PAYASH SECURITIES P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 650/MUM/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3646 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 24-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Charitable institution; Audit objection; Difference of opinion; Assessment record; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 234B; 80G; 147; 148

Judgement Text

, / IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , . . !'# , $ BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & SHRI N K BILLAIYA, AM & SHRI N K BILLAIYA, AM & SHRI N K BILLAIYA, AM & SHRI N K BILLAIYA, AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 650/MUM/ 650/MUM/ 650/MUM/ 650/MUM/2013 2013 2013 2013 ( (( ( % % % % &% &% &% &% / ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR :2006 2006 2006 2006- -- -07 0707 07 ) ) ) ) PAYASH SECURITIES P LTD 17/19 KHATAU BLDG 44 BANK STREET MUMBAI 400 001 / VS. THE DY COMMR OF INCOME TAX 5(2), MUMBAI ' $ ./ ( ./ PAN/GIR NO. : AABCP8975B ( ') / APPELLANT) .. ( *+') / RESPONDENT) ') , / APPELLANT BY : SHRI TEJ SHAH *+') - , /RESPONDENT BY : SH S D SRIVASTAVA - .$ / DT. OF HEARING : 10 TH APRIL 2013 /0& -.$ /DT.OF PRONOUNCE MENT: 19 TH APRIL 2013 1 1 1 1 / O R D E R O R D E R O R D E R O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13.12.2012 OF THE COMMISSIONER OF INCOME TAX(APPEAL S) FOR THE ASSESSMENT YEAR 2006-07. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: I. THAT THE LD. CIT (A) ERRED IN LAW AND IN THE FA CTS OF THE CASE IN CONFORMING THE ACTION OF THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT OF THE APPELLANT U/S 147 OF THE ACT. 2. THAT THE LD. CIT (A) ERRED IN LAW AND IN THE FAC TS OF THE CASE IN CONFORMING THE ORDER OF THE ASSESSING OFFICER BY N OT APPRECIATING THAT MERELY BECAUSE OF CHANGE IN THE HEAD OF INCOME BY THE ITA NO.650/MUM/2013 . 2 ASSESSING OFFICER , NO INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT 3. THAT THE LD. CIT (A) ERRED IN LAW AND IN THE FAC TS OF THE CASE IN CONFORMING THE ORDER OF THE AO IN CONSIDERING THE V ALIDITY OF REOPENING ON THE BASIS OF A SUBSEQUENT DECISION OF THE JURISDICTIONAL BENCH OF THE HONBLE ITAT. 4. THAT THE LD. CIT (A) ERRED IN LAW AND IN THE FAC TS OF THE CASE IN CONFORMING THE ORDER OF THE AO IN REOPENING THE CAS E ON THE BASIS OF AUDIT OBJECTION. 5. THAT THE LD. CIT (A) ERRED IN LAW AND IN THE FAC TS OF THE CASE IN CONFORMING THE ORDER OF THE AO IN TREATING THE INCO ME FROM SALE OF INVESTMENT AS BUSINESS INCOME AND NOT AS SHORT TERM CAPITAL GAINS AS SHOWN BY THE APPELLANT. 6. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT (APP EAL) SHOULD HAVE DIRECTED TO GRANT CREDIT FOR SECURITIES TRANSACTION TAX (STT) PAID IN RESPECT OF SUCH INCOME. 7. THAT THE LD. CIT (A) ERRED IN LAW AND IN THE FAC TS OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN C HARGING INTEREST U/S 234B OF THE ACT. 3 GROUNDS NOS 1 TO 4 REGARDING VALIDITY OF REOPENIN G OF THE ASSESSMENT. 3.1 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING IN SHARES AND SECURITIES. IT FURNISHED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BY DISCLOSI NG THE TOTAL INCOME OF ` 20,60,73,429/- ON 14.11.2006. THE ASSESSING OFFIC ER WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) ON 29.12.2008 ACCEPTED THE CLAIM OF LONG TERM CAPITAL GAINS (LTCG) AND SHORT TERM CAPITAL GA INS (STCG) ARISING OUT OF SALE AND PURCHASE OF SHARES AND SECURITIES. SUBSEQUENTLY, THE REVENUE AUDIT PARTY HAS OBSERVED THAT THE HOLDING P ERIOD IN RESPECT OF 98% OF THE SALE OF SHARES IS LESS THAN 12 MONTHS AN D THEREFORE, RAISED AN ITA NO.650/MUM/2013 . 3 OBJECTION AGAINST THE CLAIM OF STCG. THEREAFTER, T HE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 O N 28.3.2011 ON THE REASON THAT THE SHARES WERE PURCHASED AND SOLD ON M ORE THAN 1062 OCCASIONS IN WHICH APPROXIMATELY 98% SALE OCCASIONS WERE LESS THAN 12 MONTHS. TAKING INTO CONSIDERATION THE NUMBER, VOLUM E AND FREQUENCY OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE, THE ACTIV ITY OF PURCHASE AND SALE OF SHARES AMOUNTS TO TRADING ACTIVITY AND NOT AN IN VESTMENT ACTIVITY AND HENCE, THE PROFITS EARNED FROM THE ACTIVITY AMOUNTI NG TO ` 20.60 CRORES SHOULD BE BROUGHT TO TAX AS BUSINESS INCOME AS A GAINST ASSESSEES CLAIM OF STCG. 3.2 IN RESPECT OF THE NOTICE U/S 148, THE ASSESSEE SUBMITTED THAT THE RETURN OF INCOME FILED ON 16.11.2004 MAY BE TREATE D AS RETURN FILED IN RESPONSE TO THE SAID NOTICE.THE ASSESSEE VIDE ITS L ETTER DATED 16.12.2011 FILED OBJECTIONS FOR REOPENING OF THE ASSESSMENT. T HE ASSESSING OFFICER REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE AGAI NST THE REOPENING OF THE ASSESSMENT AND ASSESSED THE AMOUNT OF ` 20.60 C RORES CLAIMED BY THE ASSESSEE AS STCG AS BUSINESS INCOME WHILE PASSING T HE REASSESSMENT ORDER DT 29.12.2011. 3.3 THE ASSESSEE CHALLENGED THE ACTION OF THE ASSES SING OFFICER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) INCLUDING THE VALIDITY OF REOPENING OF THE ASSESSMENT. THE COMMISSIONER OF IN COME TAX (APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AGAIN ST THE VALIDITY OF THE REOPENING AND HENCE, REJECTED THE GROUNDS RAISED BY THE ASSESSEE. ITA NO.650/MUM/2013 . 4 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT ORIGINALLY, THE ASSESSMENT WAS PASSED U/S 143(3) AFTER CONSIDER ING ALL THE DETAILS AND MATERIAL ON THE ISSUE OF STCG AND THE NATURE OF TRA NSACTIONS AND AFTER THE ASSESSING OFFICER MADE HIMSELF SATISFIED, ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT THERE IS NO CHANGE IN TH E NATURE AND ACTIVITY OF THE ASSESSEE COMPANY IN COMPARISON TO EARLIER YE AR. HE HAS REFERRED THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3) AND SUBMITTED THAT THE ASSESSING OFFICER ASKED VARIOUS DETAILS BY ISSUING NOTICE U/S 143(2) AND 142(1) AND THE ASSESSEE, IN RESPONSE TO THE NOTICES , FILED ALL THE RELEVANT DETAILS INCLUDING THE BOOKS OF ACCOUNT, VOUCHERS, C ONTRACT NOTES ETC., BEFORE THE ASSESSING OFFICER FOR VERIFICATION. THU S, AFTER EXAMINATION AND DISCUSSION OF THE ISSUE, THE ASSESSING OFFICER WAS SATISFIED WITH THE CLAIM OF THE ASSESSEE REGARDING LTCG AND STCG ON SHARES A ND MUTUAL FUNDS. THE LD AR HAS REFERRED THE NOTICES ISSUED BY THE AS SESSING OFFICER U/S 143(2) AND 142(1) PLACED AT PAGES 36 TO 40 OF THE P APER BOOK AND SUBMITTED THAT THE ASSESSING OFFICER ISSUED A DETAI LED QUESTIONNAIRE VIDE NOTICE DATED 11.6.2008 WHEREBY THE DETAILS OF NEW I NVESTMENTS DURING THE YEAR WITH SOURCE THEREON, COPIES OF BANK STATEMENT ALONG WITH RECONCILIATION, DETAILS OF PROFIT ON SALE ON MUTUAL FUNDS AND THE DETAILS OF PROFIT/CAPITAL GAIN ON SALE ON SHARES AND SECURITIE S WERE CALLED FOR. THE ASSESSING OFFICER HAS ALSO RAISED A QUESTION ABOUT THE CIRCULAR NO.4/2007 REGARDING THE INCOME FROM SHARE TRANSACTIONS AS TO WHETHER THE SAME SHOULD BE TREATED AS BUSINESS OR CAPITAL GAIN IN NA TURE. ACCORDINGLY, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE SUBMISSIONS ON THIS ISSUE. THE LD AR HAS THEN REFERRED THE REPLY IN RES PONSE TO THE NOTICE ITA NO.650/MUM/2013 . 5 ISSUED BY THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE VIDE LETTER DATED 18.6.2008 ( PAGES 64 TO 69 OF THE PA PER BOOK) FILED THE DETAILED REPLY EXPLAINING ALL THE TRANSACTIONS AND GIVING ANSWERS TO EACH AND EVERY QUERY RAISED BY THE ASSESSING OFFICER. TH US, THE LD AR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS DULY EXAMI NED THE ISSUE OF NATURE OF TRANSACTIONS OF SHARES AND MUTUAL FUNDS AND AFTER HAVING SATISFIED ON THE QUERIES MADE, THE ASSESSING OFFICE R ALLOWED THE CLAIM OF THE ASSESSEE BY TAKING A VIEW THAT HE TRANSACTIONS ARE SIMILAR IN THE NATURE AS IN THE EARLIER YEARS. 4.1 THUS, THE LD AR HAS FORCEFULLY CONTENDED THAT T HE ASSESSING OFFICER HAS TAKEN A VIEW AFTER DUE INVESTIGATION AND EXAMIN ATION OF THE RELEVANT MATERIAL AND ISSUE OF STCG AS WELL AS BUSINESS INCO ME. THE LD AR THEN REFERRED THE ORDER PASSED U/S 143(3) FOR THE AYS 20 05-06 AND 2007-08 AS WELL AS THE ORDER U/S 143(3) FOR THE ASSESSMENT YEA R 2008-09 AND SUBMITTED THAT THE CLAIM OF THE ASSESSEE HAD BEEN A CCEPTED IN THE EARLIER YEAR AS WELL AS SUBSEQUENT YEAR. EVEN FOR THE ASSE SSMENT YEAR 2009-10, THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE. 4.2 THE LD AR FURTHER CONTENDED THAT THERE IS NO CH ANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE EARLIER YEAR AS WELL AS SUBSEQUENT YEAR. THEREFORE, ONCE THE ASSESSING OFFICER HAS TA KEN A VIEW AFTER EXAMINATION OF THE RELEVANT RECORD AND HAVING CONDU CTED PROPER ENQUIRY, THEN THE REASSESSMENT ON THE BASIS OF AUDIT OBJECTI ON IS NOTHING; BUT ON CHANGE OF OPINION. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F COMMISSIONER OF ITA NO.650/MUM/2013 . 6 INCOME-TAX V. KELVINATOR OF INDIA LTD. REPORTED IN 320 ITR 561 AND SUBMITTED THAT THE HONBLE SUPREME COURT HAS OBSERV ED THAT REOPENING OF THE ASSESSMENT ON THE BASIS OF MERE CHANGE OF OPINI ON CANNOT BE PERMITTED TO GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON THE BASIS OF MERE CHANGE OF OPINION. ONCE THE ASSESSING OFFICER HAS TAKEN A PARTICULAR VIEW AND ALLOWED THE CLAIM OF THE ASSESSEE WHILE PASSING THE ASSESSMENT ORDER U/S 143(3), THEN THE ASSESSMENT CANNOT BE REOPENED ON THE SAME ISSUE BY TAKING A DI FFERENT VIEW/OPINION. 4.3 THE LD AR HAS THEN RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ASSISTANT COMMISSIONER OF INCO ME-TAX V. ICICI SECURITIES PRIMARY DEALERSHIP LTD. REPORTED IN 349 ITR 299 AND SUBMITTED THAT AFTER A MERE RE-LOOK OF ACCOUNTS WHICH WERE E ARLIER FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAD COME TO CONCLUS ION THAT THE INCOME HAD ESCAPED ASSESSMENT, SAME WAS NOT PERMISSIBLE U /S 147 OF THE ACT AS IT WAS CLEARLY A CHANGE OF OPINION. 4.4 THE LD AR THEN REFERRED THE DECISION OF THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASIAN PAINTS LTD VS DCIT REPORTED IN 308 ITR 195 AND SUBMITTED THAT AS HELD BY THE HONBLE JURISDIC TIONAL HIGH COURT THE ASSESSING OFFICER CANNOT TAKE RECOURSE TO THE PROVI SIONS OF SEC. 147 FOR HIS OWN FAILURE TO APPLY HIS MIND TO THE MATERIAL WHICH , ACCORDING TO HIM, IS RELEVANT AND WHICH WAS AVAILABLE ON RECORD. THE LD AR HAS SUBMITTED THAT NOTHING NEW HAD HAPPENED AND NO NEW MATERIAL HAS CO ME TO THE KNOWLEDGE OF THE ASSESSING OFFICER AND EVEN NO NEW INFORMATION HAD BEEN RECEIVED; IT WAS MERELY A FRESH APPLICATION OF MIND BY THE ASSESSING ITA NO.650/MUM/2013 . 7 OFFICER TO THE SAME SETS OF FACTS AND THEREFORE, A S HELD BY THE HONBLE SUPREME COURT, THE REOPENING OF THE ASSESSMENT ON T HE BASIS OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE. 4.5 THE LD AR HAS THEN REFERRED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF RITU INVESTMENTS P. LTD. V. DE PUTY COMMISSIONER OF INCOME-TAX., REPORTED IN 345 ITR 214 (DEL) AND SUBM ITTED THAT WHEN IN THE INITIAL PROCEEDINGS, THE ASSESSING OFFICER HAS PASS ED THE ORDER AND THE ISSUE WAS DEALT WITH AFTER DUE APPLICATION OF MIND, THEN THE REOPENING IS NOTHING; BUT CHANGE OF OPINION, WHICH CANNOT PERMIT THE ASSESSING OFFICER TO INITIATE PROCEEDINGS U/S 147. THE LD AR HAS ALS O RELIED UPON A SERIES OF DECISIONS ON THE POINT OF REOPENING AND CONTENDED T HAT WHEN THE ISSUE HAS EXAMINED BY THE ASSESSING OFFICER IN THE ORIGIN AL ASSESSMENT PROCEEDINGS AND THEREAFTER, NO NEW MATERIAL FACTS O R INFORMATION CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER, THEN THE RE OPENING ON THE BASIS OF MATERIAL ALREADY AVAILABLE ON RECORD IS NOT PERMITT ED AS THE SAME IS ON THE BASIS OF CHANGE OF OPINION. 4.6 ON THE OTHER HAND, THE LD DR HAS CONTENDED THAT THE AUDIT PARTY HAS POINTED OUT A VERY CRUCIAL AND IMPORTANT FACT ABOUT THE NUMBER OF TRANSACTIONS, WHICH IS VERY HIGH AS MORE THAN 1062. THEREFORE, THE AUDIT PARTY HAS POINTED OUT AN IMPORTANT FACT, WHICH WAS OVER LOOKED BY THE ASSESSING OFFICER WHILE PASSING THE ORIGINAL ASSESS MENT ORDER. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. P.V.S. BEEDIES PVT. ITA NO.650/MUM/2013 . 8 LTD. REPORTED IN 237 ITR 13 AND SUBMITTED THAT TH E HONBLE SUPREME COURT HAS HELD THAT INTERNAL AUDIT PARTY HAD MEREL Y POINTED OUT A FACT WHICH HAD BEEN OVERLOOKED BY THE INCOME-TAX OFFICER IN THE ASSESSMENT AND THEREFORE, REOPENING OF A CASE ON THE BASIS OF A FACTUAL ERROR POINTED OUT BY THE AUDIT PARTY WAS PERMISSIBLE UNDER LAW. 4.7 THE LD DR HAS FURTHER CONTENDED THAT EVEN OTHER WISE, FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OF THE ASS ESSEE CANNOT BE ACCEPTED AS THE ASSESSING OFFICER, IN THE ORIGINAL ASSESSMENT HAS ACCEPTED THE CLAIM OF THE ASSESSEE WHICH COULD NOT HAVE BEEN ACCEPTED BY ANY PERSON HAVING ORDINARY PRUDENCE. IN SUPPO RT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF DR. AMIN'S PATHOLOGY LABORATORY V. P.N. PRASAD, JOI NT COMMISSIONER OF INCOME-TAX REPORTED IN 252 ITR 67 3. THE LD DR HAS THEN SUBMITTED THAT THE ASSESSING OFFICER HAS OVER LOOKED THE MATERIAL FACT OF NUMBER OF TRANSACTIONS, HOLDING PERIOD AND BORROWED FUNDS UTILIZED BY THE ASSESSEE. HE HAS RELIED UPON THE ORDER OF TH E CIT(A). SINCE THE REOPENING IS WITHIN 4 YEARS; THEREFORE, THE CASE OF THE ASSESSEE DOES NOT FALL UNDER THE PROVISIONS OF SEC. 147 AND THERE IS NO PRE-CONDITION THAT ESCAPEMENT OF THE INCOME FROM ASSESSMENT ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY. 4.8 IN REBUTTAL, THE LD AR HAS SUBMITTED THAT THERE IS NO NEW FACT CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER AFTER PAS SING THE INITIAL ASSESSMENT ORDER U/S 143(3). ALL THE FACTS AND REL EVANT RECORDS HAVE BEEN CONSIDERED AND EXAMINED BY THE ASSESSING OFFICER A ND THEREFORE, ITA NO.650/MUM/2013 . 9 REOPENING OF THE ASSESSMENT IS NOT SUSTAINABLE AS H ELD BY THE HONBLE SUPREME COURT IN THE CASE OF PARASHURAM POTTERY W ORKS CO. LTD. V. INCOME-TAX OFFICER REPORTED IN 106 ITR 1 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CARE FULLY PERUSED THE RELEVANT MATERIAL AS WELL AS THE DECISIONS RELIED U PON BY THE PARTIES. THERE IS NO DISPUTE ON THE POINT THAT THE ASSESSING OFFICER ISSUED NOTICE U/S 148 AFTER THE OBJECTIONS RAISED BY THE AUDIT PA RTY. THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT ARE AS UND ER: ON PERUSAL OF ASSESSMENT RECORDS IT IS NOTED THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD PURCHASED AND SOLD SHARES OF AROUND 63 COMPANIES WITHIN A PERIOD OF 12 MONTHS WITH TOTAL SALE CONSIDERATION RECEIVED OF RS. 377.45 CRORES AND PUR CHASE VALUE OF RS. 684.66 CRORES. IT WAS FURTHER NOTED THAT SHARES WERE PURCHASED AND SOLD ON MORE THAN 1062 OCCASIONS, IN WHICH APPR OX. 98% OF SALES OCCASIONS WERE WITHIN LESS THAN 12 MONTHS. TAKING INTO CONSIDERATION, THE NUMBER, VOLUME AND F REQUENCY OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE, IN MY OPI NION, ASSESSEES ACTIVITY OF PURCHASE AND SALE OF SHARES AMOUNTS TO TRADING ACTIVITY AND NOT AN INVESTMENT ACTIVITY AND HENCE PROFIT EAR NED FROM SUCH ACTIVITY AMOUNTING TO RS. 20.60 CR SHOULD BE BROUGH T TO TAX BUSINESS INCOME AS AGAINST ASSESSEES CLAIM OF S HORT TERM CAPITAL GAINS. I THEREFORE HAVE REASON TO BELIEVE THAT INCOME TO T HE EXTENT OF DIFFERENTIAL TAX AMOUNT HAS ESCAPED ASSESSMENT WITH IN THE MEANING OF SECTION 147 OF THE I.T. ACT.. THE ASSESSMENT IS THEREFORE REOPENED U/S. 147 OF THE I.T. ACT. 5.1 IT IS TO BE NOTED THAT IN THE ORIGINAL ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER ISSUED NOTICE U/S 143(2) AS WELL AS 142(1) AND ISSUED QUESTIONNAIRE TO THE ASSESSEE VIDE LETTER DATED 11. 6.2008. THE RELEVANT PART OF THE QUESTIONNAIRE IN PARAS 7,13 TO 19 ARE A S UNDER: ITA NO.650/MUM/2013 . 10 VII) NATURE OF BUSINESS CARRIED ON BY YOU DURING T HE YEAR. (XIII) IN THE COMPUTATION OF TOTAL INCOME YOU HAVE SHOWN TAX FREE INCOME OF RS.1,92,24,566/-, PLEASE GIVE DETAILS THE REOF AND BASIS AS TO HOW THE SAME IS EXEMPT. (XIV) PROOF OF PAYMENT OF SECURITY TRANSACTION TAX AND SERVICE TAX ALONG WITH PAYMENTS ATTRIBUTABLE TO TAX FREE INCOME . XV) DETAILS OF DIVIDEND RECEIVED ALONG WITH DIVIDEN D WARRANTS. (XVI) DETAILS OF PROFIT/CAPITAL GAINS ON SALE OF SH ARES WITH SCRIP-WISE DETAILS IN THE FOLLOWING PROFORMA: XVII) DETAILS OF PROFIT ON SALE OF MUTUAL FUND IN I DENTICAL PROFORMA AS ABOVE. XVIII) DETAILS OF NEW INVESTMENT DURING THE YEAR WI TH SOURCES THEREON. (XIX) YOUR ATTENTION IS DRAWN TO THE CONTENTS OF CB DT CIRCULAR NO.4/2007 REGARDING INCOME FROM SHARE TRANSACTIONS AS TO WHETHER THE SAME SHOULD BE BUSINESS OR CAPITAL GAIN IN NATU RE, PLEASE FURNISH YOUR SUBMISSION VIS-A-VIS THIS CIRCULAR. 5.2 THE ASSESSEE REPLY THE QUERIES OF THE ASSESSING OFFICER BY FILING VIDE LETTER DATED 18.6.2008 AND THE RELEVANT PART OF THE REPLY IS AS UNDER: 7. NATURE OF BUSINESS: THE ASSESSEE COMPANY DOES N OT HAVE ANY BUSINESS OR PROFESSION OF TRADING MANUFACTURING. T HE COMPANY IS ENGAGED IN THE ACTIVITY OF INVESTMENT IN SHARES AND MUTUAL FUNDS. IN THE CURRENT YEAR THE COMPANY HAS UNDERTAKEN INVESTM ENT ACTIVITIES IN THE PRIMARY & SECONDARY EQUITY MARKET. THE COMPA NY ALSO INVESTED IN MUTUAL FUNDS. 13. DETAILS OF EXEMPTED INCOME RS. 1,92,24,566/-IS ASUNDER: ITA NO.650/MUM/2013 . 11 LONG TERM CAPITAL GAINS RS. 86,72,771/- - EXEMPT U/ S 10(38), DIVIDEND ON SHARES AND MF RS. 102,38,780/-(SHARES) RS. 3,13,014/-(MUTUAL FUNDS) - EXEMPT U/S 10(34) AN D 10(35). DURING THE YEAR ASSESSEE COMPANY MADE LONG TERM CAP ITAL GAINS OF RS. 86,72,771/- BY SELLING THE INVESTMENT HELD FOR A PERIOD OF MORE THAN 12 MONTHS. SECURITY TRANSACTION TAX HAS BEEN PAID ON THESE TRANSACTIONS. DETAILED WORKING O F LONG TERM CAPITAL GAINS SHOWING THE DATE OF PURCHASE QUA NTITY OF PURCHASE, PURCHASE VALUE, DATE OF SALE, QUANTITY SO LD, SALE VALUE CAPITAL GAIN. THE STATEMENT CLEARLY SHOWS THE PERIOD OF HOLDING. COPIES OF INVESTMENT ACCOUNTS OF EARLIER Y EARS ARE ENCLOSED TO SHOW THAT THE INVESTMENT SOLD DURING AR E HELD FOR MORE THAN 1 YEAR. COPIES OF DE-MAT A/C ARE ALSO ENC LOSED SHOWING THE OPENING BALANCES AND THE SALE DEBITS. C OPIES OF BILLS ARE ALSO ENCLOSED SHOWING THE TRANSACTION AND THE PAYMENT OF SECURITY TRANSACTION TAX. STT CERTIFICAT E ISSUED BY THE BROKERS ARE ALSO ENCLOSED. DURING THE YEAR ASSESSEE COMPANY RECEIVED DIVIDEND ON EQUITY SHARES AND MUTUAL FUNDS UNITS AGGREGATING TO RS. 1,05,51,794/- THE DETAILS OF DIVIDEND ARE ENCLOSED. ASSESSEE COMPANY HAS NOT VIOLATED THE PROVISIONS OF SECTION 94(7) OF THE I T ACT, THE ASSESSEE COMPANY HAS NOT INCURRED ANY LOSS ON SALE OF EQUITY SUBSEQUENT TO THE RECEIPT OF DIVI DEND. 14. COPIES OF BILLS ARE ALSO ENCLOSED SHOWING THE T RANSACTION AND THE PAYMENT OF SECURITY TRANSACTION TAX. STT CERTIF ICATE ISSUED BY THE BROKERS ARE ALSO ENCLOSED. NO SERVICE TAX IS PA YABLE BY THE ASSESSEE COMPANY. 15. DETAILS OF DIVIDEND ALONG WITH THE WARRANTS ENC LOSED. 16. DETAILS OF CAPITAL GAIN RS. 86,72,771/- BEING LONG TERM CAPITAL GAIN, RS. 204,58,028/- BEING SHORT TERM CAPITAL GAI NS. 17. ` 15,19,230/- BEING SHORT TERM CAPITAL GAIN ON MF UNITS IN REQUIRED FORMAT ENCLOSED. 18. DETAILS OF NEW INVESTMENT ARE MENTIONED IN THE ENCLOSED IN THE INVESTMENT DETAILS. THE SOURCE OF THIS INVESTMENT A RE OUT OF SALE PROCEEDS OF INVESTMENT AND INTEREST FREE UNSECURED LOANS FROM THE SHAREHOLDERS. 19. DURING THE ASSESSMENT YEAR IN QUESTION ASSESSEE EARNED INCOME UNDER THE HEAD LONG TERM CAPITAL ON SALE OF INVESTM ENT IN SHARES AT RS.86,72,771/- WHICH IS CLAIMED AS EXEMPT UNDER SEC TION 10(38) OF ITA NO.650/MUM/2013 . 12 THE I .T. ACT. FURTHER SHORT TERM CAPITA[N ON SALE OF INVESTMENT IN SHARES EARNED AT ` 2,04,58,028/- AND SHORT TERM CA PITAL GAIN, ON SALE OF M.F. INVESTMENT AGGREGATING TO RS 15,19,230 /- WHICH IS SHOWN IN THE RETURN OF INCOME UNDER HEAD CAPITAL GA INS. WE HAVE SUBMITTED SCRIP WISE DETAILS OF LONG TERM AND SHORT TERM CAPITAL GAINS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS YOUR HOOUR ASKED US TO JUSTIFY THE INCOME ARISING OUT OF PURCH ASE AND SALE OF SHARES UNDER THE HEAD CAPITAL GAINS. IN THE CONTEX T IT IS SUBMITTED THAT ASSESSEE HAS BEEN DOING INVESTMENT IN SHARES S INCE LAST SEVERAL YEARS. HE IS MAINTAINING THE BOOKS OF ACCOU NTS. THE LEDGER ACCOUNT OF SHARES INVESTMENT IS SEPARATELY MAINTAIN ED AND INCOME ARISING ON SALE OF SUCH SHARES IS SHOWN UNDER THE H EAD CAPITAL GAIN. THESE SHARES WERE PURCHASED WITH THE INTENTION OF I NVESTMENT ONLY. ON PERUSAL OF THE BALANCE SHEET FILED WITH THE RETU RN OF INCOME YOUR HONOR WOULD APPRECIATE THAT THE SHARES WERE SHOWN U NDER THE HEAD INVESTMENT. THE BOOKS OF ACCOUNTS CLEARLY SHOW THAT , THE ENTRIES WERE MADE IN A MANNER THAT THERE IS A DEFINITE DEMA RCATION FOR SHARES HELD AS INVESTMENT. THE QUESTION AS TO WHETH ER THE SHARES SOLD WERE INVESTMENT OR STOCK IN TRADE IS DETERMINE D ON THE BASIS OF ENTRIES MADE IN THE ASSESSEES BOOK OF ACCOUNTS AND WHEN THE SHARES PURCHASED AND HELD AS INVESTMENT, THEN THE S AID ENTRIES CLEARLY DEMONSTRATE THE INTENTION OF THE ASSESSEE W ITH WHICH THE SHARES WERE PURCHASED. THE ASSESSEE IS ALSO GETTING REGULAR DIVIDEND FROM THE VARIOUS SHARES WHICH ARE HELD AS AN INVESTMENT. IT MAY BE NOTED THAT IN THE EARLIER ASSESSMENT YEAR S ALSO THE ASSESSEE HAD HELD THE SHARES UNDER THE HEAD INVESTM ENT AND CAPITAL GAIN ARISING ON SALE OF SUCH SHARES WAS ACC EPTED IN THE SCRUTINY ASSESSMENTS COMPLETED. YOUR ATTENTION IS D RAWN TO THE ASSESSMENT ORDERS COMPLETED U/S 143(3) FOR THE A.Y. 2003-2004, 2004-05, 2005-06 AND EARLIER YEARS WHEREIN INCOME A RISING ON SALE OF SHARES HELD A S INVESTMENT HAS BEEN ASSESSED UNDER THE HEAD CAPITAL GAINS BOTH SHORT TERM AND LONG TERM AND THE RE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FROM EAR LIER YEARS AND THEREFORE THERE IS NO REASON TO DEVIATE FROM THE ST AND TAKEN IN THE EARLIER YEARS. YOUR HONORS ATTENTION IS ALSO INVITED TO THE DEFIN ITION OF SHORT TERM CAPITAL ASSET AS PROVIDED U/S 2 (42A) OF THE IT ACT WHICH STATES THAT IF THE SHARES ARE HELD BY AN ASSESSEE FOR NOT MORE THEN 12 MONTHS THE SAME ARE TO BE TREATED AS SHORT TERM CAPITAL AS SET AND ACCORDINGLY AS PER SECTION 2(42B) THE CAPITAL GAIN ARISING ON THE TRANSFER OF SUCH ASSET SHOULD BE TREATED AS SHORT T ERM CAPITAL GAIN. UNDER SUCH CIRCUMSTANCES EVEN IF THE SHARES ARE SOL D BY THE ASSESSEE WITHIN THE PERIOD OF 12 MONTHS THE INCOME ARISING FROM SUCH SALE HAS BEEN RIGHTLY COMPUTED UNDER THE HEAD SHORT TERM CAPITAL GAIN. ALSO YOUR HONORS ATTENTION IS ALSO INVITED TO THE DEFINITION OF LONG TERM CAPITAL ASSET AS PROVIDED U/S 2 (29A) OF THE I T ACT WHICH STATES ITA NO.650/MUM/2013 . 13 THAT CAPITAL ASSET WHICH IS NOT AN SHORT TERM CAPIT AL ASSET IN NOT SHELL IF THE SHARES ARE HELD FOR THE MORE THEN ONE YEAR WILL BE TREATED AS LONG TERM CAPITAL ASSETS. IT IS FURTHER SUBMITTED THAT MERE VOLUME OF TRANSAC TION DONE BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION FROM INVESTMENT TO STOCK IN TRADE. THE TRANSACTION OF THE SALE OF S HARE HELD WITH INTENTION OF INVESTMENT BY THE ASSESSEE HAS TO BE C ONSIDERED SEPARATELY WITH OUT REGARDS TO THE VOLUME AND FREQU ENCY OF THE TRANSACTIONS. THE TRANSACTION IN WHOLE HAS TO BE TA KEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. IT IS FURTHER BROUGHT TO YOUR KIND NOTICE THAT THER E IS NO INTEREST BEARING LOANS RAISED BY THE ASSESSEE FOR THE PURPOS E OF MAKING THE INVESTMENT. ON PERUSAL OF THE LONG TERM CAPITAL GAIN STATEMENT YOUR HONOR WILL SEE THAT SHARES SOLD DURING THE YEAR, WERE HELD BY THE ASSESSEE FOR THE FAIRLY LONG PERIOD AND THE SAME WERE APPEARING UNDER THE HEAD INVESTMENT IN THE EARLIER BALANCE SHEETS. YOUR HONORS ATTENTION IS ALSO INVITED TO THE GUIDE LINE GIVEN BY THE CBDT IS IN CIRCULAR NO. 4/2007 DATED 15/06/2007 ON THE ISSUE OF TREATMENT OF INCOME ARISING OUT OF SALE OF SHARES A S CAPITAL GAIN OR BUSINESS INCOME. THE RELEVANT PORTION OF THE SAID C IRCULAR IS REPRODUCED HEREIN BELOW: . THE CBDT CIRCULAR IS REPRODUCED BELOW . THE ASSESSEE COMPANY RELIED ON THE DECISION OF MUMB AI ITAT IN THE CASE OF JANAK RANGWALA V/S ACIT 11- SOT 627 IN WHIC H IT IS HELD THAT MAGNITUDE OF TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION HENCE IT IS NATURE OF TRANSACTION WHICH SHALL DECID E CATEGORY OF TRANSACTION AND NOT FREQUENCY OF SALE. IT IS ALSO R ELIED ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF ACIT V /S KETAN KUMAR SHAH 242 ITR 83 IN WHICH IT IS HELD THAT A BROKER I N SHARES CAN HAVE TWO ACCOUNTS, ONE FOR TRADING AND ANOTHER FOR INVES TMENTS. IT IS ALSO RELIED ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT V/S NSS INVESTMENTS P. LTD. 277 ITR 149 IN WHICH IT IS HELD THAT A COMPANY CAN HOLD SHARES FOR EARNING DIVIDEND AND TR EAT THEM AS INVESTMENT AND CAN ALSO TRADE IN SHARES FOR MAKING QUICK BUCKS IN THE MARKET. IT ALSO RELIED ON THE DECISION OF GUJAR AT HIGH COURT IN HY. MOHAMED AND CO. V/S CIT 107 ITR 637, IN WHICH GUJAR AT HIGH COURT ITA NO.650/MUM/2013 . 14 HELD THAT STOCK IN TRADE IS SOMETHING A TRADER A BU SINESSMAN DEALS, WHERE AS HIS CAPITAL ASSETS IS SOMETHING WITH WHICH HE INVESTS. THUS, THE TEST OF INTENTION IS ALSO A VERY IMPORTAN T FACTOR. IT ALSO RELIED UPON THE CIRCULAR REFERRED BY YOU NO. 4/207 DATED L5THE JUNE 2007 ISSUED BY CBDT IN WHICH IT IS HELD THAT SHARE S CAN BE HELD IN TWO CATEGORIES ONE AS INVESTMENT AND ANOTHER AS STO CK IN TRADE. THE ASSESSEE COMPANY ALSO RELIES ON MUMBAI TRIBUNAL DECISION IN THE CASE OF J.M.SHARES & STOCK BROKERS LTD. ITR NO. 2801/MUM/2000, DECIDED ON 30-11-2007 A COPY OF THE SAME IS ENCLOSE D. FROM THE RECORDS SUBMITTED BEFORE YOU IT CAN BE SEE N THAT ASSESSEE HAS SHOWN SHARES UNDER THE HEAD INVESTMENT. THE BAL ANCE SHEET OF THE ASSESSEE REVEALS THAT ASSESSEE DOES NOT HAVE AN Y STOCK IN TRADE OF SHARES DURING THE YEAR. FURTHER IT CAN BE SEEM T HAT ASSESSEE IS NOT INDULGING IN FREQUENT BUYING OF SHARES FROM THE MARKET AND SELLING THE SAME IN THE MARKET. IT CAN ALSO BE SEEN THAT THE INTENTION TO HOLD THE SHARE AS INVESTMENT AND FOR THIS REASON , THE ASSESSEE HAD NOT CLAIMED ANY LOSS ON ACCOUNT OF DEPRECIATION IN SHARES. IN VIEW OF THE ABOVE AND CONSIDERING THE FACTS IT I S SUBMITTED THAT THE ASSESSEE COMPANY COMPLIED ALL THE PRINCIPALS LA ID IN THE CIRCULAR NO. 4/2007 FOR DETERMINING THE SHARES HELD BY THE A SSESSEE AS INVESTMENT AND TO ACCEPT ASSESSEE CLAIM OF INCOME A S LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAINS. 5.2 IT IS EVIDENT FROM THE RECORD THAT THE ASSESSIN G OFFICER ISSUED DETAILED QUESTIONNAIRE ASKING EACH AND EVERY RELEVA NT DETAILS ON THE ISSUE OF CLAIM OF STCG AND THE NATURE OF TRANSACTION. TH E ASSESSEE HAS ALSO FILED DETAILED REPLY TO THE QUERIES OF THE ASSESSIN G OFFICER . AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE ASSESSIN G OFFICER ACCEPTED THE CLAIM OF THE ASSESSEE REGARDING STCG WHILE PASSING THE ASSESSMENT ORDER DATED 29.12.2008 AND OBSERVED IN PARAS 2 & 3 AS UND ER: 2. CONSEQUENT TO THE ASSIGNMENT OF THE CASE, NOTICE S U/S.143(2) AND 142(1) ALONGWITH QUESTIONNAIRE WAS ISSUED ON 19.12: 2007 WHICH WAS DULY SERVED UPON THE ASSESSEE. IN RESPONSE TO T HE SAID NOTICES NO ONE APPEARED NOR FILED ANY DETAILS THEREOF. THER EAFTER ANOTHER LETTER WAS ISSUED ON 23.01.2008. IN RESPONSE TO THI S, SHRLC.B.R. MURTHY, C.A FILED PART DETAILS. ANOTHER LETTER DATE D 11.06.2008 ALONGWITH NOTICE U/S 142(1) WAS ISSUED, BUT NO ONE APPEARED NOR FILED THE BALANCE DETAILS. ITA NO.650/MUM/2013 . 15 3 AFTER TAKING OVER THE CHARGE OF ADDLCIT.RG.5(2), MUMBAI, THE UNDERSIGNED ISSUED FRESH NOTICES U/S 143(2) & 142(1 ) DATED 18.09.2008 WHICH WAS DULY SERVED ON THE ASSESSEE CO MPANY ON 22.09.2008. AGAIN NO ONE APPEARED NOR FILED ANY DET AILS CALLED FOR. FURTHER NOTICES WERE ISSUED U/S 142(1) ON 22.10.200 8 & 14.11.2008. IN RESPONSE TO THE NOTICES, SHRI C.B.R MURTHY, C.A AND AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED AND FILED A LL THE DETAILS CALLED FOR FROM TIME TO TIME. BOOKS OF ACCOUNT, VOU CHERS, CONTRACT NOTES WERE PRODUCED AND THE SAME WERE VERIFIED ON T EST CHECK BASIS. THE CASE WAS EXAMINED AND DISCUSSED WITH REF ERENCE TO DETAILS FILED. 3. THE ASSESSEE COMPANY IS ENGAGED IN INVESTMENT IN SHARES AND MUTUAL FUNDS AND HAS SHOWN LONG TERM CAPITAL GAIN O N SHARES AND SHORT TERM CAPITAL GAIN ON SHARES AND MUTUAL FUNDS THERE IS NO CHANGE IN THE NATURE OF ACTIVITY OF THE ASSESSEE CO MPANY IN COMPARISON TO EARLIER YEAR. 5.3 IT IS MANIFEST FROM THE ASSESSMENT ORDER PASSED U/S 143(3) AS WELL AS RECORD THAT THE ASSESSING OFFICER HAS DULY CO NDUCTED THE ENQUIRY AND CONSIDERED THE REPLY, DETAILS AND OTHER EVIDENCE PR ODUCED BY THE ASSESSEE FOR EXANIMATION AND VERIFICATION. AFTER T HE EXAMINATION AND DISCUSSION WITH REFERENCE TO THE DETAILS FILED BY T HE ASSESSEE, THE ASSESSING OFFICER FINALLY CONCLUDED THAT THE ASSES SEE IS ENGAGED IN THE INVESTMENT IN SHARES AND MUTUAL FUNDS AND HAS SHOWN CAPITAL GAIN ON SALE OF SHARES AND STCG ON SALE OF MUTUAL FUNDS. IT HAS BEEN SPECIFICALLY OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT THERE IS NO CHANGE IN THE NATURE OF ACTIVITY OF THE ASSESSEE CO MPANY IN COMPARISON TO EARLIER YEARS. 5.4 IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER PAS SED U/S 143(3) THAT THE ASSESSING OFFICER HAS TAKEN A DEFINITE VIEW AF TER DULY APPLIED HIS MIND ITA NO.650/MUM/2013 . 16 ON THE ISSUE IN QUESTION AND TAKING INTO CONSIDERAT ION ALL THE RELEVANT FACTS, MATERIAL AND EVIDENCE. THEREFORE, THERE IS N O DOUBT WHILE PASSING THE ASSESSMENT ORDER U/S 143(3), THE ASSESSING OFFI CER TOOK A VIEW AND THEN ACCEPTED THE CLAIM OF THE ASSESSEE. THE REASON FOR REOPENING OF THE ASSESSMENT ON THE ISSUE OF TREATING THE STCG AS BUS INESS INCOME IS MAINLY THE NUMBER OF SALE AND PURCHASE OCCASIONS AS 1062 WHICH APPEARS TO BE MISCONCEIVED AND MISUNDERSTOOD BY THE AUTHORI TIES BELOW. THUS NUMBER OF SALE AND PURCHASE AS BASIS OF REOPENING I S FACTUALLY NOT CORRECT AS IT IS EVIDENT FROM THE DETAILS OF THE SCRIPT-WIS E TRANSACTIONS THAT THE ASSESSEE HAS PURCHASED THE SHARES OF 62 SCRIPTS DUR ING THE YEAR AND THE QUANTUM OF THE SHARES OF A SCRIPT IS LARGE. IT IS MANIFEST FROM THE DETAILS THAT THE ORDER PLACED BY THE ASSESSEE HAS BEEN EXE CUTED BY ELECTRONIC SYSTEM OF STOCK EXCHANGE IN VARIOUS SEGMENTS DEPEND ING UPON THE AVAILABILITY OF THE NUMBER OF SHARES FOR SALE ON T HE FLOOR OF STOCK EXCHANGE. THEREFORE, WHEN THE ORDER OF PURCHASE OF LARGE QUANTITY F A PARTICULAR SCRIPT HAS BEEN EXECUTED IN THE SEGMENTS AS PER THE SMALLER QUANTITY AVAILABLE TO MEET OUT THE PURCHASE QUANTIT Y OF THE ASSESSEE, THEN A SINGLE TRANSACTION OF PURCHASE APPEARS TO BE THE MANY TRANSACTIONS, WHICH HAS BEEN CONSIDERED BY THE AUTHORITIES BELOW AS THE NUMBER OF TRANSACTIONS. WHEN A SINGLE SCRIPT THOUGH QUANTITY OF SHARES IS LARGE BUT PURCHASED ON A SINGLE DAY AND EXECUTED ALSO ON A SI NGLE DAY FROM THE SUPPLY OF QUANTITY FROM VARIOUS SELLERS, THEN THE TRANSACTION IS SHOWN A BIFURCATED IN VARIOUS TRANSACTION. THEREFORE, THE C ONCEPT OF ENTIRE PURCHASE AND SALE OF SHARES OF TRANSACTIONS HAS BEE N MISUNDERSTOOD BY COUNTING A SINGLE TRANSACTION AS MULTIPLE TRANSACTI ONS. SIMILARLY, WHEN A ITA NO.650/MUM/2013 . 17 LARGE QUANTITY OF SHARES IS OFFERED FOR SALE, THE E XECUTION IS IN SMALL QUANTITY SHARES IN VARIOUS SEGMENTS. THEREFORE, A S INGLE TRANSACTION OF SALE APPEARS TO BE NUMBER OF TRANSACTION. 5.5 AS IT IS CLEAR FROM THE FACTS THAT THE REAL TRA NSACTION OF SALE AND PURCHASE ARE MUCH MORE LESS AND EVEN LESS HALF OF T HE NUMBER OF TRANSACTIONS, WHICH ARE CONSIDERED BY THE AUTHORITI ES BELOW AND THEREFORE, THE NUMBER OF TRANSACTIONS AS MENTIONED BY THE AUTH ORITIES BELOW AS 1062 ARE NOT FACTUALLY CORRECT. HENCE, THE VERY BASIS OF FORMING AN OPINION THAT THE NATURE OF TRANSACTION IS NOT INVESTMENT BUT BUS INESS ACTIVITY, IS BASED ON INCORRECT FACTS AND REASONS. 5.6 EVEN OTHERWISE, THE AUDIT PARTY HAS NOT POINTED OUT ANY FACTUAL MISTAKE WHICH HAS BEEN COMMITTED BY THE ASSESSING O FFICER OR ANY CRUCIAL ASPECT WHICH HAS BEEN OVERLOOKED BY THE ASS ESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3); BUT IT IS ONLY THE RE- APPRECIATION OF THE SAME FACTS AND EVIDENCE AS WELL AS RELEVANT MATERIAL AVAILABLE ON RECORD. THE AUDIT PARTY HAS RAISED TH E OBJECTION BY TAKING A VIEW WHICH IS DIFFERENT FROM THE VIEW TAKEN BY THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER. 5.7 IT IS PERTINENT TO NOTE THAT THERE IS NO DISPUT E ON THE POINT THAT AFTER THE ORIGINAL ASSESSMENT PASSED U/S 143(3), NO NEW M ATERIAL, INFORMATION OR FACTS CAME TO THE NOTICE OF THE ASSESSING OFFICE R ON THE BASIS OF WHICH ITA NO.650/MUM/2013 . 18 THE ASSESSING OFFICER CAN FORM AN OPINION THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT AND THEREBY EXERCISED IT S POWER U/S 147 OF THE I T ACT. 6 IN THE CASE OF ASIAN PAINTS LTD (SUPRA), THE HON BLE JURISDICTIONAL HIGH COURT WHILE CONSIDERING THE ISSUE OF VALIDIT Y OF REOPENING OF ASSESSMENT HAS HELD IN PARAS 9 & 10 AS UNDER: 9. IT IS CLEAR FROM THE OBSERVATIONS MADE ABOVE THA T THE FULL BENCH OF THE DELHI HIGH COURT HAS TAKEN A VIEW THA T IN A SITUATION WHERE ACCORDING TO THE ASSESSING OFFICER HE FAILED TO APPLY HIS MIND TO THE RELEVANT MATERIAL IN MAKING THE ASSESSMENT ORDER, HE CANNOT TAKE ADVANTAGE OF HIS OWN WRONG AND REOPEN THE ASS ESSMENT BY TAKING RECOURSE TO THE PROVISIONS OF SECTION 147. WE FIND, OURSELF, IN RESPECTFUL AGREEMENT WITH THE VIEW TAKEN BY THE FU LL BENCH OF THE DELHI HIGH COURT. 10 IT IS FURTHER TO BE SEEN THAT THE LEGISLATURE HA S NOT CONFERRED POWER ON THE ASSESSING OFFICER TO REVIEW ITS OWN OR DER. THEREFORE, THE POWER UNDER SECTION 147 CANNOT BE USED TO REVIE W THE ORDER. IN THE PRESENT CASE, THOUGH THE ASSESSING OFFICER HAS USED THE PHRASE REASON TO BELIEVE, ADMITTEDLY BETWEEN THE DATE OF THE ORDER OF ASSESSMENT SOUGHT TO BE REOPENED AND THE DATE OF F ORMATION OF OPINION BY THE ASSESSING OFFICER, NOTHING NEW HAS HAPPENED, THEREFORE, NO NEW MATERIAL HAS COME ON RECORD, NO N EW INFORMATION HAS BEEN RECEIVED, IT IS MERELY A FRESH APPLICATION OF MIND BY THE SAME ASSESSING OFFICER TO THE SAME SET OF FACTS AND THE REASON THAT HAS BEEN GIVEN IS THAT THE SOME MATERIAL WHICH WAS AVAILABLE ON RECORD WHILE ASSESSMENT ORDER WAS MADE WAS INADVER TENTLY EXCLUDED FROM CONSIDERATION. THIS WILL, IN OUR OPIN ION, AMOUNT TO OPENING OF THE ASSESSMENT MERELY BECAUSE THERE IS C HANGE OF OPINION. THE FULL BENCH OF THE DELHI HIGH COURT IN ITS JUDGMENT IN THE CASE OF KELVINATOR [2002] 256 ITR 1 REFERRED TO ABOVE, HAS TAKEN A CLEAR VIEW THAT REOPENING OF ASSESSMENT UND ER SECTION 147 MERELY BECAUSE THERE IS A CHANGE OF OPINION CANNOT BE ALLOWED. IN OUR OPINION, THEREFORE, IN THE PRESENT CASE ALSO, I T WAS NOT PERMISSIBLE FOR RESPONDENT NO. 1 TO ISSUE NOTICE UNDER SECTION 148. ITA NO.650/MUM/2013 . 19 6.1 IN THE ABOVE NOTED CASE, THAT THE HONBLE HIGH COURT HAS TAKEN NOTE OF THE FACT THAT BETWEEN THE DATE OF ORDER OF ASSESSMENT SOUGHT TO BE REOPENED AND DATE OF FORMING OF OPINION BY THE A SSESSING OFFICER, NOTHING NEW HAS HAPPENED; THEREFORE, NO NEW MATERIA L HAS CAME ON RECORD, NO NEW INFORMATION HAS BEEN RECEIVED, IT IS MERELY A FRESH APPLICATION OF MIND BY THE AO TO THE SAME SET OF FA CTS. THEREFORE, FORMING OF THE OPINION BY THE AO FOR REOPENING OF THE ASSES SMENT ON THE BASIS OF THE MATERIAL WHICH WAS AVAILABLE ON RECORD WHILE PA SSING THE ASSESSMENT ORDER IS MERELY CHANGE OF OPINION AND THUS, REOPENI NG ON THE BASIS OF CHANGE OF OPINION ON THE ISSUE, WHICH HAS BEEN EXAM INED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT IS NO T PERMITTED IN VIEW OF THE SETTLED PROPOSITION OF LAW AS HELD BY THE HONB LE SUPREME COURT AS WELL AS JURISDICTIONAL HIGH COURT. 6.2 THE HONBLE SUPREME COURT HAS CONFIRMED SIMILAR VIEW TAKEN BY THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN T HE CASE OF KELVINATOR INDIA (SUPRA). THIS VIEW HAS BEEN CONSISTENTLY TAK EN BY THE HONBLE HIGH COURTS AS WELL AS SUPREME COURT IN THE SERIES OF DE CISIONS AND THEREFORE, FOR THE SAKE OF BREVITY, WE DO NOT RECORD AND REPRO DUCE THE SAME HERE UNDER. 6.3 IN THE CASE OF PVS BEEDIES P LTD (SUPRA) THE HO NBLE SUPREME COURT HAS POINTED OUT THAT THE RECOGNITION GRANTED TO THA T CHARITABLE TRUST HAD ITA NO.650/MUM/2013 . 20 EXPIRED ON 22.9.1972 WHICH WAS NOT NOTICED BY THE ITO IN THE ASSESSMENT. THUS, IN THE SAID CASE, THE CRUCIAL FAC T REGARDING THE EXPIRY OF RECOGNITION TO THE CHARITABLE TRUST AND SUBSEQUE NTLY THE DONATION MADE TO THE CHARITABLE TRUST DID NOT QUALIFY FOR DEDUCTI ON U/S 80G WAS OVERLOOKED BY THE ITO IN THE ORIGINAL ASSESSMENT AN D THE AUDIT PARTY MAINLY POINTED OUT THAT THE CRUCIAL FACT WHICH WAS OVERLOOKED BY THE ITO WHEREAS IN THE CASE IN HAND, IT IS MANIFEST FROM T HE RECORD THAT THE ASSESSING OFFICER HAS MADE A DETAILED ENQUIRY THRO UGH QUESTIONNAIRE AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE ON ALL THE ASPECTS OF THE ISSUE OF NATURE OF TRANSACTION ACCEPTED THE SAME. 6.4 EVEN OTHERWISE, THE ISSUE OF NATURE OF TRANSACT ION OF PURCHASE AND SALE OF SHARES AND SECURITIES IS DEBATABLE ISSUE AN D HAVING ACCEPTED THE CLAIM OF THE ASSESSEE IN THE PAST, IN THE ORIGINAL ASSESSMENT FOR THIS ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT YEAR, FURTHER LEAVES NO DOUBT THAT THE ASSESSING OFFICER CONSCIOUSLY ACCEP TED THE CLAIM OF THE ASSESSEE. 6.5 IN THE CASE OF DR AMINS PATHOLOGY LABORATORY ( SUPRA), THE ISSUE BEFORE THE HONBLE HIGH COURT WAS WHETHER THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACT NECES SARY FOR THE ASSESSMENT. IN THE SAID CASE, THE ASSESSING OFFICE R FAILED TO NOTICE AN IMPORTANT ITEM I.E. AN AMOUNT OF RS. 6,70,758 WHICH REPRESENTED UNPAID ITA NO.650/MUM/2013 . 21 PURCHASES AND THE ASSESSEE FIRM CLAIMED THE EXPENS E IN RESPECT OF ALL PURCHASES. ACCORDINGLY, IN VIEW OF THE EXPLANATION 1 TO THE PROVISO TO SEC. 147, THE HONBLE HIGH COURT HAS OBSERVED THAT MERE PRODUCTION OF ACCOUNT BOOKS FROM WHICH MATERIAL EVIDENCE COULD HA VE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUN T TO DISCLOSURE WITHIN THE MEANING OF THE PROVISO. THE ISSUE IN THE SA ID CASE IS ENTIRELY DIFFERENT WHICH HAS NO APPLICABILITY IN THE CASE O F THE ASSESSEE BEFORE US, AS THERE IS NO ALLEGATION OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 7 IN VIEW OF THE ABOVE DISCUSSION AS WELL AS THE FA CTS AND CIRCUMSTANCES OF THE CASE, WHEN THE ISSUE OF NATURE OF TRANSACTION WHETHER INVESTMENT OR TRADING IS DEBATABLE ISSUE A ND THE DEPARTMENT RIGHT FROM THE BEGINNING HAD ACCEPTED THE CLAIM OF THE ASSESSEE BY TREADING THE TRANSACTION AS INVESTMENT AND THE GAI N ARISING OUT OF THE PURCHASE AND SALE OF SHARES AS CAPITAL GAIN; THEREF ORE, THE REOPENING ON THE ISSUE WHICH WAS EXAMINED AND ACCEPTED BY THE AS SESSING OFFICER IN THE ORIGINAL ASSESSMENT IS BASED ON CHANGE OF OPIN ION. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE NOTICE ISSUED U/S 148 AND SUBSEQUENT REASSESSMENT U/S 147 IS BAD IN LAW AND ACCORDINGLY, SET ASIDE. ITA NO.650/MUM/2013 . 22 8 EVEN ON THE MERIT, WE NOTE THAT THE TRANSACTION I N THE EARLIER YEAR AS WELL AS IN THE SUBSEQUENT YEAR ARE SIMILAR AND THERE IS NO MATERIAL CHANGE AS EVIDENT FROM THE DETAILS AS UNDER: 8.1 THE NUMBER OF TRANSACTION, AS WE HAVE DISCUSSED IN THE FOREGOING PARAGRAPHS, HAS BEEN MISUNDERSTOOD BY THE AUTHORIT IES BELOW. WE FURTHER NOTE THAT IF THE AVERAGE HOLDING PERIOD IS CALCULAT ED FROM ALL THE TRANSACTION, IT WILL BE MORE THAN 60 DAYS IN RESPEC T OF THE SALE AND PURCHASE OF THE TRANSACTION GIVING RISE TO THE STCG WHICH INDICATES THAT THERE IS NO DIFFERENCE IN THE NATURE OF TRANSACTION FOR THE YEAR UNDER CONSIDERATION FROM THAT OF THE EARLIER YEAR AS WELL AS SUBSEQUENT YEAR. FURTHER, THE TRANSACTION OF PURCHASE AND SALE GIVIN G RISE TO THE LTCG HAVE ITA NO.650/MUM/2013 . 23 BEEN ACCEPTED BY THE AUTHORITIES BELOW, EVEN IN THE REOPENING OF THE ASSESSMENT, THE ASSESSEE IS TREATING THE SAME AS IN VESTMENT BY SHOWING IN THE BOOKS OF ACCOUNT; THESE ARE DELIVERY BASED T RANSACTIONS; THEREFORE, HAVING ACCEPTED SIMILAR TRANSACTION IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEAR THE ASSESSING OFFICER CANNOT TAKE A DIFFERENT VIEW IN THE ABSENCE OF DISTINGUISHING MATERIAL FACTORS. THE BOR ROWED FUND IS NOT INTEREST BEARING AS IT HAS BEEN ARRANGED FROM THE S HARE HOLDERS OF THE ASSESSEE COMPANY; THEREFORE, IT ALONE WOULD NOT EFF ECT THE NATURE OF TRANSACTION. ACCORDINGLY, IN VIEW OF PRINCIPLES OF CONSISTENCY, WE ACCEPT THE CLAIM OF THE ASSESSEE AS THE TRANSACTION OF PUR CHASE AND SALE OF SHARES AND SECURITIES IN QUESTION AS INVESTMENT AND ARISING OUT OF THE TRANSACTION IS CAPITAL GAIN AND BUSINESS INCOME. 9 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED 2 .3 %2. - 4 . 5 - . 6' ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 19 TH , APRIL 2013 . 1 - 0& $ 4 7 3 19 TH , APRIL 2013 0 - 8 SD/- SD/- ( . . !'# !'# !'# !'# ) $ $ $ $ ( N K BILLAIYA ) ACCOUNTANT MEMBER ( ) (VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 19 TH , APRIL 2013 RAJ* ITA NO.650/MUM/2013 . 24 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI