DCIT 4(1), MUMBAI V. FOUR DIMENSIONS SECURITIES INDIA LTD, MUMBAI

ITA 7951/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101087 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.7951/M/2010 ASSESSMENT YEAR: 2004-05 ACIT 4(1), 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI - 400020 VS. M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD., 209/210, ARCADIA BUILDING, 2 ND FLOOR, 195 NARIMAN POINT, MUMABI 400 021 PAN: AAACF1734F (APPELLANT) (RESPONDENT) CO NO.60/M/2012 ASSESSMENT YEAR: 2004-05 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD., 209-210, ARCADIA BUILDING 195, NARIMAN POINT, MUMABI 400 021 PAN: AAACF1734F VS. DCIT 4(1), 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MS. AMRITA SINGH, A.R. REVENUE BY : SHRI VIJAY MEHTA, D.R. DATE OF HEARING : 20.08.2015 DATE OF PRONOUNCEMENT : 16.09.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL BY THE REVENUE AND THE CROSS OB JECTIONS BY THE ASSESSEE HAVE BEEN DIRECTED AGAINST THE ORDER DATED 01.09.2010 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2004-05. ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 2 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: REVENUES GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND I N L A W, T HE CIT ( A ) HAS ERRED IN HOLDING THAT LOSS OF RS . 5,21 , 76 , 870/- A R IS I NG F ROM TRANSACTIONS OF THE MU T UAL F UND UN I TS IS BUSINESS L OSS W H I CH IS ALLOWED TO BE REDUCED FROM OTHER BUSINESS INCOME A ND THIS LOSS IS NO T CAP I TAL LOSS 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW , THE CIT(A) HAS ERRED IN HOLDING THAT THE LOSS O F RS.1 , 84,13 , 730/- I S AR I SEN DUE TO V ALUATION OF CLOSING STOCK OF THE UNITS AND THE SAME CANNOT BE DISALLOWED B Y IN V OKING THE SECTION 94(7) . 3. ON THE FAC T S AND CIRCUMSTAN C ES O F THE C ASE AND IN LAW , THE I MPUGNED ORDER OF THE LD . CIT ( A ) IS CONTRAR Y TO L A W AND CONSEQUENTL Y MERITS TO B E SE T ASIDE A N D THAT OF THE ASSESSING OFFICER BE RES T ORED . 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. WHEREAS THE ASSESSEE HAS TAKEN THE FOLLOWING CRO SS OBJECTIONS: ASSESSEES CROSS OBJECTION : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REOPENING PROCEEDINGS U/S 147 OF INCOME TAX ACT, 1961 ARE BAD IN LAW AND REQUIRES TO BE SQUASHED. 4. SINCE THE ASSESSEE IN HIS CROSS OBJECTIONS HAS R AISED A LEGAL ISSUE AS TO THE VALIDITY OF THE REOPENING OF THE ASSESSMENT UND ER SECTION 147 OF THE ACT, WE TAKE IT FIRST FOR DISCUSSION. THE ORIGINAL RETURN FILED BY THE ASSESSEE WAS PROC ESSED UNDER SECTION 143(1) ON 24.03.05. THE CASE WAS SELECTED FOR SCRU TINY AND THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 19.12.06. TH EREAFTER, THE AO REOPENED THE ASSESSMENT OBSERVING THAT THE INCOME OF THE ASS ESSEE HAS ESCAPED ASSESSMENT. IN THE REASONS RECORDED FOR REOPENING DATED 20.01.09, IT HAS BEEN MENTIONED THAT THE ASSESSEE HAD CREDITED THE P&L AC COUNT WITH AN AMOUNT OF RS.21,96,630/- ON ACCOUNT OF PROFIT ON SALE AND PUR CHASE OF SHARES AND UNITS. ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 3 THE SAID PROFIT WAS SET OFF AGAINST THE LOSS FROM R EDEMPTION OF MUTUAL FUNDS AMOUNTING TO RS.5,21,76,870/-. THE AO OBSERVED THA T THE LOSS FROM THE SALE OF MUTUAL FUNDS WAS TO BE COMPUTED UNDER THE HEAD CAP ITAL GAINS/CAPITAL LOSS AS THE SAID LOSS WAS INCURRED BY THE ASSESSEE FROM INV ESTMENT ACTIVITY IN MUTUAL FUNDS. THE AO FURTHER OBSERVED THAT THE ASSESSEE H AD SOLD/REDEEMED THE MUTUAL FUNDS WITHIN 9 MONTHS OF THE RECORD DATE OF DIVIDENDS. HENCE, THE PROVISIONS OF SECTION 94(7) AS AMENDED VIDE FINACNE ACT, (2) OF 2004 W.E.F. 01.04.05 WERE APPLICABLE AND THE LOSS SO INCURRED W AS LIABLE TO BE DISALLOWED/IGNORED. THE ABOVE SAID REASONS FOR REO PENING OF ASSESSMENT DATED 20.01.09, FOR THE SAKE OF READY REFERENCE, ARE REPR ODUCED AS UNDER: IN T H I S C AS E, THE A S SESSEE COMPANY HAS F I LED ITS RETURN OF INCOME FOR A.Y.2004 - 05 O N 29 .1 0.2 004 DE C L AR IN G I NCOME OF RS . 2,50,O1,060/-. THE RETURN WAS PROCESSE D U / S . 143 ( 1) ON 2 4.03 .2 0 0 5 DETERM I NING THE AMOUNT REFUNDABLE OF RS . 22,99,662/-. THE C A S E WA S SELE C T ED F OR SCRUTINY AND ASSESSMENT U/S.143(3) WAS COMPLETED ON 19. 1 2 . 2006 A T AN IN C O M E FOR RS . 2,64,08,970/- . THE AS S ES S E E HA S C RE D I TED THE P&L A/C. WITH AN AMOUNT OF RS.21,96,630/- ON AC COU N T O F PRO FIT ON SALE OF SH AR ES AND UNITS . THE PROFIT SHOWN WAS THE ADJUSTED BALANC E AF TER SETTING O FF THE LOSS FROM R E D E MPTION OF MUTUA L FUNDS AMOUNTING TO RS.5,21,76 ,8 7 0/-. TH E MUT U A L FUNDS WERE PUR CHASED, DIVIDENDS EARNED AND FINALLY WERE REDEEMED . T HE R E WAS N EITHER FURTH E R PUR C HASE OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC, THE N THE PROF IT ACCRUI NG BY CHANGE IN SUCH I NVESTMENT (BY SALE OF SHARES/MUTUA L F UN D) W I LL YIE L D CAPIT AL G AI N AND THE PURCHASE AND SALE OF SHARES / MUTUAL FUNDS WITH MOTIVE O F EARNING PROFIT, W O U LD RES ULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE / ADVENTUR E, THEREFORE TA X A BLE UN D ER THE HEAD 'BUSINESS INCOME'. UNDER THE CIRCUMSTANCES, TH E LOSS FROM MUTUA L F UND WAS R EQ U I RED TO BE HELD AS LOSS FROM INVESTMENT UNDER THE HEAD ' C A P I TA L G AI NS ' A N D SUCH LO SS W AS NOT ALLO W AB LE TO BE SET OFF AGAINST THE PROFIT UNDER TH E H EAD ' B U SINE SS INCOME ' . OM I SS I O N TO DO SO HAS RESULTED IN THE ESCAPEMENT OF I NC OME OF RS.5 , 21,76 , 87 0/- . IT IS F URT HER OBSERVE D DUR I NG THE ASSESSMENT PROCEEDINGS FOR A.Y.2005 - 06 THAT THE ASSESS E E HAS INCU R RED A L OSS OF RS.1,84,13,730/- ON PURCHASE AND SALE OF MUTUAL FUNDS W HICH I S COV E R ED BY SECTIO N 94(7) OF THE I.T . ACT. THIS LOSS SHOULD HAVE BEEN D I SALLOWE D I N T H E ASSESSM ENT FOR ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 4 A.Y.200 4 -05. COMPLETE DETAILS OF LOSS INCURRED ON ACCOUNT O F PUR CH A SE AND SALE OF UNITS OF MUTUAL F UNDS IS GIVEN AS UNDER: N AME O F TH E FUND LOSS BOOK E D ON A /C. O F VALUA T I ON OF C LOSI N G S T OC K IN A.Y . 20 04- 05 LOSS BOOKED IN A . Y.2005- 06 ON ACCOUNT OF SALE OF UNITS TOTAL LOSS AMOUNT OF DIVIDEND SUNDARAM GROWH ( - ) 73 , 24 , 992 (-) 15 , 87,182 (-) 89,12,174 75,71,12 2 SUNDARAM BOND SAV E R ( - ) 21,59 , 160 NIL (- )21,51,221 19,37,656 PRINCIPAL INDEX FUND- DIV. (- ) 78, 4 1,587 (-) 37 , 69,664 (-)1,16,11,251 71,60,474 RELIANCE GROWTH FUND DIV. ( - )1, 03,82,093 (- )39,45,195 (-)1,43,27,289 1 , 03,82 , 09 3 TOTAL (-)2 77 , 07 , 832 (-)93,02,041 (-)3,70,01,935 2,70,51,345 THESE LOSSES WERE INCURRED ON ACCOUNT OF REDEMPTION OF UNITS OF MUTUA L FUN DS PURCHASED DU RING F . Y .2003-04 AND I NCLUDED I N THE CLOSING STOCK OF THE ASSESSEE AS ON 3 1 . 03.2004 . THESE W E RE REDEEMED DURING F.Y.2004-05 AND SUCH REDEMPTION W A S MAD E WI T H I N 9 M ONTHS OF TH E R ECORD DATE OF DIVIDENDS . THE PURCHASE OF THESE UNITS WAS A LS O WI TH I N 3 M ON T HS OF REC OR D DATE OF DIVIDEND. THE PROVISIONS FOR REDEMPTION OF UN I TS O F MUTUAL FUNDS W IT HIN A PER I OD OF 9 MONTHS WERE INTRODUCED BY THE FINANCE ACT ( 2 ) OF 2 004 F ROM A .Y.200 5- 06 AND IT WAS APPLICABLE FOR THE REDEMPTIONS MADE FROM AND AFTE R 01 . 0 4. 200 4. HENCE, T HE L OSSES INCURRED BY THE ASSESSEE ON ACCOUNT OF REDEMPT I ON OF MUTUAL FUND ARE CL E A R L Y HIT BY THE MISCHIEF OF PROVISIONS OF SECTION 94(7) AS AMENDED BY T HE FINANCE ACT (2) OF 2 0 04. FAILURE TO D I SALLOW THE LOSS ON THIS ACCOUNT HAS RESULTED IN T HE ESCAPEM E N T OF INC OM E TO THE TUNE OF RS . 1,84,13,730/- . IN VIEW OF THE A BO V E, I HAVE REASON TO BELIEVE THAT THE TAXABLE I NCOM E T O THE EXTE N T O F RS . 5 , 21,76, 870/- AND RS.1 , 84,13,730/ - TOTALING TO RS.7 , 05,90,600/ - HAS ES C A PED A SSESSMENT. THERE FORE, THE ASSESSMENT IS REOPENED U/S . 147 OF TH E ACT . NOT I CE U /S.14 8 IS ISS U E D ACCO RD I NGLY. ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 5 5. THE LD. A.R. OF THE ASSESSEE, BEFORE US, HAS SUB MITTED THAT SO FAR AS THE FIRST REASON OF REOPENING I.E. TREATING THE LOSS FR OM THE SALE OF MUTUAL FUNDS AS CAPITAL LOSS INSTEAD OF BUSINESS LOSS AS CLAIMED BY THE ASSESSEE IS CONCERNED, THE AO HAS OPINED THAT THE SAME WAS REQUIRED TO BE TREATED AS CAPITAL IN NATURE MERELY BECAUSE THERE WERE NO FREQUENT TRANSACTIONS IN THESE SCRIPTS AND THE DIVIDEND WAS EARNED ON THE SAME. THE LD. A.R. OF T HE ASSESSEE HAS EXPLAINED THAT MOST OF THE MUTUAL FUNDS IN QUESTION WERE APPE ARING IN THE ACCOUNTS OF THE ASSESSEE AT THE START OF THE YEAR AS OPENING STOCK AND AT THE END OF THE RELEVANT YEAR AS CLOSING STOCK. THE ASSESSEE COMPANY HAD BE EN CARRYING ON THE SHARE TRADING BUSINESS AND MAINTAINING TWO PORTFOLIOS. T HE SHARES AND MUTUAL FUNDS TRADED IN BY THE ASSESSEE WERE RECORDED IN THE TRAD ING PORTFOLIO AND WERE NEVER SHOWN AS INVESTMENTS IN ITS ACCOUNTS. THE RELEVANT DETAILS SUCH AS LEDGER COPY OF DIVIDEND ACCOUNT, COPIES OF MUTUAL FUND STATEMEN T ETC. WERE DULY PROVIDED TO THE AO DURING THE ORIGINAL ASSESSMENT PROCEEDING S. THE AO, AFTER CONSIDERING THE ENTIRE DETAILS, HAD ALLOWED THE SAI D LOSS ON MUTUAL FUNDS AS BUSINESS LOSS. HE HAS FURTHER SUBMITTED THAT REOPE NING OF THE ASSESSMENT ON THE GROUND THAT THE MUTUAL FUNDS WERE TO BE TREATED AS INVESTMENTS OF THE ASSESSEE AND NOT THE STOCK IN TRADE, WAS NOTHING EL SE BUT A CHANGE OF OPINION. HE HAS FURTHER SUBMITTED THAT CLASSIFICATION OF SHA RES AND UNITS OF MUTUAL FUNDS WHETHER AS INVESTMENTS OR INVENTERIES IS A HIGHLY S UBJECTIVE ISSUE WHICH DEPENDS UPON A NUMBER OF FACTS WHICH DIFFER FROM CA SE TO CASE. NO SINGLE FORMULA IS PRESCRIBED TO DIFFERENTIATE BETWEEN THE TWO. THE CBDT VIDE ITS CIRCULAR NO.4/2007 DATED 15.06.07 HAS LAID DOWN CER TAIN PARAMETERS TO BE OBSERVED WHILE MAKING THE DISTINCTION BETWEEN THE S HARES HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE VIZ . THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASING/DEALING IN SHARES OR UNITS; THE NUMBER O F SCRIPTS DEALT IN WITH; FREQUENCY OF TRANSACTIONS AND MAGNITUDE OF INVESTME NT; DURATION AND LENGTH OF TIME FOR WHICH THE SAID UNITS ARE HELD BY THE ASSES SEE; THE NATURE OF TRANSACTIONS ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 6 INVOLVED; THE INTENTION OF THE ASSESSEE TO EARN QUI CK PROFITS; THE TREATMENT AND CHARACTERIZATION WITH THE SECURITIES IN THE BOOKS O F ACCOUNTS OF THE ASSESSEE ETC. HE SUBMITTED THAT THE ENTIRE DETAILS OF SALE AND PU RCHASE OF SHARES AND MUTUAL FUNDS WERE SUBMITTED TO THE AO DURING THE TIME OF O RIGINAL ASSESSMENT. THOUGH THE AO HAS NOT SPECIFICALLY DISCUSSED THE IS SUE AS TO WHETHER THE INVESTMENT IN MUTUAL FUNDS WAS TO BE TREATED AS INV ESTMENT ACTIVITY OR AS TRADING ACTIVITY, HOWEVER, THE CLAIM OF THE ASSESSE E WAS ACCEPTED BY THE AO AFTER DUE APPLICATION OF MIND. IN RELATION TO THE SECOND REASON, THE LD. A.R. HAS SUBMITTED THAT THE AMENDED PROVISIONS OF SECTION 94(7) WERE APPLICABLE PROSPEC TIVELY FOR ASSESSMENT YEAR 2005-06 AND NOT TO THE YEAR UNDER CONSIDERATION. H ENCE, THE SECOND REASON RECORDED BY THE AO WAS FACTUALLY AND LEGALLY WRONG AND THE REOPENING ON THE BASIS OF AMENDMENT BROUGHT SUBSEQUENTLY WHICH WAS N OT APPLICABLE FOR THE YEAR UNDER CONSIDERATION CANNOT BE HELD TO BE A VAL ID REASON. ON THE OTHER HAND, THE LD. D.R. HAS RELIED UPON T HE FINDINGS OF THE AO. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HAV E ALSO GONE THROUGH THE RECORDS. WE FIND FORCE IN THE CONTENTION OF THE AS SESSEE THAT SO FAR AS THE REOPENING ON THE ISSUE THAT THE OF THE LOSS ON MUTU AL FUNDS WAS REQUIRED TO BE TREATED AS CAPITAL LOSS IS CONCERNED, WE FIND FROM THE REASONS RECORDED BY THE AO AND EVEN FROM THE ASSESSMENT ORDER MADE PURSUAN T TO THE REOPENING OF THE ASSESSMENT THAT THE AOS CONCLUSION THAT THE LOSS I N MUTUAL FUNDS WAS CAPITAL LOSS WAS NOT BASED ON ANY PECULIAR FACT BUT ONLY O N SURMISES AND CONJUNCTURES. IT WAS NOTHING BUT A CHANGE OF OPINION. IT IS PER TINENT TO MENTION HERE THAT WHILE REVERSING THE ORDER OF THE AO ON MERITS, THE LD. CIT(A) IN THE IMPUGNED ORDER HAS OBSERVED THAT THE AO HAS NOT BROUGHT ON R ECORD ANY MATERIAL TO JUSTIFY HIS CONCLUSION THAT THE SAID TRANSACTION IN MUTUAL FUND HAD RESULTED IN CAPITAL LOSS. MERELY BECAUSE THE DIVIDEND WAS EARNE D ON THESE UNITS, THAT ITSELF, CANNOT BE HELD TO BE A CRITERIA FOR TREATING THE TR ANSACTIONS AS CAPITAL IN NATURE. ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 7 THE UNITS PURCHASED WERE SHOWN AS STOCK IN TRADE BY THE ASSESSEE IN ITS ACCOUNTS. THE SIMILAR TRANSACTIONS HAD BEEN ACCEPT ED BY THE AO AS BUSINESS TRANSACTIONS IN THE EARLIER ASSESSMENT YEARS 2002-0 3 AND 2003-04 AND THE ASSESSEES CLAIM OF BUSINESS LOSS WAS ALSO ACCEPTED BY THE AO. THE DIVIDEND EARNED CANNOT BE SAID TO BE INCOME FROM INVESTMENT. MERELY BECAUSE THE DIVIDEND IS EXEMPT THAT ITSELF CANNOT BE A GROUND T O HOLD THAT THE MUTUAL FUNDS WERE HELD AS INVESTMENTS WHEREAS THE ASSESSEE HAS S PECIFICALLY TREATED THE SAME AS STOCK IN TRADE IN ITS ACCOUNTS. MOREOVER, THE A SSESSEES SUCH TREATMENT HAD ALREADY BEEN ACCEPTED IN EARLIER YEARS. NO NEW MAT ERIAL OR EVIDENCE HAD COME INTO THE POSSESSION OF THE AO TO FORM A BELIEF THAT THE MUTUAL FUNDS TRANSACTIONS WERE TO BE TREATED AS CAPITAL IN NATUR E. THERE WAS NEITHER ANY NEW EVIDENCE NOR ANY INFORMATION BEFORE THE AO TO CHANG E OR FORM HIS BELIEF REGARDING THE NATURE OR THE HEAD UNDER WHICH THE LO SS FROM MUTUAL FUNDS WERE TO BE COMPUTED. THE VIEW/COMPUTATION OF THE LOSS F ROM MUTUAL FUNDS AS BUSINESS LOSS DONE BY THE AO DURING ORIGINAL ASSESS MENT PROCEEDINGS WAS NOT ONLY THE POSSIBLE VIEW BUT ALSO THE CORRECT VIEW AS HAS ALSO BEEN HELD BY THE LD. CIT(A) IN THE IMPUGNED ORDER. THE HONBLE BOMB AY HIGH COURT IN THE CASE OF ASIAN PAINTS LTD. VS. DCIT (2009) 308 ITR 195 (BOM.), WHILE RELYING UPON THE FULL BENCH DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD. (2002) 256 ITR 1, HAS OBSERVED THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TER MS OF SECTION 143(3) OF THE ACT, A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION OF MIND. SUCH A PRESUMPTION CAN ALSO B E RAISED TO THE EFFECT THAT IN TERMS OF CLAUSE (E) OF SECTION 114 OF THE INDIAN EV IDENCE ACT THAT JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED; TO HOL D THAT AN ORDER HAS BEEN PURPORTEDLY WITHOUT APPLICATION OF MIND CONFERRING JURISDICTION UPON THE AO TO REOPEN THE PROCEEDINGS WITHOUT ANY NEW OR FURTHER I NFORMATION OR MATERIAL AVAILABLE TO HIM, THE SAME WOULD AMOUNT TO GIVING A PREMIUM TO AN AUTHORITY ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 8 EXERCISING QUASI JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. THE HONBLE BOMBAY HIGH COURT HAS, THUS, HELD THAT THE AO CANNOT TAKE ADVANTAGE OF HIS OWN WRONG TO REOPEN THE ASSESSMENT BY TAKING RECOURSE OF THE PROVISIONS OF SECTION 147 OF THE ACT. IT MAY BE NOTED THAT TH E DECISION OF THE HONBLE FULL BENCH OF THE DELHI HIGH COURT HAS BEEN FURTHER UPHE LD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. KELVINAT OR INDIA LTD. REPORTED AS (2010) 320 ITR 561 (SC) HOLDING THAT THE AO HAS NO POWER TO REVIEW, HE HAS POWER TO REASSESS BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPIN ION IS REMOVED THEN IN THE GARB OF REOPENING OF THE ASSESSMENT, REVIEW WOULD T AKE PLACE. THE AO HAS POWER TO REOPEN PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT AND REASONS MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. IN THE CASE IN HAND, THE ORIGINAL ASSESSMENT WAS DONE ON THE BASIS OF MATERIAL PRODUC ED BY THE ASSESSEE BEFORE THE AO. NO NEW MATERIAL OR INFORMATION HAS COME IN TO THE KNOWLEDGE OF THE AO. THE VIEW TAKEN BY THE AO WAS ONE OF THE POSSIB LE VIEWS TREATING THE INCOME/LOSS ON MUTUAL FUNDS AS BUSINESS LOSS. SUCH A TREATMENT WAS GIVEN BY THE AO IN THE CASE OF ASSESSEE IN EARLIER ASSESSMEN T YEARS ALSO. NO FURTHER EVIDENCE OR NEW INFORMATION HAS COME TO THE KNOWLED GE OF THE AO FOR CHANGE OF HIS OPINION IN THIS RESPECT. HENCE, THE REOPENI NG ON THE GROUND THAT THE LOSS FROM MUTUAL FUNDS WAS TO BE ASSESSED AS CAPITAL LOS S WAS NOTHING BUT A CHANGE OF OPINION THAT TOO BASED ON SURMISES AND CONJUNCTU RES AND NOT BASED ON ANY PARTICULAR MATERIAL FACT OR CIRCUMSTANCE WHICH CAN BE CONSIDERED TO BE A DECIDING FACTOR FOR SUCH A TREATMENT. 7. SO FAR AS THE SECOND REASON REGARDING THE APPLIC ABILITY OF AMENDED SECTION 94(7) IS CONCERNED, WE FIND THAT THE AMENDM ENT BROUGHT BY THE SAID SECTION WAS APPLICABLE FROM THE ASSESSMENT YEAR 200 5-06. EVEN THE CONDITION ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 9 IMPOSED IN THE SAID AMENDMENT IS THAT IF THE ASSESS EE BUYS OR ACQUIRES ANY SECURITIES OR UNITS WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE OF DIVIDEND AND SELLS OR TRANSFERS SUCH UNITS WITHIN A PERIOD OF NINE MONTHS AFTER SUCH DATE, THEN THE LOSS IS TO BE DISALLOWED. HOWE VER, WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD NOT SOLD OR TRANSFERRED THE SECURITIES/MUTUAL FUNDS. THE LOSS ARRIVED AT BY TH E ASSESSEE WAS ON ACCOUNT OF DIMINUTION IN THE VALUE OF THE STOCK AS COMPARED TO THE MARKET VALUE. THE UNITS WERE LYING IN THE STOCK OF THE ASSESSEE AT TH E CLOSE OF THE FINANCIAL YEAR. UNDER SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 94(7) WERE NOT ATTRACTED IN THIS CASE. AS PER THE ACCOUNTING PRACTICE PREVALEN T TO VALUE THE STOCK IN TRADE AT COST OR MARKET PRICE WHICHEVER IS LOWER, THE LOS S WAS ARRIVED AT, AFTER VALUING THE UNITS AT MARKET PRICE AND THE SAME WAS CLAIMED BUSINESS LOSS. NEITHER THE AMENDED PROVISIONS OF SECTION 94(7) WERE APPLICABLE FOR THE YEAR UNDER CONSIDERATION NOR OTHERWISE ATTRACTED IN THIS CASE. WE FIND THAT EVEN THE AO WAS ALSO OF THE VIEW THAT THE PROVISIONS OF SECTION 94(7) WERE CONTINGENT UPON THE REDEMPTION OF UNITS. WHILE FRAMING ASSESSMENT F OR A.Y. 2005-06 WHEREIN THE AO HAD FORMED THE VIEW TO REOPEN THE ASSESSMENT FOR A.Y. 2004-05 I.E. FOR THE YEAR UNDER CONSIDERATION, THE AO HAS OBSERVED I N PARA 4.1.0 OF THE ORDER DATED 28.12.07 THAT THE ANTICIPATED LOSS ARRIVED AT FOR A.Y. 2004-05 COULD HAVE BEEN TAKEN INTO CONSIDERATION IN A.Y. 2005-06 AT TH E TIME OF ACTUAL REDEMPTION OF THE MUTUAL FUND UNITS AND THE DIFFERENCE BETWEEN THE TWO COULD HAVE BEEN TAKEN FOR CONSIDERATION/COMPUTATION OF INCOME/LOSS FOR THE A.Y. 2005-06. IN VIEW OF THIS, THE AO HAD MADE PROTECTIVE ADDITION O N THE SAME ISSUE FOR A.Y. 2005-06 ALSO. WE FIND THAT SO FAR AS THE ACTUAL RE DEMPTION OF THE UNIT DURING THE SUBSEQUENT YEAR IS CONCERNED, THE ISSUE AS TO W HETHER THE PROVISIONS OF SECTION 94(7) ARE APPLICABLE OR NOT HAVE TO BE INDE PENDENTLY EXAMINED IN THAT YEAR. SO FAR AS THE FORMING OF REASONS AS TO THE A PPLICABILITY OF SECTION 94(7) FOR THE YEAR UNDER CONSIDERATION IS CONCERNED, THE SAME WAS ERRONEOUS AS THE ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 10 AMENDED PROVISIONS ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND THE REASONS OF THE AO TO BELIEVE THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT BECAUSE OF THE APPLICABILITY OF SECTION 94(7) ARE FALLACIOUS AND ARE NOT VALID AND THE REOPENING ON THE BASIS OF SAID BE LIEF IS BAD IN LAW. 8. IN VIEW OF OUR OBSERVATIONS MADE ABOVE, IT IS TO BE HELD THAT THE REOPENING IN THIS CASE HAS NOT BEEN ON VALID REASON S AND THE SAME IS ACCORDINGLY SET ASIDE. 9. EVEN ON MERITS ALSO, IN VIEW OF OUR DISCUSSION M ADE ON THE FACTUAL MATRIX OF THE CASE AS ABOVE, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE LD. CIT(A) HOLDING THAT THE MUTUAL FUNDS HELD BY THE AS SESSEE WERE STOCK IN TRADE AND NOT AN INVESTMENT ACTIVITY OF THE ASSESSEE AND THAT THE AMENDED PROVISIONS OF SECTION 94(7) WERE NOT APPLICABLE FOR THE YEAR U NDER CONSIDERATION. THE APPEAL OF THE REVENUE DESERVES TO BE DISMISSED EVEN ON MERITS OF THE CASE ALSO. 10. IN THE RESULT, THE CROSS OBJECTIONS OF THE ASSE SSEE ARE HEREBY ALLOWED AND THE APPEAL OF THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.2015. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.09.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI ITA NO.7951/M/2010 & CO NO.60/M/2012 M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. 11 THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.