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2015 (9) TMI 757 - HC - Income TaxReopening of assessment - Addition on account of income arising on sale of investments - disallowance of claim for “Investments Written Off” - Whether ITAT was correct in law in holding that the income earned on sale/redemption of investment is chargeable to tax? - Held that:- It is not disputed that the reasons that led the AO to reopen the assessment were factually incorrect. It is not disputed that the Assessee was carrying on only one business - General Insurance Business, which is regulated under The Insurance Act, 1938. Indisputably, the insurers cannot carry on any business other than the insurance business or any prescribed business. The business of General Insurance is regulated and there is no allegation that the regulatory authority has found the Assessee to be in default of any provisions of The Insurance Act, 1938. The learned counsel for the Revenue also did not dispute that the AO’s assumption that the Assessee was carrying on two streams of business was incorrect. Thus, this reason to believe that the Assessee’s income had escaped assessment is clearly without any factual basis. The assumption that the Assessee had not credited the profits in question to the Profit and Loss Account is also, admittedly, factually incorrect. Thus, the reasons which led the AO to form a belief that income of the Assessee had escaped assessment are admittedly based on palpably incorrect assumptions. It is well established that reasons to believe that income had escaped assessment is a necessary precondition for the AO to assume jurisdiction.There was no basis for the AO to assume that the Assessee had not credited the profits from the sale of investments, which are alleged to have escaped assessment in its Profit and Loss account. It cannot be disputed that the exemption claimed by the AO in respect of the profit on sale/redemption of investments was duly disclosed and the AO had also opined on the merits of the taxability of profits on sale/redemption of investments. The income from profit on sale/redemption of investments is now sought to be taxed as income which had escaped assessment. This, in our view, clearly represents a change in the opinion with regard to the taxability of the income in question. It is well settled that the power under Section 147 of the Act is not a power of review but a power to reassess. Permitting reopening of assessment on a change of opinion as to the taxability of the income of the Assessee is, thus, outside the scope of Section 147 of the Act. We find considerable merit in the contention of the Assessee that the AO did not have the jurisdiction to tax the profits and gains from sale/realization of investments under Section 147 of the Act - Decided in favour of assessee.
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