANSACTIONS ARE VERY FEW. ACCORDING TO THE PRINCIPLES LAID DOWN IN THE C IRCULAR 4 OF 2007 DATED 15.06.2007 ISSUED BY THE CBDT, PERIOD OF HOLDING AND FREQUENCY OF SHARE TRANSACTIONS ARE IMP ORTANT CRITERIA TO DECIDE AS TO WHETHER THE ASSESSEE HAS E ARNED BUSINESS INCOME OF CAPITAL GAIN FROM SHARE TRADING. THIS CIRCULAR ALSO LAYS DOWN THE TESTS FOR DISTINGUISHIN G SHARES HELD AS STOCK-IN TRADE WITH THE SHARES HELD AS INVE STMENT. THE AO HAS NOT EXAMINED THE FACTS ON THE BASIS OF T HE TESTS LAID DOWN IN THIS CIRCULAR. THEREFORE, THE CASE LAW RELIED BY THE LEARNED AO ARE OF LITTLE USE WITHOUT PROPER FAC TUAL ANALYSIS OF THE FACTS OF THE APPELLANTS CASE. THE CONCLUSION SO REACHED BY THE LEARNED AO WITHOUT ANALYSIS OF TH E APPELLANTS FACTS IN LIGHT OF THE TESTS LAID IN THE CIRCULAR CANNOT BE UPHELD. 2.2.6 AS FAR AS THE APPELLANT'S ALTERNATIVE CONTENT ION OF TAXING SHARE CONSIDERATION U/S. 68 IS CONCERNED, I FIND THAT THE LEARNED AO HAS NOT BROUGHT ANY EVIDENCE ON RECO RD IN SUPPORT OF HER DECISION TO TAX IT U/S. 68. ADDITION TO INCOME CANNOT BE MADE IN ABSENCE OF THE EVIDENCE OR ANY BA SIS'. ACCORDINGLY, I HOLD THAT THE ACTION OF THE LEARNED AO TO TAX SALE CONSIDERATION OF SHARES U/S. 68 IS IMPROPER AND DELETE THE ADDITION MADE BY THE LEARNED AO ON THIS GROUND. 2.2.7 IN VIEW OF THE ABOVE DISCUSSION, I HOLD THAT THE INCOME DECLARED FROM TRADING OF SHARES SHOULD BE AC CEPTED AS LONG TERM CAPITAL GAIN AS DECLARED BY THE APPELL ANT AND DELETE THE ADDITION MADE BY THE LEARNED AO U/S. 68 AS AN ALTERNATIVE STAND. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 5. BEFORE US, LD.D.R. TOOK US THROUGH THE FINDINGS OF AO A ND SUPPORTED THE ORDER OF AO. HE ALSO PLACED RELIANCE ON T HE DECISION OF KARANATAKA HIGH COURT IN THE CASE OF CIT VS. R INKU CHARABORTHY REPORTED IN (2012) 20 TAXMANN.COM 609 (KAR) FO R 6 THE PROPOSITION THAT EVEN IF THE INFORMATION IS OBTAINED FROM THE RECORD OF THE ORIGINAL ASSESSMENT AFTER A PROPER INVESTIGA TION FROM THE MATERIAL ON RECORD OR THE FACTS DISCLOSED THEREB Y OR FROM ANY ENQUIRY OR RESEARCH INTO FACTS OR LAW, RE-ASSESSMENT IS PERMISSIBLE. LD.A.R. ON THE OTHER HAND, SUPPORTED THE ORDE R OF AO AND LD.CIT(A) AND FURTHER PLACED RELIANCE ON THE DECISIO N IN THE CASE OF BOMBAY HIGH COURT IN THE CASE OF ASTEROIDS TRADING AND INVESTMENTS PVT. LTD VS. DCIT REPORTED IN (2009) 308 ITR 190. HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE RE-OPENING OF THE ASSESSMENT AND ON MERITS THE ADDITION U/S 68 OF THE ACT. IN THE PRESENT CASE, IT IS AN UNDISPU TED FACT THAT THE ASSESSEE HAD FILED ORIGINAL RETURN OF INCOME ON 27.07.2007 AND THE ASSESSMENT WAS FRAMED U/S 143(3) OF T HE ACT VIDE ORDER DT.10.11.2009, ACCEPTING THE RETURNED INCOME. THEREAFTER NOTICE U/S 148 OF THE ACT HAS BEEN ISSUED ON 31.03.2012 IN RELATION TO ASSESSMENT YEAR 2007-08 HENCE THE REOPENING OF THE ASSESSMENT IS WITHIN A PERIOD OF FOUR YEAR S FROM THE END OF RELEVANT ASSESSMENT YEAR. THE AO CAN REOPE N AN ASSESSMENT ONLY IN ACCORDANCE WITH THE EXPRESS PROVI SIONS PROVIDED IN SEC.147 / 148 OF THE ACT. SEC.147 OF THE ACT EMPOWERS THE AO WITH JURISDICTION TO REOPEN AN ASSESSME NT ON SATISFACTION OF THE REQUIRED CONDITION I.E., HE SHOULD HAVE SOM E TANGIBLE MATERIAL ON THE BASIS OF WHICH HE HAS REASON TO B ELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IT IS A SETTLED LAW THAT THE POWER CONFERRED U/S 147 OF THE ACT CANNOT BE 7 USED LIKE THE POWER TO REVIEW TO REOPEN THE ASSESSMENT AND THAT U/S 147 OF THE ACT, ASSESSMENT CANNOT BE REOPENED ON A MERE CHANGE OF OPINION. WE FIND THAT LD.CIT(A) HAS GIVEN A FINDING THAT IN THE REASONS RECORDED, AO HAS NOT MENTIONED ANY MATERIAL ON THE BASIS OF WHICH HE FORMED BELIEF FOR REOPENING OF ASSESSMENT AND THAT NO MATERIAL HAS BEEN BROUGHT ON R ECORD BY AO ON THE BASIS OF WHICH HE HAD FORMED BELIEF THAT INCOME H AS ESCAPED ASSESSMENT. THE AFORESAID FINDING OF LD.CIT(A) HAS N OT BEEN CONTROVERTED BY REVENUE. WE FURTHER FIND THAT THE DECISION RELIED UPON BY REVENUE IS DISTINGUISHABLE ON FACTS AND ARE NOT APPLICABLE TO THE PRESENT FACTS OF THE ASSESSEE. WE FURTH ER FIND THAT ON THE MERITS OF THE ISSUE OF ADDITION U/S 68 OF THE ACT, LD.CIT(A) HAS NOTED THAT THERE WAS NO EVIDENCE ON THE BASIS OF WHICH THE SALE CONSIDERATION OF SHARES COULD BE CONSIDER ED TO BE IMPROPER. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD.CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORD ER OF LD.CIT(A) AND THUS THE GROUNDS OF REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 22 ND DAY OF SEPTEMBER, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER PUNE; DATED : 22 ND SEPTEMBER, 2017. YAMINI 8 ' #$%& '&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-IT/TP, PUNE. DIT (TP/IT), PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $+,-/ GUARD FILE. / BY ORDER , // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.