ICICI SECURIRITES LTD ( EARLIER KNOWN AS ICICI BROKERAGE SERVICES LTD), MUMBAI V. DCIT CIR 4(1), MUMBAI

ITA 50/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70899 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 27-08-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 04-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: YOGESH A THAR
• Keywords: Reopening of assessment; Business income; Transactions in derivatives; Tangible material; Speculation loss; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, M UMBAI . . '# '# '# '# , $ $ $ $ % % % % BEFORE SHRI VIJAY PAL RAO, JM, AND SHRI N. K. BILLA IYA, AM /. I.T.A. NO.50 /MUM/2011 ( & & & & '& '& '& '& / ASSESSMENT YEAR: 2004-05) ICICI SECURITIES LTD., (EARLIER KNOWN AS ICICI BROKERAGE SERVICES LTD.) ICICI CENTRE, H.T. PAREKH MARG, CHURCHGATE, MUMBAI- 400 020. / VS. DY. COMMISSIONER OF INCOME TAX, 4(1), MUMBAI. ( $ /. ) /. PAN/GIR NO. : AAACI0996E ( (* / APPELLANT ) : ( +,(* / RESPONDENT ) (* - / APPELLANT BY : SHRI YOGESH A. THAR +,(* - / RESPONDENT BY : SHRI O.P. SINGH /$ / DATE OF HEARING : 27.08. 2013 12' /$ /DATE OF PRONOUNCEMENT : 30 .08. 2013 3 3 3 3 / O R D E R PER : N.K. BILLAIYA (AM) THIS APPEAL BY THE ASSESSEE IS PREFERRED AG AINST THE ORDER OF THE CIT(A)-11, MUMBAI, DATED 22.11.2010, PERTAINING TO ASSESSMENT YEAR 2004-05. 2 ITA 50 M 2011 (AY-2004-05) M/S. IC ICI SECURITIES LTD. V/S DY. CIT. 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL WITH SUB-GROUNDS. WITH GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE JURISDICTION OF THE AO FOR RE- OPENING THE ASSESSMENT U/S 147 OF THE ACT. ACCORDI NG TO THE ASSESSEE THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT IS VOID AB INITIO AND BAD-IN- LAW. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN FOR ASSESSMENT YEAR 2004-05 ON 29.10.2004 DECLARING THE TOTAL INCOME AT RS. 29,89,61,870/-. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 22.12.2006. SUBSEQUENTLY, IT C AME TO THE NOTICE OF THE AO THAT THE ASSESSEE HAS INCURRED LOSS OF RS. 31,81,520/- O N SALE OF SHARES. THE AO FURTHER NOTICED THAT SINCE THE SHARES WERE HELD AS STOCK-IN - TRADE, THE LOSS ON SALE OF SHARES WAS OFFERED AS BUSINESS LOSS. THE AO FURTHER OBSERVED T HAT THE ASSESSEE HAS ALSO MADE A PROFIT OF RS. 5,57,77,239/- FROM TRADING IN DERIVAT IVES. SINCE THE PROFIT IN TRADING IN DERIVATIVES WAS SHOWN AS BUSINESS INCOME. THIS BUSI NESS INCOME WAS DETERMINED AT RS. 5,25,95,719/- AFTER SET -OFF OF THE LOSS OF RS. 31,81,520/- AND THE INCOME WERE OFFERED FOR TAXATION UNDER THE HEAD INCOME FROM BU SINESS AND PROFESSION. THE AO WAS OF THE FIRM BELIEF THAT THE LOSS ON THE SALE OF SHARES BY THE COMPANY FALLS WITHIN THE PURVIEW OF PROVISION OF EXPLANATION TO SECTION -73 OF THE ACT. ACCORDING TO THE AO THE LOSS OF RS. 31,81,520/- SHOULD HAVE BEEN TREATED AS SPECULATION LOSS. ON FORMATION OF THIS BELIEF THE AO FOUND REASON TO BELIEVE THAT THE INCOME TO THE EXTEND OF RS. 31,81,520/- HAS ESCAPED ASSESSMENT. ACCORDINGLY, T HE ASSESSMENT WAS RE-OPENED U/S 147 OF THE ACT AND NOTICE U/S 148 WAS ISSUED AND SE RVED UPON THE ASSESSEE. REASONS FOR THE REOPENING THE ASSESSMENT WERE SUPPLIED TO T HE ASSESSEE IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT NOTICE U/S 148 IS LIABLE TO BE QUASHED. 4. DURING THE COURSE OF THE REASSESSMENT PROCEEDING S THE ASSESSEE RAISED OBJECTIONS AGAINST REOPENING OF ASSESSMENT U/S 147 OF THE ACT. THE OBJECTIONS RAISED BY 3 ITA 50 M 2011 (AY-2004-05) M/S. IC ICI SECURITIES LTD. V/S DY. CIT. THE ASSESSEE WERE REJECTED BY THE AO. THE AO WAS OF THE OPINION THAT MERELY BECAUSE CERTAIN INFORMATION WERE CALLED BY THE AO. DURING T HE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS DOES NOT MEAN THAT THE AO HAS FORMED AN Y OPINION THEREFORE, THERE IS NO CHANGE OF OPINION. THE AO WENT ON TO ADD THE LOSS C LAIMED IN THE ORIGINAL ASSESSMENT TO THE TUNE OF RS. 31,81,520/-. 5. THE ASSESSEE STRONGLY AGITATED THIS MATTER BEFOR E THE CIT(A). BEFORE THE CIT(A) THE ASSESSEE QUESTIONED THE VALIDITY OF THE REOPENI NG OF THE ASSESSMENT U/S 147 OF THE ACT. IT WAS SUBMITTED THAT THE AO HAS RE-OPENED THE ASSESSMENT MERELY ON THE CHANGE IN THE OPINION THEREFORE, THE REOPENING WAS NOT JUS TIFIED AND IS BAD-IN-LAW. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE CIT(A), WHO FOUND THAT REASSESSMENT PROCEEDINGS HAVE BEEN VALIDLY INITIATE D AS PER CLAUSE-C (I) OF THE EXPLANATION TO SECTION 147 OF THE ACT. THE CIT(A) FURTHER OBSERVED THAT IT IS NOT A CASE OF MERE CHANCE OF OPINION SINCE THE INCOME WAS UNDER ASSESSED IN THIS CASE. THEREFORE, THE ASSESSING OFFICER WAS WITHIN HIS POW ERS TO REOPEN THE ASSESSMENT. 6. AGGRIEVED BY THIS FINDING OF THE CIT(A), ASSESSE E IS BEFORE US. 7. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEE N SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE COUNSEL THAT THE REASONS FOR WHICH THE ASSESSMENT HAS BEEN RE-OPENED, HAVE BEEN CONSIDERED BY THE AO DURI NG THE ORIGINAL ASSESSMENT PROCEEDINGS. THE COUNSEL SUBMITTED THAT DURING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS THE AO HAS MADE ENQUIRIES AND THEREFORE , THE AO HAS NO NEW MATERIAL IN POSSESSION WHICH COULD JUSTIFY THE REOPENING OF ASS ESSMENT. 4 ITA 50 M 2011 (AY-2004-05) M/S. IC ICI SECURITIES LTD. V/S DY. CIT. 8. PER CONTRA THE DR STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. IT IS THE SAY OF THE DR THAT THE AO DID NOT FORM ANY OPIN ION IN THE ORIGINAL ASSESSMENT, THEREFORE, IT CANNOT BE SAID THAT THERE IS A CHANGE OF OPINION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT MATERIAL EVI DENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. THE REASONS RECORDED FOR REOPENING O F THE ASSESSMENT ARE AT PAGE 18 OF THE PAPER BOOK. THE RELEVANT PART OF THE REASONS AR E AS UNDER. THE ASSESSEE COMPANY HAS INCURRED LOSS OF RS. 31,81 ,520/- ON SALE OF SHARES ON ITS OWN ACCOUNT. THE ASSESSEE DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS SUBMITTED THAT DURING THE YE AR, THE COMPANY HAS INCURRED LOSS OF RS. 31,81,520/- ON SALE OF SHA RES. SINCE THE SHARES WERE HELD AS STOCK IN TRADE, THE LOSS ON SALE OF SH ARES WAS OFFERED AS BUSINESS LOSS. THE COMPANY ALSO MADE PROFIT OF RS. 5,57,77,239/- FROM TRADING IN DERIVATIVES. THE PROFIT IN TRADING IN DE RIVATIVES IS BUSINESS INCOME, THEREFORE, THE NET INCOME EARNED AMOUNTING TO RS. 5,25,95,719/- AFTER SET-OFF OF THE LOSS OF RS. 31,8 1,520/- HAS BEEN OFFERED FOR TAXATION UNDER THE HEAD INCOME FROM B USINESS AND PROFESSION THE LOSS ON THE SALE OF SHARES BY THE COM PANY ON ITS OWN ACCOUNT FALLS WITHIN THE PURVIEW OF PROVISION OF EXPLANATIO N TO SECTION 73 OF THE I.T. ACT. THE EXPLANATION TO SECTION 73 OF THE I.T . ACT. CREATES LEGAL FICTION TO TREAT THE LOSS ON SALE OF SHARES AS SPEC ULATION LOSS, WHICH IS NOT ALLOWED TO SET-OFF AGAINST THE PROFIT OF ANY OT HER INCOME HEAD. THE LOSS OF RS. 31,81,520/- SHOULD HAVE BEEN TREATED AS SPECULATION LOSS AND AS SUCH SPECULATION LOSS WAS NOT ALLOWABLE TO B E ADJUSTED AGAINST NON-SPECULATION BUSINESS INCOME OF TRADING IN SHARE S. IN VIEW OF THE ABOVE, I HAVE REASON TO BE LIEVE THAT THE TAXABLE INCOME TO THE EXTEND OF RS. 31,81,520/- HAS ESCAPED ASSESSMENT. THEREFORE, THE ASSESSMENT IS REOPENED U/S 147 OF TH E ACT. NOTICE UNDER SECTION 148 IS ISSUED ACCORDINGLY. 5 ITA 50 M 2011 (AY-2004-05) M/S. IC ICI SECURITIES LTD. V/S DY. CIT. 10. LET US NOW CONSIDER THE QUESTIONNAIRE RAISED DU RING THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH IS AT PAGE 36 OF THE PAPER BOOK. THE RELEVANT ANNEXURE IS AT PAGE-37 OF THE PAPER BOOK. THE RELEVANT QUESTIONS A RE AT 5. AND 6. WHICH ARE AS UNDER. 5. SCRIPWISE TRADING ACCOUNT AND DETAILS OF EXP ENSES ATTRIBUTABLE TO THE SHARES TRADING ACTIVITY. 6. NOTE ON ALLOWABILITY OF SET OFF OF LOSS ON SHARE TRADING AGAINST GAINS ON DERIVATIVES TRANSACTIONS. 11. PERUSAL OF THE ABOVE RELEVANT QUESTION SHOW T HAT AT NO. 6 THE AO HAS SPECIFICALLY ASKED ALLOWABILITY OF SET-OFF OF LOSS ON SHARE TRADING AGAINST GAINS ON DERIVATIVES TRANSACTIONS REPLY OF THE ASSESSEE ON THIS SPECIFIC POINTS IS AT PAGE 39 OF THE PAPER BOOK, WHICH IS AS UNDER. POINT 6 OF NOTICE U/S. 142(1) DATED DECEMBER 13,200 5 NOTE ON ALLOWABILITY OF SET OFF OF LOSS ON SHARES T RADING AGAINST GAINS ON DERIVATIVES. THE COMPANY DEALS IN TRADING IN SHARES AND SECURI TIES ON ITS OWN ACCOUNT. DURING THE CAPTIONED ASSESSMENT YEAR, THE COMPANY I NCURRED LOSS OF RS. 31,81,520/- ON SALE OF SHARES. SINCE THE SHARES WER E HELD AS STOCK IN-TRADE THE LOSS ON SALE OF SHARES WERE OFFERED AS BUSINES S LOSS. FURTHER IT MADE A PROFIT OF RS. 5,57,77,239/- FROM TRADING IN DERIV ATIVES. PROFIT FROM TRADING IN DERIVATIVE IS BUSINESS INCOME. THE NET INCOME EARNED OF RS. 5,25,95,719/- FROM THE FOREGOING TRANSACTIONS HAS B EEN OFFERED FOR TAX UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION . AS PER THE PROVISIONS OF SECTION 70(1) OF THE INCOM E TAX ACT 1961 (THE ACT) WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLING UNDER ANY HEAD OF INCOME OTHER THAN CAPITAL GAINS, IS A LOSS THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMO UNT OF SUCH LOSS SET-OFF AGAINST THIS INCOME FROM ANY OTHER SOURCES UNDER TH E SAME HEAD. ACCORDINGLY, IN THE PRESENT CASE THE COMPANY IS ENT ITLED TO SET OFF LOSS INCURRED ON SALE OF SHARES AGAINST PROFIT FROM DERI VATIVE TRADING. 6 ITA 50 M 2011 (AY-2004-05) M/S. IC ICI SECURITIES LTD. V/S DY. CIT. 12. CONSIDERING THE ABOVE FACTS IN THE LIGHT OF T HE SPECIFIC QUERY RAISED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS VIS-A-VIS REASONS R ECORDED FOR REOPENING OF THE ASSESSMENT, WE HAVE NO HESITATION TO HOLD THAT NO N EW TANGIBLE MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO WHICH COULD JUSTIFY THE REOPENING OF THE ASSESSMENT. WE DRAW SUPPORT FROM THE RATIO LAID DOWN BY THE HONBL E SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 320 ITR 561. CONSIDERING T HE FACTS OF THE CASE IN THE LIGHT OF AFOREMENTIONED DECISION OF THE HONBLE SUPREME COUR T, REOPENING OF THE ASSESSMENT IS HELD TO BE BAD-IN-LAW AND THE REASSESSMENT ORDER PA SSED IS SET ASIDE. GROUND NO. 1 WITH ALL ITS SUB-GROUNDS IS ALLOWED. 13. AS WE HAVE HELD THAT THE REASSESSMENT IS BA D-IN-LAW, WE DO NOT FIND IT NECESSARY TO DECIDE THE ISSUE ON MERITS AS RAISED BY THE ASSE SSEE VIDE GROUND NO. 2. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. /5 &/ 6/ / 7' ORDER PRONOUNCED ON 30 TH DAY OF AUGUST , 2013. 3 12' 5 30.08.2013 2 9 SD/- S D/- ( VIJAY PAL RAO ) ( N. K. BILLAIYA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI: DATED : 30.08.2013 . /. PRAMOD KUMAR, PS 3 3 3 3 +/ +/ +/ +/ :'/ :'/ :'/ :'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT 7 ITA 50 M 2011 (AY-2004-05) M/S. IC ICI SECURITIES LTD. V/S DY. CIT. 3. ; ) ( / THE CIT(A); 4. ; / THE CIT CONCERNED; 5. <9 +/ , , / DR, ITAT, MUMBAI; 6. 9=& > / GUARD FILE 3 3 3 3 / BY ORDER, ? ?? ? / 7 7 7 7 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI