2013 (6) TMI 173 - HC - Income Tax

Exemption under Sec.10 (38) on Long Term Capital Gains from the sale of quoted shares and equity oriented Mutual Funds - Income derived from sale of shares - capital gain v/s income from business or profession - assessee is a private limited company registered as NBFC initially was a franchisee of M/s Coca-Cola Company was taken over by the said Company as a going concern and the assessee received Rs.56.23 Crores as consideration/compensation which was invested in stages in shares of Companies quoted on the Stock Exchange and in units of Mutual Funds - Jurisdiction power u/s 263 by CIT(A) - Held that:- The contention of the Revenue that there are no reasons given by the AO about the nature of activity of the assessee cannot be accepted because a query was raised by him in the course of the assessment proceedings and was replied by the assessee. Obviously, he was satisfied with the explanation of the assessee and therefore did not think that the issue needs to be specifically mentioned. It is settled law that the Assessing Officer in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry, the respondent, merely because he entertains a different opinion in the matter, cannot invoke his powers u/s. 263. It is therefore not correct to say that there was no proper enquiry by the AO.

The decision in P.V.S Raju (2011 (7) TMI 818 - Andhra Pradesh High Court) does not apply to the present case because in the said case, the assessee had accepted that it was a trader in the earlier years but in the assessment years 2005-06 and 2006-07, in view of the amendment to S.111-A brought into effect from 01.04.2005, the assessees sought to change their stand contending that they were investors in order to claim the benefit of S.111-A. It was also found as a fact that all the shares were held by the assessee for less than two months and some shares were sold even before the purchase indicating the mind of the assessee that they were not intending to hold the same as investment. On those facts it was rightly held that the assessee was only doing trading activity and was not an investor. Moreover it was not a case u/s.263 to which totally different parameters would apply.

AO had not only taken a possible view but in the circumstances the only view possible and therefore his order could not have been termed as erroneous or prejudicial to the revenue warranting exercise of revisional jurisdiction u/s.263 of the Act by the respondent. The fact that the Revenue from A.Y 1998-99 had accepted that the assessee is an investor and the shares and mutual funds are investments and not stock-in-trade (except for A.Y 2006-07), the fact that 99 % of the shares were held for considerable time after their purchase before their sale; that the action of the assessee in undertaking large volume of transactions in March,2006 was because of the change in law sought to be made effective from 01.04.2006 with regard to treatment of LTCG u/s.115JB for book profit tax and was not a colourable action and was permissible under the law, lead to an irrefutable conclusion that the assessee was only an investor and the Assessing Officer had rightly taxed his income under the head “Capital Gains”.

The respondent had no different or new material to take different view from the one taken by the AO and the reasons given by him to reopen the assessment and sustain the revision are totally unacceptable. The respondent is not vested any power u/s.263 to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. The Tribunal had grossly erred in agreeing with the order of the respondent and in upholding it on grounds which have not been found in the show cause notice of the respondent, that too without considering the several issues of fact and law raised by the assessee in his written submissions and grounds of appeal. Both the respondent and the Tribunal have based their orders on preconceived notions, conjunctures and surmises, manifestly misread the facts and twisted them to justify their conclusions.

Thus the order of the AO dated 16.12.2008 for the A.Y.2006-07 accepting the assessee to be an Investor and holding that the income chargeable from sale of shares and units of Mutual Funds was chargeable under the head “Capital Gains”is restored.