Youvan Cosmeceuticals & Consultancy, CHENNAI V. ACIT, CHENNAI

ITA 206/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4436 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 23-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S NETHEAPAL IRS
• Assessee Lawyers: R VIJAYARAGHVAN
• Keywords: Reopening of assessment; Unexplained investment; Capital asset
• Section: 147; 69; 148; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.206/MDS/2017 / ASSESSMENT YEAR : 2005-2006. M/S. YOUVAN COSMECEUTICALS & CONSULTANCY FLAT NO.B, KLEEM VILLA NO.9, KOTHARI ROAD, CHENNAI 600 034. [PAN AAAFY 4464A] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 3, CHENNAI 600 034. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. R. VIJAYARAGHVAN, ADVOCATE /RESPONDENT BY : SHRI. S. NETHEAPAL, IRS, JCIT. /DATE OF HEARING : 30-05-2017 !' /DATE OF PRONOUNCEMENT : 31-05-2017 % / O R D E R GROUNDS TAKEN BY THE ASSESSEE IN THIS APPEAL WHI CH IS AGAINST AN ORDER DATED 18.11.2016 OF LD. COMMISSI ONER OF INCOME TAX (APPEALS)-4, CHENNAI READ AS UNDER: - 1. THE ORDER OF THE COMMISSIONER OF INCOMETAX (APPE ALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N ITA NO. 206/MDS/2017 :- 2 -: CONFIRMING THE REOPENING THE ASSESSMENT U/S 147 BY ISSUING NOTICE U/S 148 ON 31.03.2012. 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ERSTWHILE PARTNERSHIP FIR M WAS DISSOLVED DURING THE YEAR 2005; HENCE NO RETURN WAS FILED FOR THIS ASSESSMENT YEAR. ISSUING NOTICE U/S 148 IN THE NAME OF DISSOLVED FIRM WHICH WAS NOT SERVED ON ASSESSE A S PER THE TIME LIMIT PRESCRIBED U/S 149 IS BAD IN LAW AND DES ERVED TO BE QUASHED. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N HOLDING THAT AMOUNT OF RS.49,42,821 / - WOULD BE TA XABLE AS SHORT TERM CAPITAL GAIN AND THERE WILL BE NO COST O F ACQUISITION BEING BONUS UNITS. 3.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ABOVE INVESTMENT IN SUNDA RAM MUTUAL FUND IS NOTHING BUT A SWITCH OVER FROM AN AL READY EXISTING INVESTMENT IN SUNDARAM MUTUAL FUND. HENCE. CANNOT BE TAXABLE AS SHORT TERM CAPITAL GAIN. 3.2 THE COMMISSIONER OF INCOMETAX (APPEALS) ERRED I N HOLDING THAT THE PROVISIONS OF SECTION 94(8) WILL N OT BE APPLICABLE FOR THE ASSESSMENT YEAR 2005- 06, BEING THE YEAR UNDER APPEAL. 4. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL G ROUNDS AT THE TIME OF HEARING. IT IS CLEAR FROM THE ABOVE GROUNDS THAT ASSESSEE IS CHALLENGING THE REOPENING OF ASSESSMENT DONE FOR THE IMPUGNED ASSES SMENT YEAR AND ALSO ASSAILING MERITS OF AN ADDITION OF RS.49,42,8 21/- MADE UNDER THE HEAD SHORT TERM CAPITAL GAINS. 2. FACTS APROPOS ARE THAT ASSESSEE WAS ISSUED NOTICE U /S. 148 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON 31.03.2012 FOR THE IMPUGNED ASSESSMENT YEAR, SINCE IT HAD NOT FILE D ITS RETURN OF ITA NO. 206/MDS/2017 :- 3 -: INCOME WITHIN THE TIME ALLOWED UNDER SECTION 139 OF THE ACT. LD. ASSESSING OFFICER WAS HAVING INFORMATION THAT ASSES SEE HAD PAID RS.49,42,821/- FOR PURCHASING MUTUAL FUND UNITS DUR ING THE RELEVANT PREVIOUS YEAR. THE NOTICE ISSUED WAS RETURNED B ACK ON 02.04.2012 WITH REMARKS THAT ASSESSEE HAD LEFT. THEREAFT ER THE NOTICE WAS SERVED BY AFFIXTURE ON THE VERY SAME ADDRESS. SUB SEQUENTLY, A SHOW CAUSE NOTICE DATED 06.12.2012 WAS ISSUED TO ONE OF THE PARTNERS OF THE ASSESSEE FIRM, WHO INFORMED THE REVENUE THAT A SSESSEE FIRM STOOD DISSOLVED ON 31.03.2005. IT WAS ALSO INFORMED THAT INVESTMENT OF RS.49,42,821/- MADE IN M/S.SUNDRAM MUTUAL FUND DUR ING THE RELEVANT PREVIOUS YEAR WAS BY EXERCISE OF SWITCH-IN SWITCH OUT OPTION OF A PRIMARY INVESTMENT MADE DURING THE PRECEDING FINANC IAL YEAR. HOWEVER, LD. ASSESSING OFFICER TOOK A VIEW THAT AS SESSEE WAS UNABLE TO SUPPORT ITS CLAIM WITH ANY EVIDENCE. AN ADDITI ON OF RS.49,42,821/- WAS MADE U/S. 69 OF THE ACT CONSIDERING THE UNITS A S UNEXPLAINED INVESTMENTS. 3. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). CONTENTION O F THE ASSESSEE WAS THAT REOPENING DONE WAS INVALID. ACCORDING TO THE ASSESSEE, NOTICE ON THE DISSOLVED FIRM WAS NOT ISSUED AND SER VED WITHIN THE TIME PRESCRIBED U/S . 149 OF THE ACT. ON MERITS, IT WAS ARGUED THAT IT HA D ITA NO. 206/MDS/2017 :- 4 -: INITIALLY SUBSCRIBED TO SUNDARAM BOND SAVER INST (PRINCIPAL UNITS) ON 18.03.2004 FOR A VALUE OF RS.1,00,00,000/-. AS PER THE ASSESSEE ON THE SAID UNITS, THE MUTUAL FUND ISSUED BONUS UNITS IN MARCH, 2004. SUCH BONUS UNITS, AS PER THE ASSESSEE WAS TREATED AS DIVIDEND INCOME FOR ASSESSMENT YEAR 2004-2005. ASSESSEE POINTED O UT THAT LD. ASSESSING OFFICER HAD APPLIED SEC. 94(7) OF THE AC T WHILE DOING THE ASSESSMENT FOR ASSESSMENT YEAR 2004-2005 AND THE LO SS INCURRED IN SALE OF ORIGINAL UNITS WAS DISALLOWED, IN THE SAID YEAR. CONTENTION OF THE ASSESSEE WAS THAT THERE WAS NO FRESH INVESTMENT DONE DURING THE RELEVANT PREVIOUS YEAR. 4. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER GOIN G THROUGH THE OBJECTIONS OF THE ASSESSEE HELD THAT NO TICE ISSUED ON 31.03.2012, LAST DAY OF THE SIX YEAR PERIOD ALLO WED U/S.149 OF THE ACT, WAS A VALID ONE RELYING ON THE JUDGMENT OF HO NBLE APEX COURT IN THE CASE OF R.K. UPADHYAYA VS. SHANABHAI P. PATEL 166 ITR 163 . VIZ-A- VIZ CONTENTION OF THE ASSESSEE WAS THAT THERE WERE NO INVESTMENTS IN UNITS DURING THE RELEVANT PREVIOUS YEAR. LD. COMM ISSIONER OF INCOME TAX (APPEALS) NOTED THAT EVEN IF THIS CLAIM WAS AC CEPTED, ASSESSEE HAVING SWITCHED OUT OF THE SCHEME ON 28.09.2004, TH E WHOLE OF THE SUM WAS NOTHING BUT SHORT TERM CAPITAL ASSET. HE T HEREFORE UPHELD THE ITA NO. 206/MDS/2017 :- 5 -: ADDITION MADE BY THE LD. ASSESSING OFFICER, THOUGH UNDER A DIFFERENT HEAD NAMELY SHORT TERM CAPITAL GAINS. 5. NOW BEFORE ME, LD. AUTHORISED REPRESENTATIVE STRON GLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT NOTICE U/S.148 OF THE ACT WAS ISSUE D ON 31.03.2012 WHICH WAS THE LAST DAY OF THE SIX YEAR PERIOD ALLO WED U/S. 149 OF THE ACT. AS PER LD. AUTHORISED REPRESENTATIVE THE SAID NOTICE WAS NEVER SERVED ON THE ASSESSEE. SERVICE AFFECTED BY AFFIXT URE WAS AFTER 31.03.2012 AND HENCE ACCORDING TO HIM, REOPENING WA S DONE AFTER STATUTORILY ALLOWED PERIOD. ACCORDING TO HIM THE REOPENING DONE FOR THE IMPUGNED ASSESSMENT YEAR WAS INVALID. 6. VIZ-A-VIZ TREATMENT FOR THE SUM OF RS.49,42,821/-, AS SHORT TERM CAPITAL GAINS, CONTENTION OF THE LD. AUTHORISE D REPRESENTATIVE WAS THAT THOUGH THE ASSESSEE HAD SWITCHED OUT OF M/S . SUNDRARAM BOND SAVER INST (BONUS UNITS) ON 28.09.2004, THE RESULT ING RECEIPTS OF COULD NOT CONSIDERED AS SHORT TERMS CAPITAL GAINS. ACCORDING TO HIM, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, VIZ, AS SESSMENT YEAR 2004-05, SHORT TERM CAPITAL LOSS ARISING ON SALE OF THE ORIGINAL UNITS WERE NOT ALLOWED TO BE CARRIED FORWARD, BY APPLYIN G SEC. 94(7) OF THE ACT. AS PER LD. AUTHORISED REPRESENTATIVE THE VALU E OF THE BONUS UNITS WERE SET OFF AGAINST SUCH CAPITAL LOSS. THUS, ACCOR DING TO HIM, BONUS ITA NO. 206/MDS/2017 :- 6 -: UNITS HAD A VALUE OF RS.49,42,821/- EQUIVALENT TO THE LOSS SET OFF, BY APPLICATION OF SEC. 94(7) OF THE ACT, IN ASSESSMEN T YEAR 2004-2005. ONCE THIS COST WAS CONSIDERED AS PER LD. AUTHORISED REPRESENTATIVE, THERE WOULD BE NO SHORT TERM CAPITAL GAINS FOR AS SESSEE. 7. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. FIRST CONTENTION O F THE LD. AUTHORISED REPRESENTATIVE IS THAT THE REASSESSMENT PROCEEDIN GS WERE INVALID, NOTICE HAVING BEING ISSUED AND SERVED BEYOND THE TIME LIMIT PRESCRIBED U/S. 149 OF THE ACT. WHAT I FIND IS THA T THE TERMINOLOGY USED IN SUB SECTION (1) OF SEC. 149 OF THE ACT IS ISSUED AND NOT SERVED. ADMITTEDLY, NOTICE WAS ISSUED ON 31.03. 2012, WHICH WAS WITHIN THE SIX YEAR PERIOD ALLOWED UNDER SAID SECT ION. HENCE, IN MY OPINION, LD. COMMISSIONER OF INCOME TAX (APPEALS) W AS JUSTIFIED IN RELYING ON THE JUDGMENT OF HONBLE APEX COURT IN TH E CASE OF R.K. UPADHYAYA VS. SHANABHAI P. PATEL (SUPRA) AND HOLDING THAT NOTICE HAVING ISSUED WITHIN STATUTORILY ALLOWED TIME PERIO D, THE REASSESSMENT WAS VALID. ITA NO. 206/MDS/2017 :- 7 -: 9. COMING TO THE MERITS OF THE ADDITION SUSTAINED BY T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) UNDER SHORT TE RM CAPITAL GAINS, THOUGH ORIGINALLY DONE BY THE LD. ASSESSING OFFICER U/S. 69 OF THE ACT, ASSESSEE HAS FILED COPY OF THE ACCOUNTS STATEMENT FOR ITS INVESTMENT IN SUNDARAM BOND SAVER INST BONUS (PRINCIPAL UNITS ) AS WELL AS SUNDARAM BOND SAVER INST. BONUS (BONUS UNITS). TH ERE IS NO DISPUTE THAT BONUS UNITS WERE ISSUED TO THE ASSESSEE ON 2 3.03.2004. THERE IS ALSO NO DISPUTE THAT LD. ASSESSING OFFICER HAD APPL IED SEC. 94(7) OF THE ACT IN THE ASSESSMENT YEAR 2004-2005. THE RELEVAN T PARA OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-05 IS REP RODUCED HEREUNDER:- THE ASSESSEE HAS CLAIMED A SHORT TERM CAPITAL GAI N OF RS.49,97,835/-- ON ACCOUNT OF THE SALE OF SUNDARAM MUTUAL FUND UNITS, RELEVANT DETAILS OF THE PURCHASE AND SALE OF THESE UNITS HAVE BEEN BROUGHT ON RECORD. ACCORDINGLY, THESE UNITS WERE PURCHASED JUST BEFORE THE DATE OF DIVIDEND DECLARATION AND THE SALE OF THESE UNITS IS IMMEDIATELY AFTER THE DIVIDEND DECLARATION DATE. THE DIVIDEND REALISED IN THE FORM OR BONUS UNITS ALLOTTED, THE BONUS UNITS ALLOTTED . ARE STILL RETAINED BY THE ASSESSEE . HOWEVER, THE ASSESSEE HAS SOLD THE ORIGINAL UNITS PURCHASED 'BY IT. THE PURCHASE VALUE OF THESE UNITS WAS RS.L CRORE AND SALE VALUE OF THESE UNITS WAS RS.50,02)64/-. THUS-THE SHORT TERM CAPITAL LOSS OF RS.49,97,835/- HAS BEEN CLAIMED BY THE ASSESSEE. AT THOUGH, .THIS LOSS HAVE NOT BEEN SET OFF AGAINST THE OTHER INCOME DURING THE YEAR, A CARRY FORWARD OF THIS LOSS HAS BEEN CLAIMED BY THE ASSESSEE AS PER THE RETURN OF INCOME FILED BY IT. ON THE FACTS OF THE 'CASE AS. NARRATED ABOVE,' THE PROVISION OF SEC.94(7) OF THE IT ACT ARE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. IN VIEW OF THIS, THE ENTIRE SHORT TERM LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF THESE TRANSACTIONS IN SUNDARAM MUTUAL ITA NO. 206/MDS/2017 :- 8 -: FUND UNITS WOULD BE TOTALLY IGNORED AND NO CARRY FO RWARD OF SUCH LOSS WOULD BE ALLOWED TO THE ASSESSEE. HOWEVER, WHAT I FIND IS THAT SUB CLAUSE (B) OF SUB SECTION (7) OF SECTION 94 OF THE ACT WAS SUBSTITUTED W.E.F. 01.04. 2005 BY FINANCE ACT NO.2, 2004. OBVIOUSLY, LD. ASSESSING OFFICER COULD NOT HAVE APPLIED THE SAID CLAUSE IN ASSESSMENT YEAR 2004-2005. IT MAY BE TRUE THAT THE ASSESSEE HAD NOT FILED ANY APPEAL AGAINST SUC H ORDER FOR ASSESSMENT YEAR 2004-05, NOR REVENUE INITIATED AN Y RECTIFICATION PROCEEDING. NEVERTHELESS, APPLICATION OF A PROVIS ION WHICH IS NOT IN THE STATUTE WILL NOT IN MY OPINION CLOTH, THE BONU S UNITS ALLOTTED ON 22.03.2004 WITH ANY VALUE. AT THIS JUNCTURE, IT WI LL BE APPOSITE TO REPRODUCE SEC. 55(2) SUB CLAUSE (AA) OF THE ACT. ( AA) IN A CASE WHERE, BY VIRTUE OF HOLDING A CAPITAL ASSET, BEING A SHARE OR ANY OTHER SECURITY, WITHIN THE MEANING OF CLAUSE (H) OF SECTION 2 OF THE SECURITIE S CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) (HERE AFTER IN THIS CLAUSE REFERRED TO AS THE FINANCIAL ASSET), THE ASSESSEE-- (A) BECOMES ENTITLED TO SUBSCRIBE TO ANY ADDITIONAL FINANCIAL ASSET ; OR (B) IS ALLOTTED ANY ADDITIONAL FINANCIAL ASSET WITH OUT ANY PAYMENT, THEN, SUBJECT TO THE PROVISIONS OF SUB-CLA USES (I) AND (II) OF CLAUSE (B)-- (I) IN RELATION TO THE ORIGINAL FINANCIAL ASSET, ON THE BASIS OF WHICH THE ASSESSEE BECOMES ENTITLED TO ANY ADDIT IONAL FINANCIAL ASSET, MEANS THE AMOUNT ACTUALLY PAID FOR ACQUIRING THE ORIGINAL FINANCIAL ASSET ; ITA NO. 206/MDS/2017 :- 9 -: (II) IN RELATION TO ANY RIGHT TO RENOUNCE THE SAID ENTITLEMENT TO SUBSCRIBE TO THE FINANCIAL ASSET, WH EN SUCH RIGHT IS RENOUNCED BY THE ASSESSEE IN FAVOUR O F ANY PERSON, SHALL BE TAKEN TO BE NIL IN THE CASE OF SUC H ASSESSEE ; (III) IN RELATION TO THE FINANCIAL ASSET, TO WHICH THE ASSESSEE HAS SUBSCRIBED ON THE BASIS OF THE SAID ENTITLEMENT, MEANS THE AMOUNT ACTUALLY PAID BY HIM FOR ACQUIRING SUCH ASSET ; (IIIA) IN RELATION TO THE FINANCIAL ASSET ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET, SHALL BE TAKE N TO BE NIL IN THE CASE OF SUCH ASSESSEE ; AND (IV) IN RELATION TO ANY FINANCIAL ASSET PURCHASED B Y ANY PERSON IN WHOSE FAVOUR THE RIGHT TO SUBSCRIBE TO SU CH ASSET HAS BEEN RENOUNCED, MEANS THE AGGREGATE OF TH E AMOUNT OF THE PURCHASE PRICE PAID BY HIM TO THE PER SON RENOUNCING SUCH RIGHT AND THE AMOUNT PAID BY HIM TO THE COMPANY OR INSTITUTION, AS THE CASE MAY BE, FOR ACQ UIRING SUCH FINANCIAL ASSET ; WHERE A FINANCIAL ASSET IS ALLOCATED TO A ASSESSEE WITHOUT ANY PAYMENT, ON THE BASIS OF HOLDING OF ANY OTHER ASSE T, THE COST OF THE FORMER HAS TO BE TAKEN AS NIL. IN SUCH CIRCUMSTANC ES, COST OF THE UNITS RECEIVED AS BONUS ON 23.03.2004 WAS RIGHTLY CONSIDE RED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS NIL. SINCE ASSESSEE SWITCHED OUT OF THE SAID UNITS ON 22.09.2004 AND RECEIVED A SUM RS.49,48,821/-, THE SAID SUM WAS, IN MY OPINION RIG HTLY CONSIDERED AS SHORT TERM CAPITAL GAINS. I DO NOT FIND ANY REASON TO INTERFERE WITH THE ITA NO. 206/MDS/2017 :- 10 -: ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S). 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DI SMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF MAY, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:31ST MAY, 2017. KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /12 / GF