M/s Madhuraj Foundation, Ludhiana V. ACIT, Ludhiana

ITA 198/CHANDI/2012

• Counselvise Citation: 19821514 RSA 2012
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 16-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: ASHWANI KUMAR
• Keywords: Business income; Depreciation; Opportunity of being heard; Rule of consistency; Wrong claim; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 147; 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 198/CHD/2012 ASSESSMENT YEAR: 2006-07 M/S MADHURAJ FOUNDATION, VS THE ACIT, 84, INDUSTRIAL AREA-A, CIRCLE VI, LUDHIANA. LUDHIA NA PAN: AAATM5927G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 08.10.2015 DATE OF PRONOUNCEMENT : 15.10.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS)-II, LUDHIANA DATED 12.12.2011 F OR ASSESSMENT YEAR 2006-07 ON THE FOLLOWING GROUNDS : 1. THAT ORDER PASSED U/S 250(6) BY THE LD. CIT(A)-II, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN INITIATING PROCEEDINGS U/S 148 . 2. THAT HE WAS FURTHER NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN TREATING THE SUM OF 2 RS.92,25,9177- ORIGINALLY ASSESSED AS SHORT TERM CA PITAL GAIN ON MUTUAL FUNDS AS INCOME FROM BUSINESS. 2. THE BRIEF FACTS OF THE CASE ARE THAT ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 08.04.2008 AT AN INCOME OF RS. 1,22,46,908/-. THE ASSESSEE IS A PRI VATE FAMILY TRUST. THE ASSESSEE HAS SHOWN RENTAL INCOME , DIVIDEND INCOME, INTEREST ON FDR AND INCOME FROM SA LE OF SHARES. LATER ON, IT CAME TO THE NOTICE THAT INCOM E FROM SALE OF SHARES HAVE BEEN SHOWN AS CAPITAL GAIN INCO ME AND NOT BUSINESS INCOME. THE SCRUTINY OF THE RECORD SHOWS THAT THE INCOME FROM SALE OF MUTUAL FUNDS IS ACTUALLY ASSESSABLE UNDER THE HEAD BUSINESS INCOME AND NOT AS CAPITAL GAIN INCOME. THE ASSESSEE HAD DETERMINED PROFIT/LOSS BY VALUATION OF CLOSING STOC K OF MUTUAL FUNDS AS ON 31 ST MARCH OF EVERY YEAR. THE ASSESSEE HAS STATED FUNDS AS STOCK-IN-TRADE AND NOT INVESTMENTS. THUS, INCOME OF RS. 92,25,917/- IS TO BE TREATED A BUSINESS INCOME AND IS TO BE TAXED AT NOR MAL RATE. 3. THE ASSESSING OFFICER RECORDED THE REASONS FOR R E- OPENING OF THE ASSESSMENT ON 05.01.2010 WHICH READS AS UNDER : NAME AND ADDRESS OF THE ASSESSEE : M/S MA DHURAJ FOUNDATIION 84-IND USTRIAL AREA-A, LUDHIANA A.Y. 2006-07 REASONS FOR RE-OPENING U.'S 147OF I.T. ACT. 1961. 3 THE ASSESSEE IS A PRIVATE FAMILY TRUST. ASSESSMENT U/S 143(3) WAS COMPLETED AT RETURNED INCOME OF RS. 1,22,46,908/- O N 08.04.2008. THE ASSESSEE HAS SHOWN RENTAL INCOME, DIVIDEND INCO ME, INTEREST ON FDRS AND INCOME FROM SALE OF SCARES. INCOME FROM SA LES OF SHARES HAS BEEN SHOWN AS 'CAPITAL GAIN INCOME' AND NOT AS 'BUSINESS INCOME'. THE SCRUTINY OF RECORD SHOWS THAT THE INCO ME FROM SALE OF MUTUAL FUNDS IS ACTUALLY ASSESSABLE UNDER THE HEAD' 'BUSINESS INCOME' AND NOT AS 'CAPITA! GAIN INCOME'. THE ASSES SEE HAS DETERMINED PROFIT/LOSSES BY VALUATION OF CLOSING ST OCK OF MUTUAL FUNDS AS ON 31 ST . MARCH OF EVERY YEAR. THE ASSESSEE HAS STATED FUND S AS STOCK IN TRADE AND NOT INVESTMENTS. THUS, INCOME OF RS.92,25,917/- IS TO BE TREATED AS BUSINESS INCOME AND IS TO BE TAXED AT NORMAL RATES. 2. THE INCOME FROM SALE OF EQUITY SHARES AT RS. 1,6 7,63,000/- HAS NOT BEEN TREATED AS STOCK IN TRADE IN THE BOOKS AND THE SAME APPEARS TO BE INVESTMENT INCOME. HOWEVER, AS PER C BDT CIRCULAR NO. 4/2004 DATED 13.05.2004 THE NATURE OF INCOME FR OM SHARES IS TO BE DETERMINED ON THE BASIS OF INTENTION OF THE ASSE SSEE. IF THE INTENTION IS TO EARN DIVIDENDS FROM THE SHARES THEN IT IS AN INVESTMENT AND IF THE INTENTION IS TO EARN PROFIT F ROM SALE OF SHARES THEN IT IS A BUSINESS INCOME. HENCE, THIS ISSUE ALS O NEEDS TO BE LOOKED INTO. 3. HENCE, THE ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR A.Y . 2006-07 ADDITION I HAVE, THEREFORE REASONS TO BELIEVE THAT THE INCOME OF RS. 92,25,917/- PERTAINING TO A.Y. 2006-07 HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE IT ACT. ISSUE NOTICE UNDER SECTION 148. DATED 05.01.2010. SD/- (PRAJNA PARAMITA) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-VI, LUDHIANA 4. THE ASSESSING OFFICER, AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, PASSED THE RE-ASSESSME NT ORDER ON 27.12.2010 UNDER SECTION 143(3)/147 OF THE ACT 4 AND SHORT TERM CAPITAL GAIN WAS TREATED AS BUSINESS INCOME IN A SUM OF RS. 92,25,917/- AND ASSESSED THE INCOME AT RS. 1,22,46,908/-. THE ASSESSEE CHALLENG ED THE RE-OPENING OF THE ASSESSMENT AND TREATING THE C APITAL GAIN INCOME AS INCOME FROM BUSINESS BEFORE LD. CIT(APPEALS), HOWEVER, APPEAL OF THE ASSESSEE WAS DISMISSED. 5. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. PB-51 IS ORIGINAL ASSESSMENT ORDER, PB-53 IS THE RE ASONS FOR RE-OPENING OF THE ASSESSMENT UNDER SECTION 148 OF THE ACT REPRODUCED ABOVE, PB-37 IS COMPUTATION OF INCOM E FOR ASSESSMENT YEAR UNDER APPEAL SHOWING SHORT TERM CAPITAL GAIN ON SALE OF MUTUAL FUNDS IN A SUM OF RS . 92,25,917/-, PB-39 IS QUERY RAISED BY ASSESSING OFF ICER ON THE SAME ISSUE AT ASSESSMENT STAGE DATED 08.02.2 008 ASKING FOR DETAILS AND EVIDENCES OF SALE OF SHARES AND INVESTMENTS IN MUTUAL FUNDS. PB-41 TO 50 ARE VARIO US REPLIES FILED BY ASSESSEE GIVING COMPLETE DETAILS O F SALE OF SHARES AND MUTUAL FUNDS AND EXPLAINING THAT ASSESSE E HAS SHOWN INVESTMENT IN MUTUAL FUNDS UNDER THE HEAD INVESTMENTS IN THE BALANCE SHEET AS ON 31.03.2006 AS THE TRUE NATURE OF INVESTMENT AND MUTUAL FUNDS IS T HAT OF INVESTMENT AND NOT TRADING ASSET. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT ASSESSING OFFIC ER HAS EXAMINED THE ISSUE OF SALE OF SHARES IN THE NATURE OF CAPITAL GAINS AT ORIGINAL ASSESSMENT STAGE, THEREFO RE, RE- 5 OPENING OF ASSESSMENT IS ON MERE CHANGE OF OPINION. HE HAS ALSO REFERRED TO PB-64 WHICH IS COMPUTATION OF INCOME FOR PRECEDING ASSESSMENT YEAR 2005-06 IN WHI CH ALSO ASSESSEE HAS SHOWN INCOME FROM SHORT TERM CAPI TAL GAIN ON SALE OF SHARES OF IDENTICAL NATURE AS IS IN VOLVED IN ASSESSMENT YEAR UNDER APPEAL WHICH IS ACCEPTED B Y ASSESSING OFFICER IN ASSESSMENT YEAR 2005-06 IN ORD ER UNDER SECTION 143(3) DATED 28.12.2007 AND RETURNED INCOME WAS ACCEPTED, ACCEPTING THE CAPITAL GAINS SH OWN BY ASSESSEE ON THE SAME MATTER AND ISSUE. HE HAS FURTHER SUBMITTED THAT SINCE SAME INCOME HAVE BEEN ASSESSED IN ASSESSMENT YEAR UNDER APPEAL AS WAS ASSESSED IN THE ORIGINAL ASSESSMENT ORDER, THEREFOR E, THERE IS NO ESCAPEMENT OF INCOME AS ALLEGED BY THE ASSESSING OFFICER. 6. ON THE OTHER HAND, LD. DR RELIED UPON ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT ASSESSING OFFI CER HAS NOT EXAMINED THE4 ISSUE OF BUSINESS TRANSACTION AND NO FINDINGS HAVE BEEN GIVEN, THEREFORE, IT IS NOT A CASE OF MERE CHANGE OF OPINION. THE LD. DR RELIED UPON DEC ISIONS OF THE SUPREME COURT IN THE CASES OF ESS ESS KAY ENGINEERING CO. P.LTD. 247 ITR 818, KALYANI MAUJI & CO. 102 ITR 287 AND ALA FIRM VS CIT 189 ITR 285. 7. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY JUSTIFICATION TO SUSTAIN THE IMPUGNED ORDERS REGARDING RE-OPENING OF THE ASSESSMENT UNDER SECTIO N 147/148 OF THE ACT. HON'BLE FULL BENCH OF DELHI HI GH 6 COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 256 I TR 1 BY FOLLOWING CIRCULAR NO.549 OF CBDT HELD THAT ON MERE CHANGE OF OPINION OF AO CANNOT BE A GROUND FOR RE- ASSESSMENT AND THAT AMENDMENT OF SEC. 147 W.E.F. 1. 4.89 HAS NOT ALTERED THE POSITION. HONBLE GUJRAT HIGH C OURT IN THE CASE OF GARDEN SILK MILLS P. LTD. 237 ITR 66 8 HELD THAT HOWEVER WIDE THE SCOPE OF TAKING ACTION U/S 1 48 OF IT ACT, IT DOES NOT CONFIRM JURISDICTION ON CHANGE OF THE INTERPRETATION OF A PARTICULAR PROVISION EARLIER AD OPTED BY THE ASSESSING AUTHORITY. FOR COMING TO THE CONCLUSI ON THAT THERE HAS BEEN EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR THAT THERE HAS BEEN UNDER ASSESSMENT O R ASSESSMENT AT A LOWER RATE OR FOR APPLYING OTHER PROVISIONS OF EXPLANATION 2 TO SEC. 147, IT MUST BE ON MATERIAL AND IT SHOULD HAVE NEXUS FOR HOLDING SUCH OPINION CONTRARY TO WHAT HAS BEEN EXPRESSED EARLIER . EVEN AFTER THE AMENDMENT OF SEC. 147, MERE CHANGE O F OPINION DOES NOT CONFIRM JURISDICTION ON THE ITO TO INITIATE PROCEEDING FOR REASSESSMENT MERELY BY RESO RTING TO EXPLANATION 1 TO SEC. 147. HONBLE CALCUTTA HIG H COURT IN THE CASE OF BERGER PAINTS INDIA LTD. 245 I TR 648 HELD WHEN ANY PARTICULAR ISSUE HAS BEEN CONSIDERED BY THE ITO AND CIT(A) AND WHEN THERE IS NO FAILURE TO DISCLOSE THE FACTS, THE REASSESSMENT PROCEEDINGS AR E NOT VALID. HON'BLE SUPREME COURT IN THE CASE OF CIT VS. FORANER FRANCE, 264 ITR 566 HELD REASSESSMENT NOT ON BASIS OF MERE CHANGE OF OPINION LAW SAME BEFORE A ND AFTER AMENDMENT BY DIRECT TAX LAWS. HON'BLE SUPREME 7 COURT IN THE CASE OF INDIAN OIL CORPORATION, 159 IT R 956 HELD THAT NO CASE U/S 148 IS MADE OUT WHEN THE FACT S WERE KNOWN ALL ALONG WITH TO THE REVENUE WHILE MAKI NG THE ORIGINAL ASSESSMENT. HON'BLE SUPREME COURT IN T HE CASE OF ASSOCIATED STONE INDUSTRY LTD., 224 ITR 560 HELD THAT THE ASSESSEE SHALL HAVE TO DISCLOSE ONLY THE P RIMARY FACTS. HON'BLE SUPREME COURT IN THE CASE OF CIT V KELVINATOR OF INDIA LTD. 320 ITR 561 CONFIRMED THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF KEL VINATOR OF INDIA LTD. HOLDING THAT THE CONCEPT OF CHANGE O F OPINION MUST BE TREATED AS AN IN-BUILT TEST TO CHECK THE ABUSE OF POWER. HON'BLE BOMBAY HIGH COURT IN THE CASE OF TITANOR COMPONENTS LTD. V ACIT 343 ITR 183 HELD AS UNDER : WHERE A REASSESSMENT IS SOUGHT TO BE MADE AFTER FOU R YEARS THE POWER CONFERRED BY SECTION 147 OF THE INCOME-TAX ACT, 196 1, DOES NOT PROVIDE AFRESH OPPORTUNITY TO THE ASSESSING OFFICER TO CORR ECT AN INCORRECT ASSESSMENT MADE EARLIER UNLESS THE MISTAKE IN THE A SSESSMENT SO MADE IS THE RESULT OF A FAILURE OF THE ASSESSEE TO FULLY AN D TRULY DISCLOSE ALL MATERIALS FACTS NECESSARY FOR ASSESSMENT . THERE IS A DIFFERENCE BETWEEN A WRONG CLAIM MADE BY AN ASSESSEE AFTER DISCLOSING ALL THE TRUE AND MATERIAL FACTS AND A WRONG CLAIM MADE BY THE ASSESS EE BY WITHHOLDING THE MATERIAL FACTS FULLY AND TRULY. IT IS ONLY IN T HE LATTER CASE THAT THE ASSESSING OFFICER WOULD BE ENTITLED TO PROCEED UNDE R SECTION 147. HELD, ALLOWING THE PETITION, THAT THE ASSESSING OFF ICER HAD NOT RECORDED THE FAILURE ON THE PART OF THE PETITIONER TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT YEAR 19 97-98. WHAT WAS RECORDED WAS THAT THE PETITIONER HAD WRONGLY CLAIME D CERTAIN 8 DEDUCTIONS WHICH HE WAS NOT ENTITLED TO. THE REASSE SSMENT PROCEEDINGS INITIATED IN THE YEAR 2004 WERE NOT VALID. 8. THE ASSESSEE IN THE COMPUTATION OF INCOME HAS DECLARED SHORT TERM CAPITAL GAIN IN A SUM OF RS. 92,25,917/- ON SALE OF MUTUAL FUNDS. IN THE INCOME & EXPENDITURE ACCOUNT ALSO (PB-33) HAS SHOWN THE SAME INCOME UNDER THE HEAD SHORT TERM CAPITAL GAIN ON MUTUAL FUNDS ON INVESTMENTS. THE ASSESSING OFFICE R RAISED QUERY AT THE ORIGINAL AT STAGE AND ASKED FOR THE COMPLETE EVIDENCES AND DETAILS OF SALE OF SHARE AND INVESTMENTS IN DIFFERENT MUTUAL FUNDS. THE ASSESSE E FIELD SEVERAL REPLIES BEFORE ASSESSING OFFICER WITH COMPLETE DETAILS EXPLAINING SALE OF SHARES AND NATU RE OF TRANSACTION TO BE CAPITAL GAINS. THE ASSESSING OFF ICER ACCEPTED THE EXPLANATION OF ASSESSEE AFTER EXAMININ G THE ISSUE IN DETAIL AND ACCEPTED THE CLAIM OF ASSESSEE ON SALE OF SHARES TO BE INCOME FROM CAPITAL GAINS. THE ASS ESSING OFFICER IN THE REASONS RECORDED FOR RE-OPENING OF T HE ASSESSMENT, HAS MERELY STATED THAT ON SCRUTINY OF T HE RECORD, IT SHOWS THAT SALE OF MUTUAL FUNDS SHOULD B E ASSESSED UNDER THE HEAD BUSINESS INCOME AND NOT A S CAPITAL GAINS INCOME. THE STATEMENT OF THE ASSESSI NG OFFICER IN THE REASONS IS NOT BASED ON ANY EVIDENCE S OR MATERIAL. WHATEVER MATERIAL WAS AVAILABLE ON RECOR D, DETERMINING THE TRANSACTION TO BE OF CAPITAL GAINS, WERE RE-APPRISED BY THE ASSESSING OFFICER IN THE REASONS RECORDED FOR RE-OPENING OF THE ASSESSMENT WHICH IS NOT PERMISSIBLE UNDER THE LAW. THE ASSESSING OFFICER D ID NOT 9 BRING ANY EVIDENCE ON RECORD AS TO HOW THE TRANSACT IONS OF CAPITAL GAIN BECOME BUSINESS INCOME OF THE ASSES SEE. THUS, THERE IS NO FAILURE ON THE PART OF THE ASSESS EE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR ASSESSMENT IN ASSESSMENT YEAR UNDER APPEAL. FURTH ER, THE ASSESSEE IN PRECEDING ASSESSMENT YEAR 2005-06 O N THE IDENTICAL TRANSACTIONS, SHOWN THE SHORT TERM CA PITAL GAIN ON SALE OF SHARES WHICH HAVE BEEN ACCEPTED BY ASSESSING OFFICER IN YEAR UNDER SECTION 143(3) DATE D 28.12.2007. THUS, THE NATURE OF INCOME IN PRECEDIN G YEAR HAS BEEN ACCEPTED BY ASSESSING OFFICER TO BE I NCOME FROM CAPITAL GAINS. THE HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF VIKAS CHEMI GUM (INDIA) 276 IT R 32 HELD THAT WHEN SOURCE OF INCOME IN ASSESSMENT YEAR 1986-87 NOT CHALLENGED, IT IS NOT OPEN TO CHALLENGE THE SAME SOURCE IN SUBSEQUENT YEAR. HON'BLE DELHI HIGH COURT IN THE CASE OF ARJ SECURITIES PRINTER 264 ITR 276 HELD THAT FOR THE SAKE OF CONSISTENCY AND FINALITY OF LITIGATION, EARLIER DECISION ON SAME QUESTION SHOUL D NOT BE REOPENED UNLESS NEW FACTS CAME TO THE KNOWLEDGE. HON'BLE DELHI HIGH COURT IN THE CASE OF ESCORTS LTD . 338 ITR 435 HELD THAT, DECISION REGARDING NATURE OF TRANSACTION CONTINUING FOR SEVERAL YEARS. RULE OF CONSISTENCY SHOULD BE FOLLOWED. FURTHER, THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER HAS DETERM INED THE TOTAL INCOME AT RS. 1,22,46,908/- WHICH IS RET URNED INCOME AND IN ASSESSMENT YEAR UNDER APPEAL ALSO, TH E ASSESSING OFFICER HAS ASSESSED THE SAME INCOME AT 10 RS.1,22,46,908/-. THUS, THERE IS NO ESCAPEMENT OF INCOME AND IT IS A CASE OF CHANGE OF OPINION TO CHA NGE THE HEAD OF INCOME FROM INCOME FROM CAPITAL GAINS TO INCOME FROM BUSINESS INCOME. SUCH COURSE IS NOT PERMISSIBLE TO THE SUBSEQUENT ASSESSING OFFICER IN THE GARB OF RE-OPENING OF THE ASSESSMENT UNDER SECTION 148 OF THE ACT. 9. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, THE DECISIONS RELIED UPON BY LD. DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. WE, THEREFORE , SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND QUASH THE RE- OPENING OF THE ASSESSMENT UNDER SECTION 148 OF THE ACT. RESULTANTLY, THE FINDING OF THE ASSESSING OFFICER T HAT CAPITAL GAINS IS BUSINESS INCOME STANDS VACATED. 10. IN VIEW OF THE ABOVE, THERE IS NO NEED TO DECID E SECOND GROUND OF APPEAL ON MERIT AS THE SAME IS LEF T FOR ACADEMIC DISCUSSION ONLY. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (RANO JAIN) (BHA VNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15 TH OCT., 2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD