TMI Blog2014 (9) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment has held the reopening of the assessment as void ab-initio - there is no allegation by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment – thus, the reassessment proceedings are held as void - Decided against Revenue. - ITA No.1383/PN/2013 - - - Dated:- 30-5-2014 - R S Padvekar And R K Panda, JJ. For the Appellant : Shri Nikhil Pathak For the Respondent : Shri S P Walimbe ORDER:- PER : R K Panda This appeal filed by the Revenue is directed against the order dated 25-04-2013 of the CIT(A)-I, Nashik relating to Assessment Year 2005-06. 2. Facts of the case, in brief, are that the assessee is an individual engaged in the business of manufacturing and trading of Metal detectors and trading in derivatives of Equity shares and Commodities. The assessee filed his return of income on 03-10-2005 declaring income of ₹ 3,11,28,681/-. The Assessing Officer completed the assessment on a total of ₹ 3,13,58,681/- vide order passed u/s.143(3) dated 19-12-2007. In the said assessment the Assessing Officer made addition of ₹ 2 lakhs u/s.14A in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee as deduction out of short term capital gain on sale of shares. 3. Before the CIT(A) the assessee challenged the validity of the reopening of assessment u/s.148 as well as on merits. So far as the issue of validity of reopening of assessment is concerned, it was submitted that the Assessing Officer has reopened the assessment after the expiry of 4 years from the end of the relevant assessment year. The assessee had truly and fully disclosed all material facts necessary for completion of assessment in the return of income filed as well as during assessment proceedings. Therefore, in view of proviso to section 147 the assessment completed u/s.143(3) cannot be reopened after expiry of 4 years from the end of the relevant assessment year. Various case laws were also brought to the notice of the Ld.CIT(A) to the proposition that the Assessing Officer was not justified in reopening the assessment u/s.147 after the period of 4 years from the end of the relevant assessment year since the assessee had disclosed all material facts necessary for completion of the assessment and there was no failure or omission on the part of the assessee to disclose fully and truly all mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant has set off the said loss against short term capital gain of ₹ 14,44,429/- chargeable to tax @ 30%, short term capital gain on sale of debt funds chargeable to tax @ 30% and long term capital gain on sale of land chargeable, to tax @ 20%. The A.O. has himself stated in para 4.1 of the assessment order that loss under one head should be set off against similar head chargeable at similar rate of tax. Therefore the appellant is justified in setting off short term capital loss against short term capital gain of the current year chargeable to tax @ 30%. 5.2.1 The appellant is also justified in setting off brought forward loss under the head short term capital gain against the long term capital gain of the current year in view of provisions of section 74 of the Act.. The relevant portion of the section 74 is reproduced below: 74(1) Where in respect of any assessment year, the net result of the computation under the head Capital Gains is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year and (a) in so far as such loss relates to a short term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3 I have carefully considered the facts of the case and rival contentions. The fact that all the material facts were disclosed to the A.O. during original assessment proceedings is evident from the audit objection and reason for reopening stated by the A.O. The computation of income filed with the return and submission in assessment proceeding has resulted into full and true disclosure by the assessee. In this regard the provisions of section 147 and proviso the section 147 are relevant and hence reproduced below : 147 If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income arid also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-I, Nashik was justified in deleting the addition of ₹ 7,49,059/- made on account of disallowing the portfolio charges including demat account charges and subscription charges. 3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-I, Nashik was justified to held that the notice issued u/s.148 and subsequent re-assessment u/s.147 of the Income Tax Act, 1961 are invalid and void ab-initio. 4. The Appellant prays the order of the Assessing Officer may be restored . 7. The Ld. Departmental Representative heavily relied on the order of the Assessing Officer. He submitted that the decision of the Ld.CIT(A)-I, Nashik is not correct because the assessee had income from exactly similar head of income, i.e. short term capital loss chargeable at exactly same rate of tax. Inspite of this, the assessee had set off c/f short term capita loss of ₹ 62,15,117/- chargeable at 10% with short term capital gain chargeable at 30% and long term capital gain chargeable at 20%. He submitted that interpretation of section 74 r.w.s. 70 derives that the principle of law is well st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Esskay Engineering Company Ltd. Vs. CIT reported in 247 ITR 818 he submitted that when there is no discussion on the issue in the assessment order and no details were called for by the Assessing Officer or filed by the assessee on the issue and no findings either positive or negative arrived at during the course of original assessment proceedings, there is no question of change of opinion and the reassessment proceedings initiated by the Assessing Officer has to be treated as valid. He accordingly submitted that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. 9. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). Referring to page 2 of the paper book he drew the attention of the Bench to the computation statement for the impugned assessment year and submitted that the assessee had clearly stated in Item No.5 that the short term capital gains on sale of equity shares and funds from 01-04-2004 to 30-09-2004 at ₹ 14,44,429 which suffers tax @30% prevailing during that period. Similarly, the assessee had disclosed the short term capital profit on sale of debt funds at ₹ 7,23,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to tax ₹ 13,000 out of total income of ₹ 14,000. On the other hand, the assessee contends that the loss of ₹ 5,000 shall be set-off against the chargeable income of ₹ 13,000 and only ₹ 8,000 out of the total income of ₹ 14,000 be taxed in his hands. There is nothing in section 24(1) to indicate that a particular mode of setoff shall be followed. [In the absence of any such indication, the general rule to be followed in all fiscal enactments is that where words used are neutral in import, a construction most beneficial to the assessee should be adopted.] The words he shall be entitled to have the amount of loss setoff occurring in section 24(1), would seem to be consistent with the conferment of a benefit on the assessee which he can claim as of right. Hence, in the above illustration, the assessee's contention should prevail and the department should adopt that mode which will give the assessee the maximum benefit. 9.2 Referring to the decision of the Special Bench of the Tribunal in the case of JCIT Vs. Montgomery Emerging Markets Fund reported in 100 ITD 218 (Mum) (SB) he submitted that the Special Bench in the said decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment has held the reopening of the assessment as void ab-initio by observing as under : 7. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the original assessment in the instant case was completed u/s.143(3) on 18-12-2006 and the notice u/s.148 was issued on 05-04-2010. From the reasons recorded u/s.148, we find there is no allegation by the AO that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. From the copy of the annual audited accounts, we find the assessee in Schedule 19 - Depreciation and write off etc. has clearly disclosed Rolls and moulds etc. written off - ₹ 2,27,78,000/- treating the same as revenue expenditure. We find the Assessing Officer while reopening the case has relied on the assessment in the case of some other company na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment. Indeed, where the assessee has fully disclosed all the material facts, it is not open for the AO to reopen the assessment on the ground that there is a mistake in assessment. Moreover, it is necessary for the AO to first observe whether there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under s. 147. It must follow that where the AO does not record such a failure he would not be entitled to proceed under s. 147. As observed earlier, the AO has 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 is recorded is that the petitioner has wrongly claimed certain deductions which he was not entitled to. There is a well known 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 Assessing Officer would be entitled to proceed under s. 147. We are supported in this view by a decision of a Division Bench of this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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