TMI Blog2014 (2) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 143(3) of the Act. The notice dated 28 March2013 under Section 148 of the Act seeking to reopen the assessment for A.Y.2008-09 and the order dated 20 November 2013 rejecting the petitioner's objection to reopen the assessment for A.Y. 2008-09 are not sustainable in law - The entire proceeding for reopening the assessment for A.Y. 2008-09 had emanated only on account of change of opinion on the part of the Assessing Officer – thus, the assessment order set aside - there was no reason for the Assessing Officer to have had a reasonable belief that income chargeable to tax has escaped assessment –thus, the Notice issued u/s 148 of the Act also set aside – Decided in favour of Assessee. - Writ Petition No. 137 of 2014 - - - Dated:- 11-2-2014 - Mohit S. Shah, C.J. And M. S. Sanklecha,JJ. For the Petitioner : Mr. Percy Pardiwala, Senior Advocate along with Mr. Atul K. Jasani For the Respondents : Mr. P. C. Chhotaray JUDGMENT (Per M. S. Sanklecha, J.): Rule, returnable forthwith. By consent of the parties the petition is taken up for final disposal. 2) By this petition under Article 226 of the Constitution of India, the petitioner challenges the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessment order dated 19 December 2013. 5) Mr. Chhotaray, the learned Counsel for the revenue on being confronted with the decision of this Court in Asian Paints (supra) submits that the aforesaid decision was not brought to the notice of the Assessing Officer. Therefore, not being aware of the decision of Asian Paints (supra) the Assessing Officer proceeded further in taking up the reassessment even though the period of four weeks from the date of the order dated 20 November 2013 over ruling the petitioner's objection had not expired. At this stage, we asked Mr. Chhotaray whether the Assessing Officer would withdraw his assessment order dated 19 December 2013 in view of the decision of Asian Paints (supra) being brought to his notice. However, Mr. Chhotaray expressed inability to withdraw the assessment order dated 19 December 2013. 6) It is axiomatic that the law declared by this Court is binding on all authorities functioning within the jurisdiction of this Court. It is not open to the Assessing Officer to feign ignorance of the law declared by this Court and pass orders in defiance of the law laid down by this Court. We do not accept this submission made on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of the balance sheet, Profit and Loss Account, Computation of income and Audit report. On 27 August 2009, the petitioner filed particulars asked for and attended the hearing with the Assessing Officer on 28 August 2009. c) During the course of the assessment proceedings, certain details were sought for from the petitioner particularly a note on the nature of its activities. By its letter dated 9 July 2010 the petitioner pointed out that it was engaged in the business of financing, trading and investment in shares and securities. d) In response to a query made by the Assessing Officer during the hearing in course of assessment proceedings, the petitioner by communication dated 8 September 2010 explained in detail as to why its profit on sale of investments should be taxed as capital gain and not as profits and gains of business. In support reliance was placed upon the CBDT Circular No.4/2007 dated 15 June 2007 wherein parameters have been laid down for the purpose of making a distinction between shares held as investment and shares held as stock in trade. Further by communication dated 13 September 2010, the petitioner furnished sample contract notes, Demat Accounts and shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the notice was beyond 4 years from the end of the relevant assessment year. It was also pointed out that the very issue viz. of assessing gains arising from sale/ purchase of shares was assessable as capital gain or business profit had been examined by the Assessing Officer during the course of assessment. This was evident from the petitioner's letter dated 8 September 2010 to the Assessing Officer during the assessment proceeding leading to the assessment order dated 12 October 2010. In view of the above, it was submitted that the reopening is only on the basis of change of opinion as there is no fresh tangible material which would warrant reopening of concluded assessment even within a period of 4 years from the end of the relevant assessment year. h) On 20 November 2013, the Assessing officer passed an order (received by petitioner on 22 November 2013) titled order removing objections holding that reopening of the assessments by notice dated 28 March 2013 was valid. The order dated 20 November 2013 holds that 'reopening is not due to any change of opinion but on clear observation that the assessee did not carry out any business activity other than Share Trading'. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off would be permissible of the capital loss against business profits and no tax would be payable. In the above circumstances, it was submitted that purchase/sale of shares as investments was to be taxed under the head 'capital gain' alone on the principle of consistency as held by this Court in CIT v/s. Gopal Purohit (2011) 336 ITR 287. 10) As against the above, Mr. Chhotaray, learned Counsel appearing for the respondent revenue in support of the impugned notice dated 28 March 2013 and the impugned order dated 19 November 2013 submits as under:- a) The issue whether income received on account of sale of shares is chargeable to tax as business income or not was not a subject matter of consideration during the assessment proceedings leading to the order dated 12 October 2010 in respect of A.Y. 2008-09. This is evident from the fact that the assessment order dated 12 October 2010 does not even advert to this issue. In the circumstances, as this issue is being considered for the first time, no question of change of opinion on the part of the Assessing Officer can arise. It was submitted that during the original assessment proceedings leading to order dated 12 October 2010, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of reason to believe that income chargeable to tax has escaped assessment and the reason for issuing a notice to reopen are recorded before issuing a notice. However, there is one additional jurisdictional requirement to be satisfied while seeking to reopen the assessment beyond the period of 4 years from the end of the relevant assessment year viz. that there must have been a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. Thus the primary requirement to reopen any assessment is a reason to believe that income chargeable to tax has escaped assessment. However, as observed by the Supreme Court in the case of CIT vs. Kelvinator India Limited 320 ITR 561 in the context of Sections 147/148 of the Act that reason to believe found therein does not give arbitrary powers to reopen an assessment. The concept of change of opinion is excluded/omitted from the words reason to believe. Thus a change of opinion would not be reason to believe that income chargeable to tax has escaped assessment. Besides the power to reassess is not a power to review. Further reopening must be on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a notice within a period of four years from the end of the relevant assessment year. Therefore, in such a case the test of failure to disclose truly and fully all material facts necessary for assessment during the original assessment proceedings does not arise for consideration. In the present facts the notice to reopen the assessment for A.Y. 2008-09 was issued on 28 March 2013 and the reasons seeking to reopen the assessment is that the petitioner had so written/ manipulated its account that the normal business profits in share trading was claimed as short term capital gain so as to attract the lower rate of tax. 14) We find that during the assessment proceedings the petitioner had by a letter dated 9 July 2010 pointed out that they were engaged in the business of financing trading and investment in shares and securities. Further, by a letter dated 8 September 2010 during the course of assessment proceedings on a specific query made by the Assessing Officer, the petitioner has disclosed in detail as to why its profit on sale of investments should not be taxed as business profits but charged to tax under the head capital gain. In support of its contention the petitioner had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. 15) It was contended by Mr. Chhotaray appearing for the revenue that this is not a case of change of opinion as the reopening is based on fresh tangible material namely audit report furnished by the internal audit department of the revenue. This material viz. audit report dated 29 September 2011 could never have been considered by the Assessing Officer while passing his assessment order dated 12 October 2010. We find that neither the reasons furnished to the petitioner disclose the material obtained from the audit report of the internal audit department of the revenue as the basis for reopening assessment nor the order dated 20 November 2013 rejecting the petitioner's objection state that the ground for reopening is the tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September 2010 had supplied the Assessing officer with sample of contract note, Demet account statement and also share holding pattern of the companies to whom the loans were advanced. It therefore, follows that grounds for rejecting the petitioner's objection to reopen the assessment are contrary to the facts on record and therefore, cannot be sustained. 18) It was also urged by the petitioner that for the earlier assessment year as well as subsequent assessment year the petitioner has been treated as investor in shares and not as trader. This would be a submission on merits of the matter and normally would not have been dealt with it in a challenge to reopening of assessment. However, we are considering the same as the peculiar facts of this case would indicate the absence of reason to believe that income has escaped assessment. This is so, as much after the objection of the internal audit dated 29 September 2011 the Assessing Officer while passing the assessment order dated 25 November 2011 for A.Y.200910 had treated the petitioner's loss on sale of shares as loss on investment and classified it as short term capital loss and not as business loss. This was only because the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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