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2010 (3) TMI 874 - AT - Income TaxValidity of initiation of reassessment u/s 148 - transfer of shares u/s 2(47) - Return processed u/s 143(1) - assessment of short-term capital gain - capital gain on sale of shares was taxed as long-term capital gains in assessment year 2001-02 only on protective basis - Escapement of income chargeable to tax - spot delivery basis for a purchase - transaction carried out on the stock exchange in settlement period. Whether the assessment for assessment year 2001-02 can be said to be a protective assessment - HELD THAT:- In the present case, we are of the view that the observations of the Assessing Officer while completing assessment for assessment year 2001- 02 which we have extracted cannot be said to be an expression of his intention to make a protective assessment of the capital gain as long-term capital gain. It is an assessment pure and simple. Firstly, the words used by the Assessing Officer do not express his intention that the long-term capital gain is being brought to tax by way of protective assessment. Secondly, there is no substantive assessment already made treating the capital gain as short-term capital gain. Therefore, there can be no protective assessment. Thirdly, there has been a demand (without any limitation that it should not been recovered) raised pursuant to the above assessment which also shows that the said assessment is not a protective assessment. The decision of the Mumbai Bench of the Tribunal in the case of M.P. Ramachandran [2009 (5) TMI 121 - ITAT BOMBAY-E] clearly applies to the facts of the present case. Escapement of income chargeable to tax or Not - Can the Assessing Officer entertain a belief that income chargeable to tax has escaped assessment? - According to the learned D.R., short-term capital gains are taxed at higher rate compared to long-term capital gain and if the capital gain is considered as having resulted in the hands of the assessee in assessment year 2000-01 it would be short-term capital gain since the shares were held by the assessee for less than a period 12 months. Therefore, according to the learned D.R., there was escapement of income and the belief entertained by the Assessing Officer that there was escapement of income cannot be found fault with. The law on this aspect is very clear. The belief entertained by the Assessing Officer should be that of a honest and reasonable person based upon reasonable grounds. The reason to believe should be held in good faith and should not be a mere pretence. In the present case, the Assessing Officer brought to tax the capital gain as a LTCG in assessment year 2001-02. That treatment of the capital gain in assessment year 2001-02 still remains. We have already held that such assessment is not on a protective basis but on a substantive basis. In such circumstances, how can the Assessing Officer entertain belief that the capital gain in question is short-term capital gain. His belief that capital gain has been brought to tax at too low a rate can be said to be held in good faith and not as a pretence only when the contrary belief of the Assessing Officer in the form of an assessment of the very same capital gain as long-term capital gain in assessment year 2001-02 does not exist. Therefore, there cannot be any belief that capital gain has been assessed at too low a rate. We are of the view, that in the present case, the condition precedent for valid initiation of reassessment proceedings have not been satisfied inasmuch as the belief that income chargeable to tax has escaped assessment does not exist. In the circumstances, we hold that initiation of reassessment is bad in law and consequently, the order of assessment is held to be bad, hence, annulled. Determination of the date of transfer of shares - we hold that the date of transfer shares was 12-4-2000 in the case of Vimla Jajoo and 8-4-2000 in the case of Suresh Jajoo and consequently the capital gain on transfer by sale was a long-term capital gain which was already assessed to tax by the Assessing Officer in assessment year 2001-02. The assessment of the capital gain as short-term capital gain in assessment year 2000-01 is, therefore, held to be incorrect. The relevant grounds of appeal of the assessee are allowed. In view of the above conclusion, we are not going into the admissibility of the additional evidence sought to be filed before us and the argument regarding applicability of the rule of consistency. In the result, both the appeals of the assessees are allowed.
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