ITO 4(3)(2), MUMBAI V. K.K. STOCK MANAGEMETN P. LTD, MUMBAI

ITA 4801/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0979 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 15-07-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 19-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: ADITYA B NEMANI
• Keywords: Business income; Set aside; Capital Gains
• Section: 143(3); 143(1); 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, AM AND SHRI V.DURG A RAO, JM I.T.A.NO.4801/MUM/2009 ASSESSMENT YEAR : 2001-02 THE INCOME-TAX OFFICER-14(3)(2) R.NO.651, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. VS. M/S. K.K. STOCK MANAGEMENT PVT. LTD., 105/4, GR. FLOOR, MUMBAI SAMACHAR MARG, MUMBAI 400 023. PAN: AABCK 4486 G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHRAVAN KUMAR RESPONDENT BY : SHRI ADITYA B. NEMANI O R D E R PER J. SUDHAKAR REDDY, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, MUMBAI, D ATED 12.06.2009, FOR THE ASSESSMENT YEAR 2001-02. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A SHARE BROKER AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-02 ON 29.10.2001. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAF TER, THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 14.11.2003. THE ASSESSEE HAD CLAIMED LOSS ON SALE OF SUN F & C BALANCE FUND AND THE SAME WAS DISALLOW ED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSEE CARRI ED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY VIDE HIS ORDER DATED 16.06.2004 , WHO UPHELD THE A.O.S ORDER. THE ASSESSEE CARRIED THE MATTER IN FURTHER APPEAL BEFOR E THE TRIBUNAL. 3. IN THE MEANTIME, THE ASSESSMENT WAS REOPENED UNDER SECTION 263 OF THE INCOME-TAX ACT AND THEREAFTER REASSESSMENT ORDER UN DER SECTION 143(3) READ WITH SECTION 263 OF THE ACT WAS COMPLETED ON 22.6.2006. I.T.A.NO.3535/MUM/2008 ITO V. K.K. SOCK MANAGEMENT LTD. 2 4. THEREAFTER, THE I.T.A.TS ORDER DATED 28.02.2007 ON THE ALLOWABILITY OF LOSS ON SALE OF MUTUAL FUND WAS RECEIVED BY THE DEPARTMENT ON 05.04.2007, WHEREIN THE LOSS ON SAME OF MUTUAL FUND WAS ALLOWED AND THE A.O. WAS DI RECTED TO ADJUST THE SAID LOSS FROM THE OTHER INCOME. 5. THEREAFTER, THE ASSESSMENT WAS ONCE AGAIN REOPENED UNDER SECTION 147 OF THE ACT BY ISSUE OF NOTICE UNDER SECTION 148 ON 31.3.20 08. THE REASONS RECORDED FOR REOPENING THE ASSESSMENT ARE AS FOLLOWS: WHILE DETERMINING THE INCOME AT RS.1,02,15,960/-VI DE ORDER DATED 28.07.2004, INCLUDING LONG TERM CAPITAL GAIN OF RS. 97,86,115/- (AFTER DENYING THE CLAIM OF SET OFF OF SHORT TERM CAPITAL LOSS OF RS. 48,34,532/-), THE ENTIRE LONG TERM CAPITAL GAINS HAS BEEN TAXED A T THE RATE OF 10%. 6. IT APPEARS THAT THE ASSESSING OFFICER HAS INCORR ECTLY APPLIED THE RATE OF 10% INSTEAD OF THE NORMAL RATE OF TAX AT 35% + SURCHARG E AT 13.5% IN RESPECT OF PROFIT OF RS.97.86 LAKHS RELATING TO TRADING IN SHARES OF VAR IOUS COMPANIES. THIS VARIATION IN THE RATE OF TAX APPLIED RESULTED INTO SHORT LEVY OF TAX . 7. THEREAFTER, THE ASSESSMENT ORDER WAS PASSED UNDE R SECTION 143(3) READ WITH SECTION 148 ON 30.12.2008. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY HAS HELD THAT THE REOPENING IS BAD IN LAW. HE HAS ALSO DECIDED GROUND NO.3 RAISED BY THE ASSESSEE THAT INVESTMENT ACTIVITY WAS WRONGLY CONSIDERED AS TRADING ACTIVITY BY THE A.O. AND THEREBY CONSIDERIN G LONG TERM CAPITAL GAINS AS BUSINESS INCOME IN FAVOUR OF THE ASSESSEE. 8. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEF ORE US ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN QUASHING THE NOTICE U/S.148. 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A) HAS IGNORED THE FACT THAT EXPL.2 TO SEC.1 47 CLEARLY IMPLIES THAT ASSESSMENT AT A LOW RATE IS ESCAPEMENT OF INCOME. T HEREFORE, THE PROVISIONS OF SECTION 147 WERE RIGHTLY INVOKED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS FURTHER ERRED IN DIRECTING TO TREAT THE INCOME AS LONG TERM CAPITAL GAIN. I.T.A.NO.3535/MUM/2008 ITO V. K.K. SOCK MANAGEMENT LTD. 3 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS OVERLOOKED THE FACT THAT THE ASSESSEE HAS ITSEL F SHOWN SHARE TRADING INCOME IN THE PREVIOUS YEAR. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW AND CONSE QUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS. ON A CAREF UL CONSIDERATION OF HE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, W E HOLD AS FOLLOWS: THE REOPENING IN THIS CASE WAS ONE BEYOND THE PERI OD OF FOUR YEARS. THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) ON 14.11.2003. THEREAFTER ANOTHER ASSESSMENT WAS MADE UNDER SECTION 143(3) READ WITH SECTION 263 ON 22.6.2006. THUS, THE PROVISO TO SECTION 147 IS CLEARLY ATTRACTED IN THIS CASE. 10. A PERUSAL OF THE REASONS RECORDED FOR REOPENING WHICH ARE AT PAGE 2 OF THE ASSESSMENT ORDER WHICH ARE ALSO EXTRACTED ABOVE, DO ES NOT MENTION THAT THE ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR RE-ASSESSMENT. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GERMAN REM EDIES LTD. V. DCIT (2006) 287 ITR 494, HELD AS FOLLOWS: THAT FAILURE ON THE PART OF THE ASSESSEE TO DISCLO SE FULL AND TRUE MATERIAL HAD NOT BEEN ALLEGED. IN THE CIRCUMSTANCES, THE NOTICE HAVI NG BEEN ISSUED BEYOND FOUR YEARS FROM THE LAST DATE OF THE RELEVANT ASSESSMENT YEAR WITHOUT ALLEGING ANY FAILURE TO DISCLOSURE FULL AND TRUE MATERIAL FACTS WAS LIABLE TO BE SET ASIDE. WHILE GRANTING APPROVAL TO THE NOTICE IT WAS OBLIGATORY O N THE PART OF THE COMMISSIONER TO VERIFY WHETHER THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULL AND TRUE RELEVANT FACTS IN THE RETURN OF INCOM E FILED FOR THE ASSESSMENT OF INCOME OF THAT ASSESSMENT YEAR. IT WAS ALSO OBLIGA TORY ON THE PART OF THE COMMISSIONER TO CONSIDER WHETHER OR NOT POWER TO RE OPEN WAS BEING INVOKED WITHIN A PERIOD OF FOUR YEARS FRO THE END OF THE AS SESSMENT YEAR TO WHICH THE PROCEEDINGS RELATED. NONE OF THESE ASPECTS HAD BEE N CONSIDERED BY HIM. THE NOTICES AND CONSEQUENTLY THE ORDER JUSTIFYING REASO NS RECORDED WERE UNSUSTAINABLE. SIMILAR ARE THE DECISIONS OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF JOSHAN TEXTILE MILLS P. LTD. V. DCIT (284 ITR 542) AND HINDUSTAN LEVER (I) LTD. VS. ACIT (268 ITR 332). I.T.A.NO.3535/MUM/2008 ITO V. K.K. SOCK MANAGEMENT LTD. 4 11. RESPECTFULLY FOLLOWING THESE DECISIONS, WHEN IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DID NOT DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THIS ASSESSMENT, THE PROVISO TO SECTION 147 COMES INTO O PERATION AND THE RE-OPENING OF ASSESSMENT HAS TO BE HELD AS BAD IN LAW. THUS, WE UPHOLD THE FINDINGS OF THE FIRST APPELLATE AUTHORITY AT PARA 6 OF HIS ORDER ON THE I SSUE OF RE-OPENING. IN THE RESULT, GROUND NO.1 OF THE REVENUE IS DISMISSED. 12. AS WE HAVE UPHELD THE ORDER OF THE CIT(A) FOR T HE REOPENING IS BAD IN LAW, WE DO NOT ADJUDICATE GROUND NO. 2, AS IT COULD BE AN ACAD EMIC EXERCISE. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 9 TH DAY OF JULY, 2010. SD. SD. (V.DURGA RAO) (J. SUDHAKAR REDD Y) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 29 TH JULY, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE ITO-14(3)(2), MUMBAI 3. THE CIT, CITY IV, MUMBAI 4. THE CIT(A)-XIV, MUMBAI 5. THE DR G BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI