Shri Ashokkumar V. Halani, Dhrangadhra V. The Income Tax Officer, Ward-3, Surendranagar

ITA 196/RJT/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9077 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN VERMA SR DR
• Assessee Lawyers: DM RINDANI
• Keywords: Business income; Assessment record; Tax effect; Reason to believe
• Section: 143(3); 147; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.196/RJT/2015 ( / ASSESSMENT YEAR : 2008-09) SHRI ASHOKKUMAR V. HALANI HARILAL VALJIBHAI & BROS. COTTON MERCHANT, SHAKTRI ROAD DHANGADHARA / VS. THE INCOME TAX OFFICER WARD-3 SURENDRANAGAR ./ ./ PAN/GIR NO. AAWPH 6048 P ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D.M. RINDANI, AR ! / RESPONDENT BY : SHRI PRAVEEN VERMA, SR.DR ' #$% ! & / DATE OF HEARING 05/04/2017 '( ! & / DATE OF PRONOUNCEMENT 12 / 04 /2017 / O R D E R PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-7, AHMEDABAD [CIT(A) IN SHORT] DATED 27/03/2015 ARISING FROM T HE ASSESSMENT ORDER UNDER 143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 2 - TO AS 'THE ACT') DATED 30/01/2014 FOR THE ASSESSMENT YEAR (AY) 2008- 09. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED TWO-FO LD GRIEVANCES AS UNDER:- (I) VALIDITY OF RE-OPENING OF THE ASSESSMENT UNDER S.147OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT'). (II) TREATING THE SHORT-TERM CAPITAL GAIN OF RS.10, 32,303/- AS TAXABLE UNDER THE HEAD PROFITS AND GAINS OR PROFES SION 3. BRIEFLY STATED, THE ASSESSEE IS AN INDIVIDUAL WH O FILED RETURN FOR THE AY 2008-09 DECLARING TOTAL INCOME OF RS.15,69,790/- . THE ASSESSMENT WAS COMPLETED UNDER S.143(3) OF THE ACT DATED 28/10 /2010 AT RS.16,93,408/-. THEREAFTER, NOTICED UNDER S.148 OF THE ACT DATED 13/06/2013 WAS ISSUED BY THE ASSESSING OFFICER (AO) SEEKING TO RE-OPEN THE ASSESSMENT. THE REASONS FOR RE-OPENING OF ASSE SSMENT AS PROVIDED TO THE ASSESSEE READ AS UNDER: IN THIS CASE THE ASSESSEE DRIVES HIS INCOME FROM S ALARY, CAPITAL GAIN AND INTEREST. ON SCRUTINY OF THE RECORDS REVE ALED THAT, THE ASSESSEE HAS ENTERED INTO 169 SHARES TRANSACTION. THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF RS.10,32,30 3/-, THE HOLDING PERIOD OF SHARES WAS LESS THAN ONE MONTH AND BETWEE N ONE MONTH AND THREE MONTHS. THE FREQUENCY OF TRANSACTION PRI MA FACIE SHOWS THAT IT AMOUNTS TO BUSINESS TRANSACTION AND NOT AN INVESTMENT. THEREFORE, THE INCOME OF RS.10,32,303/- DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN NEEDS TO BE TREATED AS B USINESS INCOME OF THE ASSESSEE. THUS THERE IS UNDER ASSESSMENT OF INCOME OF ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 3 - RS.10,32,303/- AND RESULTANT TAX EFFECT OF RS.2,78, 035. ACCORDINGLY, THIS AMOUNT IS LIABLE TO BE TAXED IN T HE HANDS OF THE ASSESSEE AS A BUSINESS INCOME. AS A RESULT OF WHIC H INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 2. IN VIEW OF THE ABOVE, I HAVE TO REASON TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND THE CA SE IS FIT FOR ISSUE OF NOTICE U/S.148 OF THE I.T.ACT. 4. PURSUANT TO AFORESAID NOTICE UNDER S.148, THE AS SESSMENT WAS FRAMED UNDER S.143(3) RW.S.147 OF THE ACT DATED 30/ 01/2014 WHEREIN THE AMOUNT OF RS.10,32,303/- DECLARED BY THE ASSESSEE A S CAPITAL GAIN AND ASSESSED AS SUCH IN THE EARLIER ASSESSMENT WAS TREA TED AS BUSINESS INCOME TO THE ASSESSEE INSTEAD OF CAPITAL GAINS. IT IS PERTINENT HERE TO NOTE THAT AN ASSESSEE IS ELIGIBLE TO CONCESSIONAL R ATE OF TAX ON SHORT TERM CAPITAL GAINS (STCGS) AS OPPOSED TO REGULAR HIGHER RATE OF TAX APPLICABLE TO BUSINESS INCOME IN RESPECT OF THE SHA RE TRANSACTIONS WITH WHICH WE ARE CONCERNED. THE ASSESSEE ASSAILED THE ACTION OF THE ASSESSING OFFICER (AO) BEFORE THE CIT(A) BOTH ON A SSUMPTION OF JURISDICTION UNDER S.147 OF THE ACT AS WELL AS ON M ERITS. THE CIT(A) HOWEVER, DECLINED TO ENTERTAIN THE APPEAL OF THE AS SESSEE WITH ANY FAVOUR. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD.AR FOR THE ASSESSEE MR.R.M. RINDANI, AT T HE OUTSET, ASSAILED THE ACTION OF THE CIT(A) FOR SUSTAINING TH E RE-OPENING ACTION OF ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 4 - THE AO. THE LD.AR POINTED OUT THAT THERE IS INHERE NT LACK OF JURISDICTION ASSUMED UNDER S.147 OWING TO THE FACT THAT ALL THE PARTICULARS CONCERNING THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WER E PRESENTED BEFORE THE AO IN THE ORIGINAL ROUND OF PROCEEDINGS. HE ADVERT ED OUR ATTENTION TO THE SPECIFIC QUESTIONNAIRE AND REPLY OF THE ASSESSEE ON THE ISSUE. HE ACCORDINGLY POINTED OUT THAT THE AO IS NOT ENTITLED TO REVIEW ON HIS ORIGINAL ACTION OF ACCEPTING THE GAINS ARISING THE SALES OF SHARES AS CAPITAL GAINS. THE LD.AR POINTED OUT THAT THE NOTICE HAS B EEN ISSUED BEYOND THE FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THEREFORE ALSO THE NOTICE IS BARRED BY LIMITATION FOR THE REASON T HAT CONDITIONS AS PRESCRIBED IN THE FIRST PROVISO TO SECTION 147 ARE NOT FULFILLED. 7. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE CIT(A) AND SUBMITTED THAT THE ACTION OF THE AO UNDER S.147 WAS APPROVED BY THE CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ON THE MAINTAINABILITY OF NOTICE UNDER S.147 AND CONSEQUEN T RE-ASSESSMENT ORDER THEREON. A BARE READING OF REASONS RECORDED (AS NO TED ABOVE) GIVE AN UNESCAPABLE IMPRESSION THAT THE ENTIRE ACTION OF TH E AO IS VITIATED BY LACK OF JURISDICTION. IN THE PRESENT CASE, THE ASS ESSMENT HAS BEEN ORIGINALLY FRAMED UNDER S.143(3) AND ACTION HAS BEE N TAKEN UNDER S.147/148 AFTER THE EXPIRY OF FOUR YEAR FROM THE EN D OF THE RELEVANT ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 5 - ASSESSMENT YEAR. THEREFORE, THE CASE OF THE ASSESS EE IS SQUARELY COVERED BY THE EMBARGO PLACED BY THE FIRST PROVISO TO SECTI ON 147 OF THE ACT. 8.1. THE CASES COVERED BY THE FIRST PROVISO TO SEC TION 147 CAN BE REOPENED ONLY WHEN TWIN CONDITIONS CO-EXIST, NAMELY :- (I) THE AO HOLDS REASON TO BELIEVE ABOUT THE ESCAP EMENT OF CHARGEABLE INCOME. (II) THE ESCAPEMENT IS DUE TO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY OR MATERIAL FACTS. 8.2. AS A COROLLARY, THE BURDEN IS ON THE AO TO PRO VE THAT SECOND CONDITION INTER-ALIA IS ALSO SATISFIED. A BARE READING OF THE REASONS RECORDED SUGGESTS THAT THERE IS NO ALLEGATION OF TH E AO ON THE ALLEGED FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FA CTS IN THE PRESENT CASE WHICH IS A CONDITION PRECEDENT FOR USURPATION OF JU RISDICTION UNDER S.147 OF THE ACT. WE FURTHER NOTE FROM THE REASONS REC ORDED THAT REOPENING ACTION OF THE AO IS BASED ON THE REVIEW OF THE EXIS TING ASSESSMENT RECORDS. THE AO HAS APPARENTLY RE-APPRECIATED THE FREQUENCY, MAGNITUDE OF THE SHARE TRANSACTIONS ETC. AT THIS LATER STAGE POST-ASSESSMENT TO COME TO A DIFFERENT CONCLUSION THAT THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS ACTIVITY. IN OTHER WORDS, THE AO HAS SOUGHT TO DRA W A DIFFERENT INFERENCE ON THE SAME FACTS PLACED BEFORE THE AO IN THE COURS E OF ORIGINAL ASSESSMENT PROCEEDINGS AND ACCEPTANCE THEREOF AS CA PITAL GAINS. THIS IS NOT PERMISSIBLE AS IT TANTAMOUNT TO REVIEW OF THE S AME FACTS IN THE GARB OF ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 6 - SECTION 147 OF THE ACT. THE HONBLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT CO.LTD. (1961) 41 ITR 191 (SC) IN THE IDENTICAL FACT- SITUATION HAS HELD THAT INTENTION OF THE ASSESSEE B EHIND A PARTICULAR TRANSACTION IS A MATTER OF INFERENCE. THE LAW DOES NOT REQUIRE THE ASSESSEE TO STATE THE CONCLUSION WHICH COULD BE REA SONABLY BE DRAWN FROM THE MATERIAL FACTS PLACED ON RECORD. IN CALCU TTA DISCOUNT CASE ALSO, THE ALLEGED NON-DISCLOSURE OF MATERIAL FACTS FULLY AND TRULY ALSO WAS ON ACCOUNT OF THE FAILURE OF THE ASSESSEE TO DISCLOSE THE TRUE INTENTION BEHIND THE SALE OF SHARES. THE HONBLE SUPREME CO URT HELD THAT WHETHER THE INTENTION TO CARRY OUT THE TRANSACTION IN THE N ATURE OF CAPITAL TRANSACTION OR A TRADING TRANSACTION IS ESSENTIALLY A MATTER OF INFERENCE. THUS, NO FAULT WAS FOUND ATTRIBUTABLE TO ASSESSEE F OR NON-DISCLOSURE OF INFERENCE TO BE DRAWN ON THE FACTS PLACED BEFORE TH E AO. THUS, THE ACTION OF AO IN INVOKING 147 IS APPARENTLY NOT SUST AINABLE IN LAW. 8.3. THIS APART, THE PRESENT CASE OF ASSUMPTION OF JURISDICTION IS VITIATED BY ANOTHER REASON. THE AO FORMED THE PURPORTED R EASON TO BELIEVE THAT CHARGEABLE INCOME HAS BEEN ASSESSED AT LOWER R ATE BASED ON THE SAME FACTS WHICH WAS AVAILABLE BEFORE HIM PURSUANT TO SP ECIFIC QUERY IN THE ORIGINAL ASSESSMENT. AFTER COMPLETION OF THE ASSES SMENT, ON REVIEW OF THE ASSESSMENT RECORDS, THE AO SEEKS TO CHANGE HIS OPINION ON THE TAXABILITY OF THE GAINS ARISING OF SALES OF SHARES IN A DIFFERENT MANNER WHICH IS SOMEWHAT BENEFICIAL TO THE REVENUE. HOWEV ER, AS NOTED, WHEN ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 7 - THE AO HAS CONSIDERED THE ISSUE AND THE VIEW TAKEN BY HIM IS A PLAUSIBLE VIEW, THE ORDER OF THE AO CANNOT BE MODIFIED BY WAY OF EXERCISING THE JURISDICTION CONFERRED UNDER S.147 OF THE ACT. IT IS WELL-SETTLED PRINCIPLE OF LAW THAT WHAT CANNOT BE DONE DIRECTLY CANNOT B E ALSO BE DONE INDIRECTLY IN THE GARB OF SECTION 147 OF THE ACT. WHEN THE AO DOES NOT POSSESS THE POWER OF REVIEW OF HIS OWN ORDER IN ORD INARY COURSE, HE CANNOT BE PERMITTED TO ACHIEVE THE SAID OBJECT BY T AKING RECOURSE TO INITIATING PROCEEDINGS OF RE-ASSESSMENT. SECONDLY, THE AO HAS MISERABLY FAILED TO MEET THE REQUIREMENT OF THE FIRST PROVISO TO SECTION 147 OF THE ACT WHICH PLACES STRICTIER FETTERS ON THE POWER OF THE AO WHILE DEALING WITH THE COMPLETED ASSESSMENT UNDER S.143(3) AFTER THE LAPSE OF FOUR YEARS. 9. THUS, IN VIEW OF THE AFORESAID REASONS, WE FIND THAT IT IS A CASE OF OUTRIGHT OVER REACH OF POWERS BY WRONGFUL ISSUANCE OF NOTICE UNDER S.147 OF THE ACT AT THE THRESHOLD. THE ACTION OF THE AO IN ISSUANCE OF REOPENING NOTICE AND CONSEQUENT FRAMING OF RE-ASSES SMENT ORDER THEREFORE REQUIRES DISCREDITED AND QUASHED. WE DO SO ACCORDINGLY. 10. AS A RESULT, APPEAL OF THE ASSESSEE SUCCEEDS O N THE POINT OF LACK OF JURISDICTION UNDER S.147 ITSELF. THEREFORE, WE DO NOT CONSIDER IT NECESSARY TO LOOK INTO THE MERITS OF THE CORRECTNESS OF TAXAB ILITY OF GAINS UNDER PARTICULAR HEAD OF INCOME. ITA NO.196/RJT/ 2015 SH. ASHOKKUMAR V.HALANI VS. ITO ASST.YEAR 2008-09 - 8 - 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 12/ 04/ 2017 AT AHMEDABAD. SD/- SD/- ( MAHAVIR PRASAD) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD ; DATED 12/04/2017 ..#, $.,#../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. - & ' .& / CONCERNED CIT 4. ' .& ( ) / THE CIT(A)-7, AHMEDABAD 5. 2$34 ,&,# , , /DR,ITAT, RAJKOT 6. 4?@ A% / GUARD FILE. / BY ORDER, 2& ,& //TRUE COPY// / ( DY./ASSTT.REGISTRAR) %&, / ITAT, RAJKOT 1. DATE OF DICTATION .. 5.4.17(DICTATION-PAD 20- P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 6.4.17 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 12.4.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 12.4.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER