DCIT, New Delhi V. M/s. Sanmati Properties Ltd., New Delhi

ITA 6688/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4289 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2005-2006
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAUSHLENDRA TIWARI
• Keywords: Capital asset; Business income; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 147; 148

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6688/DEL/2014 (ASSESSMENT YEAR: 2005 - 06 ) DCIT, CIRCLE - 7(1), NEW DELHI VS. SANMATI PROPERTIES LTD, 10, DARYAGANJ, GROUND FLOOR, NEW DELHI PAN:AAACS2745K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI KAUSHLENDRA TIWARI, SR. DR ASSESSEE BY: SHRI ANIL JAIN, CA DATE OF HEARING 25/10 /2017 DATE OF PRONOUNCEMENT 0 2 / 0 1 / 2 0 1 8 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL FILED BY THE THE DCIT, CIRCLE 7 - (1), NEW DELHI,[ THE LD AO) AGAINST THE ORDER OF THE LD CIT(A) - X, NEW DELHI DATED 0209.2014 FOR THE ASSESSMENT YEAR 2005 - 06. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN QUASHING THE ACTION U/S 147 INVOKED BY THE ASSESSING OFFICER. 2. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 14884070/ - MADE BY THE ASSESSING OFFICER BY TREATING THE SALE OF SHARES AS BUSINESS INCOME INSTEAD OF LTCG. 3. ASSESSEE IS A PRIVATE LIMITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF ACTIVITY OF INVESTING ITS SURPLUS FUNDS IN THE UNITS OF MUTUAL FUNDS. IT ALSO HOLDS SOME OLD INVESTMENTS IN THE SHARES OF THE COMPANY. FOR THE PAGE | 2 ASSESSMENT YEAR INVOLVED ASSESSEE FILED ITS RETURN OF INCOME ON 28/10/2005 DECLARING INCOME OF RS. 9174930/ - . ASSESSMENT UNDER SECTION 143 (3) WAS PASSED ON 12/11/2007 AT RS. 3 1037/ . THE LD. ASSESSING OFFICER SEPARATELY TAX LONG - TERM CAPITAL GAIN ON SALE OF SHARES OF RS. 9223 508/ . 4. SUBSEQUENTLY, NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT WAS ISSUED ON 14/2/2012 RECORDING THE REASON THAT: - T HE ORIGINAL ASSESSMENT UNDER SECTION 143 (3) WAS COMPLETED ON 12/11/2007, DETERMINING RS. 0.37 LACS AS A BUSINESS LOSS AND RS. 92.93 LAKHS LONG - TERM CAPITAL GAIN UNDER THE NORMAL PROVISION AND RS. 148.35 LACS UNDER SPECIAL PROVISIONS. ON PERUSAL OF RECORDS REVEALED THAT, THE ASSESSEE COMPANY WA S ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCE. THE ASSESSEE HAS CREDITED THE PROFIT ON SALE OF INVESTMENT AMOUNTING TO RS. 148.84 LAKH IN THE PROFIT AND LOSS ACCOUNT AND TREATED THE PROFIT A S LONG - TERM CAPITAL GAIN. SINCE THE MAIN BUSINESS ACTIVITY O F THE ASSESSEE WAS INVESTMENT, THESE SHARES F ORM TO BE STOCK IN TRADE INSTEAD OF CAPITAL INVESTMENT. ACCORDINGLY, THE PROFIT FROM THE SALE OF STOCK OF SHARES HAPPENS TO BE BUSINESS PROFIT INSTEAD OF LONG - TERM CAPITAL GAIN. THIS RESULTED IN UNDER STATEMENT OF INCOME BY RS. 148.53 LAKHS AND PAGE | 3 RESULTED IN SHORT LEVY OF TAX TO THE TUNE OF RS. 5 6.38 LAKH. I HAVE THEREFORE REASON TO BELIEVE THAT AN AMOUNT OF RS. 1 48.53 LAKH HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 (C) OF THE IT ACT, 1961. THE ESCAPEMENT OF INCOME HAS BEEN BY THE REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY, ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 5. AFTER PROV IDING, THE R EASONS RECORDED TO THE ASSESSEE, THE LD. ASSESSING OFFICER PASSED AN ASSESSMENT ORDER UNDER SECTION 143 (3) READ WITH SECTION 147 OF THE INCOME TAX ACT ON 28/2/2013 TREATING INCOME FROM SALE OF CAPITAL ASSET TREATED AS BUSINESS INCOME OF THE A SSESSEE IS A OF RS. 1488 4070/ . THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER PREFERRED AN APPEAL BEFORE THE LD. CIT (A) ON REOPENING AS WELL AS ON THE MERITS OF THE CASE. THE LD. CIT (A) HAS HELD THAT LD. AO HAS ERRED IN REOPENING T HE CASE OF THE ASSESSEE BEYOND 4 YEARS, AS DURING THE COURSE OF ORIGINAL ASSESSMENT HE HAS VERIFIED THE SAME FACTS AND THEREFORE IT AMOUNTS TO A CHANGE OF OPINION. ON THE MERITS OF THE CASE , HE FURTHER HELD THAT INCOME OF THE ASSESSEE IS CHARGEABLE TO TAX AS CAPITAL GAINS BECAUSE MAIN INCOME HAS ARISE N FROM THE REDEMPTION OF THE MUTUAL FUND AMOUNTING TO RS. 6.83 CRORES, WHICH HAS RESULTED INTO EARNING OF PROFIT. THE SALES WERE SOLD ONLY FOR RS. 7049/ . THEREFORE , IT SATISFIES THE CONDITION OF INSTRUCTION NO . 4/2007 DATED 15/6/2007 OF THE CENTRAL BOARD OF DIRECT TAXES. PAGE | 4 6. REVENUE, AGGRIEVED WITH THE ORDER OF THE LD. CIT (A) HAS PREFERRED AN APPEAL BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. ASSESSING OFFICER. HE REITERATED THE SAME ARGUMENTS, WHICH WERE ADVANCED IN THE ORDERS OF THE LD. AO. 7. THE LD. AUTHORIZED REPRESENTATIVE VEHEMENTLY SUBMITTED THAT ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3 ) OF THE INCOME TAX ACT AND SAME IS REOPENED BEYOND 4 YEARS ON THE SAME SET OF FACTS WITHOUT THERE BEING ANY TANGIBLE MATERIAL COMING INTO THE POSSESSION OF THE ASSESSING OFFICER AFTER COMPLETION OF THE ASSESSMENT. ON THE MERITS OF THE CASE , HE SUBMITTED THAT ASSESSEE HAS EARNED CAPITAL GAINS ONLY ON REDEMPTION OF MUTUAL FUNDS A ND THERE IS NO PURCHASE AND SALE OF SHARES. HE VEHEMENTLY RELIED ON THE ORDERS OF THE LD. CIT (A) AND PLACED WRITTEN SUBMISSION BEFORE US ON BOTH THE ASPECTS INVOLVED IN THE APPEAL OF THE REVENUE . 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE ORDERS OF THE LOWER AUTHORITIES. ON THE ISSUE OF THE REOPENING, THE LD. CIT (A) HAS HELD THAT SAME SET OF FACTS EXISTED AT THE TIME OF ORIGINAL ASSESSMENT AND WHEN THE NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED AND THEREFORE THERE IS A CHANGE OF OPINION . WE HAVE ALSO PERUSED THE ORDER PASSED BY THE LD. ASSESSING OFFICER UNDER SECTION 143 (3) OF THE ACT WHEREIN THE LD. ASSESSING OFFICER HAS TREATED THE LONG - TERM CAPITAL GAIN ON SALE OF SHARES OF RS. 9223508/ - . FURTHER, DETAILS OF LONG - TERM CAPITAL GAIN SHOWN BY THE ASSESSEE ARE ON REDEMPTION OF VARIOUS MUTUAL FUNDS ONLY. FURTHER, THE LD. CIT (A) HAS FURTHER NOTED THAT THE LD. ASSESSING OFFICER HAS PASSED THE REASSESSMENT ORDER WITHOUT DISPOSING OF THE PAGE | 5 APPELLANTS OBJECTION TO THE REOPENING O F THE ASSESSMENT. IN PARA NO. 6.4 OF THE ORDER OF THE LD. CIT (A) IT HA S BEEN MENTIONED THAT REOPENING HAS BEEN CARRIED OUT ON THE BASIS OF THE SAME SET OF FACTS WHICH WERE AVAILABLE BEFORE THE LD. ASSESSING OFFICER AT THE TIME OF FRAMING OF THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT. THERE IS AN ABSENCE OF ANY TANGIBLE MATERIAL FOR REOPENING OF THE ASSESSMENT AND THERE IS NO FAILURE ON THE PART OF THE ASSESSEE IN FURNISHING THE MATERIAL FACTS BEFORE THE LD. ASSESSING OFFICER FULLY AND TRULY. THE LD. D EPARTMENTAL REPRESENTATIVE COULD NOT SHOW ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) OR NEITHER COULD SHOW US ANY TANGIBLE MATERIAL, WHICH HAS NOT COME INTO THE POSSESSION OF THE ASSESSEE NOR COULD SHOW THAT WHAT WAS THE FAILURE ON THE PART OF THE ASSES SEE IN DISCLOSURE. IN VIEW OF THIS , WE CONFIRM THE FINDING OF THE LD. CIT (A) IN QUASHING THE REOPENING OF THE PROCEEDINGS UNDER SECTION 147 OF THE ACT. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 9. COMING TO THE GROUND NO. 2 OF THE APPEAL OF THE REVENUE THAT LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 14884070/ BY TREATING THE SALE OF SHARES AS BUSINESS INCOME INSTEAD OF LONG - TERM CAPITAL GAINS. THE LD. CIT (A) HAS STATED THAT THE LD. ASSESSING OFFICER AS STOCK IN TRADE H AS TREATED SHARES AND MUTUAL FUNDS, WHICH ARE HELD BY THE APPELLANT AS INVESTMENT IN BALANCE SHEET . IT WAS THE SUBMISSION OF THE ASSESSEE BEFORE HIM THAT APPELLANT HAS SINCE BEGINNING SHOWING IT AS AN INVESTMENT IN THE BOOKS OF ACCOUNTS. IT WAS FURTHER APP RECIATED BY HIM THAT APPELLANT HAS ONLY ONE PORTFOLIO AND THAT IS INVESTMENT PORTFOLIO OF THE SHARES AND MUTUAL FUNDS. THE HOLDING PERIOD OF THE APPELLANTS PAGE | 6 INVESTMENT ALSO VARIES FROM 2 YEARS TO 10 YEARS, AND THE ASSESSEE HAS CARRIED OUT NO BUSINESSES . FU RTHER DURING THE YEAR THE ASSESSEE HAS SOLD SHARES OF ONLY RS. 7 049/ . DURING THE YEAR AND ALL OTHER INCOME HAS BEEN RECEIVED BECAUSE OF REDEMPTION OF THE MUTUAL FUNDS. IT WAS FURTHER STATED BEFORE HIM THAT FOR PRECEDING ASSESSMENT YEAR 2001 0 2 AND IN S UCCEEDING YEARS ASSESSMENT YEAR 2006 07 ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER HAS TREATED THE ASSESSEE AS AN INVESTOR IN SHARES IN MUTUAL FUND UNITS. BASED ON ALL THESE FACTS THE LD. CIT (A) HAS HELD THAT ASSESSEE HAS EARNED LONG - TERM CAPITAL GAIN ON REDEMPTION OF MUTUAL FUND ONLY WHICH THE APPELLANT IN ITS BOOKS OF ACCOUNTS REGULARLY SHOWED A S INVESTMENT . THE DEPARTMENT IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEARS ACCEPTED IT . HE FURTHER HELD THAT THE AS SESSEE SATISFIES THE CONDITIONS PRESCRIBED UNDER INSTRUCTION NO. 4/2007 DATED 15/6/2007 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW US ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) TO SHOW THAT THE ASSESS EE IS CARRYING ON BUSINESS INSTEAD OF BEING AN INVESTOR. THEREFORE, WE CONFIRM THE FINDING OF THE LD. CIT (A) IN CONSIDERING THE INCOME OF THE ASSESSEE FROM SALE OF MUTUAL FUND AND SHARES AS CAPITAL GAIN INSTEAD OF BUSINESS IN COME A S TREATED BY THE LD. ASS ESSING OFFICER. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 0 2 / 0 1 / 2 0 1 8 - S D / - - S D / - ( AMIT SHUKLA ) (PRASHANT MAHAR ISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER PAGE | 7 DATED: 0 2 / 0 1 / 2 0 1 8 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI