ITA No. 198/Chd/2012; Asst. yr. 2006-07

Bhavnesh Saini, J.M. & Ms. Rano Jain, A.M.

Ashwani Kumar, for the Appellant:
Moryit Singh, for the Respondent

ORDER-BHAVNESH SAINI, J.M. :

This appeal by assessee is directed against the order of learned CIT(A)-II, Ludhiana dt. 12th Dec., 2011 for asst. yr. 2006-07 on the following grounds:

1. That order passed under s. 250(6) by the learned CIT(A)-II, Ludhiana is against law and facts on the file inasmuch as he was not justified to uphold the action of the learned AO in initiating proceedings under s. 148.

2. That he was further not justified to uphold the action of the learned AO in treating the sum of Rs. 92,25,917 originally assessed as short-term capital gain on mutual funds as income from business.

2. The brief facts of the case are that original assessment in this case was completed under s. 143(3) of the Act vide order dt. 8th April. 2008 at an income of Rs. 1,22,46,908. The asses~cc is a private family trust. The assessee has shown rental income, dividend income, interest on FDRs and income from sale of shares. LaLer on, it came to the notice that income from sale of shares have been shown as capital gain income and not business income. The scrutiny of the record shows that the income from sale of mutual funds is actually assessable under the head 'Business income' and not as 'Capital gain income'. The assessee had detcm1ined profit/loss by valuation of closing stock of mutual funds as on 31 st March of every year. The assessee has stated funds as stock-in­trade and not investments. Thus, income of Rs. 92,25,917 is to be treated a business income and is to be taxed at normal rate.

3. The AO recorded the reasons for reopening of the assessment on 5th Jan .. 2010 which read as under:

Reasons for reopening under s. 147 of IT Act, 1961

The assessee is a private family trust. Assessment under s. 143(3) was completed at returned income of Rs. 1,22,46.908 on 8th April, 2008. The assessee has shown rental income, dividend income, interest on FDRs and income from sale of shares. Income from sale of shares has been shown as "capital gain income"' and not as "business income"'. The scrutiny of record shows that the income from sale of mutual funds is actually assessable under the head "Business income" and not as "Capital gain income". The assessee has determined profit/losses by valuation of closing stock of mutual funds as on 31st. March of every year. The assessee has stated funds as stock-in-trade and not investments. Thus, income of Rs. 92,25,917 is to be treated as business income and is to be taxed at nonnal rates.

2. The income from sale of equity shares at Rs. 1.67.63,000 has not been treated as stock-in-trade in the books and the same appears to be investment income. However, as per CBDT Circular No. 4 of 2004. dt. ] 3th May. 2004 the nature of income from shares is to be determined on the basis of intention of the assessee. If the intention is to earn dividends from the shares then it is an investment and if the intention is to earn profit from sale of shares then it is a business income. Hence. this issue also needs to be looked into.

3. Hence. the assessee has failed to disclose fully and tnlly all material facts necessary for his assessment for asst. yr. 2006-07. I have, therefore reasons to believe that the income of Rs. 92.25.917 pertaining to asst. yr. 2006-07 has escaped assessment within the meaning of s. 147 of the IT Act. Issue notice under s. 148.

4. The AO, after giving opportunity of being heard to the assessee, passed the reassessment order on 27th Dec., 2010 under s. 143(3)/147 of the Act and short-term capital gain was treated as business income in a sum of Rs. 92,25,917 and assessed the income at Rs. 1,22,46,908. The assessee challenged the reopening of the assessment and treating the capital gain income as income from business before learned CIT(A), however, appeal of the assessee was dismissed.

5. We have heard learned Representatives of both the parties and perused the material available on record. PB-5l is original assessment order. PB-53 is the reasons for reopening of the assessment under s. 148 of the Act reproduced above. PB-37 is computation of income for assessment year under appeal showing short-term capital gain on sale of mutual funds in a sum of Rs. 92,25.917, PB-39 is query raised by AO on the same issue at assessrnent stage dt. 8th Feb., 2008 asking for details and evidences of sale of shares and investments in mutual funds. PB-41 to 50 are various replies filed by assessee giving complete details of sale of shares and mutual funds and explaining that assessee has shown investment in mutual funds under the head 'Investments' in the balance sheet as on 31 st March. 2006 as the true nature of investment and mutual funds is that of investment and not trading asset. The learned counsel for the assessee, therefore, submitted that AO has examined the issue of sale of shares in the nature of capital gains at original assessment stage, therefore, reopening of assessment is on mere ehange of opinion. He has also referred to PB-64 whieh is computation of income for preceding asst. yr. 2005-06 in which also assessee has shown income from short-term capital gain on sale of shares of identical nature as is involved in assessment year under appeal which is accepted by AO in asst. yr. 2005-06 in order under s. 143(3), dl. 28th Dec., 2007 and returned income was accepted, accepting the capital gains shown by assessee on the same matter and issue. He has further submitted that since same income have been assessed in assessment year under appeal as was assessed in the original assessment order, therefore, there is no escapement of income as alleged by the AO.

6. On the other hand, learned Departmental Representative relied upon orders of authorities below and submitted that AO has not examined the issue of business transaction and no findings have been given, therefore, it is not a case of mere change of opinion. The learned Departmental Representative relied upon decisions of the Supreme Court in t11e cases of Ess Kay Engineering Co. (P) Ltd. us. CIT (2001) 166 CTR (SC) 396 : (2001) 247 ITR 818 (SC), Kalyani Mauji &. Co. us. CIT 1976 CTR (SC) 85 : (1976) 102 ITR 287 (SC) and ALA Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC).

7. After considering rival submissions, we do not find any justification to sustain the impugned orders regarding reopening of the assessment under s. 147/148 of the Act. Hon'ble Full Bench of Delhi High Court in the case of CIT us. Kelvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617 : (2002) 256 ITR 1 (Del)(FB) by following Circular No. 549 of CBDT held that on mere change of opinion of AO cannot be a ground for reassessment and that amendment of s. 147 w.e.r. 1st April, 1989 has not altered the position. Hon'ble Gujarat High Court in the case of Garden Silk Mills (P) Ltd. vs. Dy. CIT (1990) 151 CTR (Guj) 533 : (1999) 237 ITR 0668 (Guj) held that "however wide the scope of taking action under s. 148 of IT Act, it does not confer jurisdiction on change of the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion that there has been excessive loss or depreciation allowance or that there has been underassessment or assessment at a lower rate or for applying other provisions of Expln. 2 to s. 147, it must be on material and it should have nexus for holding such opinion contrary to what has been expressed earlier. Even after the amendment of s. 147, mere change of opinion does not confer jurisdiction on the ITO to initiate proceeding for reassessment merely by resorting to Expln. 1 to s. 147." Hon'ble Calcutta High Court in the case of Berger Paints India Ltd. vs. Jt. CIT (2000) 164 CTR (Cal) 587 : (2000) 245 ITR 645 (Cal) held when any particular issue has been considered by the ITO and CIT(Al and when there is no failure to disclose the facts, the reassessment proceedings are not valid. Hon'ble Supreme Court in the case of CIT &. Anr. us. Foramer France (2003) 185 CTR (SC) 512 : (2003) 264 ITR 566 (SC) held reassessment-not on basis of mere change of opinion-law same before and after amendment by direct tax laws. Hon'ble Supreme Court in the case of Indian Oil Corporation us. ITO (1986) 58 CTR (SC) 83 : (1986) 159 ITR 956 (SC) held that no case under s. 148 is made out when the facts were known all along to the Revenue while making the original assessment. Hon'ble Supreme Court in the case of Associated Stone Industry Ltd. us. CIT (1997) 138 CTR (SC) 260 : (1997) 224 TTR 560 (SC) held that the assessee shall have to disclose only the primary facts. Hon'ble Supreme Court in the case of CTT us. Keluinator of India Ltd. (2010) 228 CTR (SC) 488 : (2010) 34 DTR (SC) 49 : (2010) 320 TTR 561 (SC) confirmed the decision of the Delhi High Court in the case of Keluinator of Tndia Ltd. (supral holding that "the conccpt of change of opinion must be treated as an inbuilt test to check the abuse of power." Hon'ble Bombay High Court in the case of Titanor Components Ltd. vs. Asstt. CTT (2011) 243 CTR (Bom) 520 : (2011) 60 DTR (Bom) 273 : (2012) 343 TTR 183 (Bom) held as under:

"Where a reassessment is sought to be made after four years the power conferred by s. 147 of the IT Act, 1961, does not provide afresh opportunity to the AO to correct an incorrect assessment made earlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and truly disclose all material facts necessary for assessment , There is a difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the AO would be entitled to proceed under s, 147.

Held, allowing the petition, that the AO had not recorded the failure on the part of the petitioner to fully and truly disclose all material facts necessary for the asst. yr, 1997-98. What was recorded was that the petitioner had wrongly claimed certain deductions which he was not entitled to, The reassessment proceedings initiated in the year 2004 were not valid."

8. The assessee in the computation of income has declared short-term capital gain in a sum of Rs, 92,25,917 on sale of mutual funds, In the income and expenditure account also (PB-33l has shown the same income under the head 'Short-term capital gain on mutual funds on investments', The AO raised query at the original assessment stage and asked for the complete evidences and details of sale of shares and investments in different mutual funds, The assessee filed several replies before AO with complete details explaining sale of shares and nature of transactions to be capital gains. The AO accepted the explanation of assessee after examining the issue in detail and accepted the claim of assessee on sale of shares to be income from capital gains. The AO in the reasons recorded for reopening of the assessment, has merely stated that on scrutiny of the record, it shows that sale of mutual funds should be assessed under the head 'Business income' and not as capital gains income. The statement of the AO in the reasons is not based on any evidences or material. 'Whatever material was available on record, determining the transaction to be of capital gains, was reappraised by the AO in the reasons recorded for reopening of the assessment which is not permissible under the law. The AO did not bring any evidence on record as to how the transactions of capital gain become business income of the assessee. Thus, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment in assessment year under appeal. Further, the assessee in preceding asst. yr. 2005-06 on the identical transactions had shown the short-term capital gains on sale of shares which have been accepted by AO in year under s. 143(3) dt. 28th Dec., 2007. Thus, the nature of income in preceding year has been accepted by AO to be income from capital gains. The Hon'ble Punjab & Haryana High Court in the case of CIT us. Vikas Chemi Gum (India) (2005) 196 CTR (P&H) 123 : (2005) 276 ITR 32 (P&H) held that even source of income in asst. yr. 1986-87 not challenged, it is not open to challenge the same source in subsequent year". Hon'ble Delhi High Court in the case of CIT us. ARJ Securities Printer (2003) 183 CTR (Del) 323 : (2003) 264 ITR 276 (Del) held that "For the sake of consistency and finality of litigation, earlier decision on same question should not be reopened unless new facts came to the knowledge". Hon'ble Delhi High Court in the case of CIT us. Escorts Ltd. (2011) 51 DTR (Del) 821 : (2011) 338 ITR 435 (Del) held that "Decision regarding nature of transaction continuing for several years. Rule of consistency should be followed." Further, the AO in the original assessment order has determined the total income at Rs. 1,22,46,908 which is returned income and in assessment year under appeal also, the AO has assessed the same income at Rs. 1,22,46,908. Thus, there is no escapement of income and it is a case of change of opinion to change the head of income from 'income from capital gains' to 'Income from business income'. Such course is not permissible to the subsequent AO in the garb of reopening of the assessment under s. 148 of the Act.

9. Considering the totality of the facts and circumstances, the decisions relied upon by learned Departmental Representative would not support the case of the Revenue. We, therefore, set aside the orders of authorities below and quash the reopening of the assessment under s. 148 of the Act. Resultantly, the finding of the AO that capital gains is business income stands vacated.

10. In View of the above, there is no need to decide second ground of appeal on merit as the same is left for academic discussion only.

11. In the result, appeal of the assessee is allowed .