ITO, New Delhi V. M/s. Capital Leisure (P) Ltd., New Delhi

ITA 969/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4042 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 05-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Charitable institution; Audit objection; Question of law; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 115JB; 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 969(DEL)/2010 ASSESSMENT YEAR: 2001-02 INCOME-TAX OFFICER, M/S CAP ITAL LEISURE (P) LTD., WARD 3(2), NEW DELHI. VS. Y-53, OKHLA I NDL. AREA, PHASE-II, NEW DELHI. PAN-AAACC4178Q (APPELLANT) (RESPOND ENT) APPELLANT BY : MS. Y. KAKKAR, SR. DR RESPONDENT BY : SHRI K. SAMPATH, ADVOCATE ORDER PER K.G. BANSAL : AM THE ONLY GROUND TAKEN BY THE REVENUE IN THIS AP PEAL IS THAT THE LD. CIT(APPEALS) ERRED IN ANNULLING THE ORDER OF ASS ESSMENT PASSED BY THE AO U/S 147 OF THE INCOME-TAX ACT, 1961 (THE ACT). IN DOING SO, HE IGNORED THE FACT THAT THE PROCEEDINGS WERE REOPENED AT THE INSTANCE OF A NOTE BY THE AUDIT PARTY, WHICH WAS JUSTIFIED IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKE RS LTD., (2007) 291 ITR 500. ITA NO. 969(DEL)/2010 2 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED THE RETURN ON 30.10.2001 DECLARING LOSS OF RS. 92,010/-. IN THIS RETURN THE ADJUSTED BOOK PROFITS WERE COMPUTED AT RS. 27,65,014/- U/ S 115JB OF THE ACT. THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) O N 31.3.2001 AT TOTAL INCOME OF RS. 7,62,350/-. THIS ORDER UNDERWENT RECTIFICATION U/S 154 FOR MAKING ADJUSTMENT OF BROUGHT FORWARD LOSSES AN D THE INCOME WAS COMPUTED AT NIL. 2.1 THEREAFTER, IT WAS NOTICED BY THE AO THAT THE ASSESSEE SHOWED LOSS ON SALE OF SHARES AT RS. 20,38,853/-. THE SHARES WERE SHOWN TO HAVE BEEN HELD AS INVESTMENT IN THE BALANCE-SHEET BUT THE LOSS WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND, THUS, IT WAS CLAIMED AS BUSINESS LOSS. THE AO WAS OF THE VIEW THAT THE LOSS SHOULD HAVE BEEN COM PUTED AS SHORT-TERM CAPITAL LOSS, AND DEALT WITH ACCORDINGLY. THU S, IT COULD NOT BE SET OFF AGAINST CURRENT YEARS BUSINESS PROFITS. IN VIEW THEREOF, REASONS WERE RECORDED U/S 147 AND NOTICE WAS ISSUED U/S 1 48 TO THE ASSESSEE ON 26.3.2008 AFTER OBTAINING REQUISITE APPROVAL AS PRO VIDED UNDER THE STATUTE. THE ASSESSEE FILED OBJECTIONS, WHICH WERE DISPOS ED OFF BY REJECTING THEM. FINALLY, ASSESSMENT WAS MADE ON 19.12.2008, IN WHICH THE BUSINESS ITA NO. 969(DEL)/2010 3 INCOME OF THE CURRENT YEAR WAS COMPUTED AT RS. 28,01,203/- AGAINST THE ORIGINALLY ASSESSED INCOME OF RS. 7,62,350/-. 2.2 THE LD. CIT(APPEALS) ANNULLED THIS ORDER BY OBSERVING THAT ORIGINAL ASSESSMENT U/S 143(3) WAS MADE, IN WHICH THE AS SESSEE WAS REQUESTED TO EXPLAIN ITS STAND REGARDING LOSS INCURRED IN S HARE TRANSACTION. ULTIMATELY, IT WAS HELD THAT THE LOSS IS THE BUSINESS LOSS. NOTICE U/S 148 WAS ISSUED FOUR YEARS AFTER THE CLOSE OF THE ASSE SSMENT YEAR. SUCH A NOTICE COULD BE VALID IF THE RECORDED REASONS SHOWED THAT THE INCOME ESCAPED ASSESSMENT ON ACCOUNT OF THE FAILURE OF THE ASSESS EE TO CORRECTLY DISCLOSE ALL MATERIAL FACTS IN RESPECT OF SHARE TRANSACTION. NO SUCH FAILURE WAS DISCERNIBLE FROM THE REASONS. THEREFORE, THE AO DID NOT PROPERLY ASSUME JURISDICTION U/S 147. ACCORDINGLY, THE ORDER OF RE-ASSESSMENT WAS ANNULLED. 3. BEFORE US, THE LD. DR CLARIFIED THAT THE A SSESSMENT OF LOSS UNDER A WRONG HEAD CAME TO THE NOTICE OF THE AO FROM THE AUDIT OBJECTION. THIS IS THE REASON FOR WORDING THE GROUND IN THE MANNER IT HAS BEEN WORDED. ITA NO. 969(DEL)/2010 4 3.1 COMING TO THE VALIDITY OF NOTICE U/S 148, I T IS SUBMITTED THAT THE ORIGINAL ORDER U/S 143(3) DOES NOT DEAL WITH THE CLASSIFICATION OF LOSS. THE STAND OF THE ASSESSEE REGARDING THIS LOSS WA S MECHANICALLY ACCEPTED WITHOUT ANY DISCUSSION. THE SHARES ON SALE OF WH ICH LOSS WAS INCURRED WERE SHOWN AS INVESTMENT AND, THEREFORE, THE LOSS ARISING FROM THE TRANSACTION COULD ONLY BE CLASSIFIED AS SHORT-TER M CAPITAL LOSS. HOWEVER, THE ASSESSEE DID NOT MAKE FULL DISCLOSURE OF THE FACTS REGARDING THE NATURE OF SHAREHOLDING AND THE NATURE OF LOSS. THEREFO RE, THERE WAS A FAILURE ON ITS PART TO SHOW THE FACTS FULLY AND CORRECTLY IN THE ORIGINAL RETURN. ACCORDINGLY, IT IS AGITATED THAT THE PROCEEDINGS H AVE BEEN INITIATED VALIDLY AND, THEREFORE, THE ORDER OF THE LD. CIT(A) IS RE QUIRED TO BE SET ASIDE. 3.2 IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE PROCEEDINGS ARE IN RESPECT OF ASSESSMENT YEAR 2001-02. THEREFORE, FOUR YEARS AS ENVISAGED IN SECTION 147 EXPIRED ON 31.3.2006. THE NOTICE U/S 148 WAS ADMITTEDLY ISSUED ON 26.03.2008, I.E., A FTER EXPIRY OF FOUR YEARS. IN SUCH A SITUATION, THE AO COULD ASSUME JURISDI CTION ONLY AFTER SHOWING THAT THE ASSESSEE FAILED TO DISCLOSE ALL MATERI AL FACTS IN THE ORIGINAL RETURN. ITA NO. 969(DEL)/2010 5 HE DREW OUR ATTENTION TO PAGE NO. 12 OF THE PAPER BOOK, BEING SUBMISSIONS MADE BEFORE THE AO ON 23.01.2003, IN WHICH IT W AS POINTED OUT THAT THE ASSESSEE-COMPANY IS ALSO DOING BUSINESS OF SHA RE TRADING AND THE LOSS PERTAINS TO THE DIFFERENCE BETWEEN PURCHASE PRI CE AND SALE PRICE OF 1450 SHARES OF HIMACHAL FUTURISTIC COMMUNICATION LTD. FURTHER, HE DREW OUR ATTENTION TO PAGE NO. 15 OF THE PAPER BOOK, BEING SUBMISSIONS MADE BEFORE THE AO ON 4.2.2003, IN WHICH IT IS MENTIONED THAT EXPLANATION HAS ALREADY BEEN FURNISHED IN RESPECT OF LOSS IN TRADING OF S HARES. THE LOSS IS IN RESPECT OF BUSINESS TRANSACTION OF 1450 SHARES O F HIMACHAL FUTURISTIC COMMUNICATION LTD. THESE SHARES WERE HELD FOR A PERIOD OF ABOUT TWO MONTHS ONLY. IT IS NOT A SPECULATIVE TRANSACTIO N U/S 143(5). ON THE BASIS OF THESE EXPLANATIONS SUBMITTED BEFORE THE AO, I T IS ARGUED THAT THE MATTER WAS DISCUSSED AND DEBATED IN THE COURSE OF ORIGI NAL PROCEEDINGS. ALL FACTS INCLUDING EVIDENCE AND EXPLANATION WAS TENDERED BEFORE THE AO. THEREFORE, NO FAILURE CAN BE ATTRIBUTED TO THE A SSESSEE. IN ABSENCE OF ANY FAILURE ON THE PART OF THE ASSESSEE, THE LD. CIT (APPEALS) CORRECTLY ANNULLED THE ASSESSMENT AS JURISDICTION WAS NOT PROPERLY ASSUMED BY THE AO. 3.3 IN THE REJOINDER, THE LD. DR SUBMITTED THAT T HE ASSESSEE SHOULD HAVE RECONCILED HIS EXPLANATION WITH THE CONTENTS OF ACCOUNTS FILED WITH THE ITA NO. 969(DEL)/2010 6 RETURN OF INCOME, IN WHICH SHARES WERE SHOWN AS INVESTMENTS. THEREFORE, THE INCOME ESCAPED ASSESSMENT ON ACCOUNT OF FAI LURE OF THE ASSESSEE. OTHERWISE, THERE IS NO DOUBT THAT INCOME HAS ES CAPED ASSESSMENT IN TERMS OF THE EXPLANATION TO SECTION 147. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE WA S HOLDING 1450 SHARES OF HIMACHAL FUTURISTIC COMMUNICATION LTD., WHICH WER E SHOWN AS INVESTMENT IN THE BALANCE-SHEET. THE SALE OF SHARES LED TO LOSS OF RS. 20,38,853/-, WHICH WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT AS BUSINESS LOSS. THE AO ASKED FOR EXPLANATION ABOUT THE LOSS. IT WAS SUBMITTED THAT THE COMPANY IS DOING SHARE TRADING BUSINESS, IN WHI CH THIS LOSS HAS BEEN INCURRED. THE LOSS IS NOT SPECULATIVE IN NATURE. THE LEDGER ACCOUNT, SHARE HOLDING STATEMENT AND BROKERS LEDGER ACCOUNT WERE FILED. THE AO ACCEPTED THE LOSS TO BE BUSINESS LOSS. THEREAFTE R, THE ASSESSMENT WAS REOPENED ON THE GROUND THAT THE LOSS SHOULD HAVE BE EN ASSESSED AS SHORT- TERM CAPITAL LOSS. COMING TO THE DECIDED CASES, T HE LD. DR RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PVS BEEDIES P. LTD., (1999) 237 ITR 13. IN THIS CASE, THE ASSESSME NT HAD BEEN REOPENED ON THE BASIS OF A REPORT OF THE AUDIT PARTY AND T HE FINDING OF THE TRIBUNAL WAS ITA NO. 969(DEL)/2010 7 THAT SUCH REOPENING IS NOT PERMISSIBLE U/S 14 7(B). THIS ORDER WAS CONFIRMED BY THE HONBLE HIGH COURT. THE HONBLE SUPREME COURT MENTIONED THAT THE AUDIT PARTY MERELY POINTED OUT A FACT WHICH HAD BEEN OVER LOOKED BY THE AO. THE RECOGNITION GRANTED TO THE CHARITABLE TRUST HAD EXPIRED ON 22.9.1972, WHICH WAS NOT NOTICED BY THE AO. THIS IS NOT A CASE OF INFORMATION ON A QUESTION OF LAW. THEREF ORE, THE DECISION OF THE HIGH COURT WAS REVERSED AND THE MATTER WAS D ECIDED IN FAVOUR OF THE REVENUE. HAVING CONSIDERED THE DECISION, WE AR E OF THE VIEW THAT THE FACTS ARE DISTINGUISHABLE. IN THAT CASE, THE QU ESTION OF FAILURE ON THE PART OF THE ASSESSEE WAS NOT THERE. THE HONBLE COU RT HELD THAT INFORMATION OF FACT FROM THE AUDIT PARTY CONSTITUTES VALID INFORMATION FOR REOPENING ASSESSMENT U/S 147(B), AS IT EXISTED FOR THAT Y EAR. HOWEVER, IN THIS CASE, THE ASSESSMENT IS SOUGHT TO BE REOPENED AFTER FOUR YEARS AND ONE OF THE ESSENTIAL PRE-CONDITION IS THAT IT MUST BE SHOWN THAT THE INCOME ESCAPED ASSESSMENT DUE TO FAILURE ON THE PART OF THE ASS ESSEE TO DISCLOSE ALL MATERIAL FACTS. THE LD. DR ALSO RELIED ON TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOC K BROKERS (P) LTD. (SUPRA), IN WHICH IT IS MENTIONED THAT THE ONLY CONDITION NOW IS REASON TO BELIEVE. WHEN A RETURN IS PROCESSED U/S 143(1)( A), THERE IS NO QUESTION OF FORMATION OF ANY BELIEF AS IT IS A MECHANICAL PR OCESS DONE BY THE CLERKS ITA NO. 969(DEL)/2010 8 OF THE AO. THEREFORE, WHEN NOTICE U/S 148 IS SOU GHT TO BE ISSUED, IN SUCH A CASE THERE IS NO QUESTION OF CHANGE OF OPINIO N. HAVING CONSIDERED THE FACTS OF THE CASE, WE FIND THAT THE SAME ARE DISTINGUISHABLE. THE CASE DEALT WITH THE INTERPRETATION OF THE MAIN PROVISION. HOWEVER, WHERE AN ASSESSMENT MADE U/S 143(3) IS SOUGHT T O BE REOPENED U/S 147 AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVA NT ASSESSMENT YEAR, IT IS INCUMBENT ON THE AO TO SHOW THAT THERE WAS FAILU RE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS. THIS POSI TION EMERGES CLEARLY FROM THE STATUTORY LANGUAGE AND NO AID IS REQUIRED F ROM ANY DECIDED CASE. IT HAS ALREADY BEEN SEEN THAT THE ASSESSEE HAS DISCLOSED ALL FACTS. IT MAY BE THAT HIS CLAIM WAS NOT ACCEPTABLE IN LAW, BUT THE CLAIM WAS ACCEPTED EVEN BY THE AO. HOWEVER, NO FAILURE CAN BE AT TRIBUTED TO THE ASSESSEE IN RESPECT OF DISCLOSURE OF MATERIAL FACTS FOR MAKI NG THE ASSESSMENT. IN THE ORIGINAL ASSESSMENT, THE AO COULD HAVE HELD THE LO SS TO BE CAPITAL LOSS WITHOUT FINDING OUT ANY FURTHER FACT. TO THIS EXTENT, THE FACTS OF THIS CASE ARE IN PARI-MATERIA WITH THE FACTS IN THE CASE OF JINDAL PHOTO FILMS LTD. VS. DCIT & ANOTHER, (1998) 234 ITR 170, DE CIDED ON A DIFFERENT POINT REGARDING CHANGE OF OPINION. SINCE THE AO HAS FAILED TO SHOW ANY FAILURE ON THE PART OF THE ASSESSEE, IT IS HELD THAT HE DID NOT VALIDLY ITA NO. 969(DEL)/2010 9 ASSUME JURISDICTION. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN ANNULLING THE ASSESSMENT. 5. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6 MAY, 2011. SD/- SD/- (C.L. SETHI) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 6TH MAY, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- M/S CAPITAL LEISURE (P) LTD., NEW DELHI. ITO, WARD 3(2), NEW DELHI. CIT CIT(A) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR .