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TMI Blog2014 (11) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... rial to conclude that there was escapement of income though it was recorded clearly by the AO that there was escapement of income and failure on the part of the assessee in disclosing the material facts. 3. The Hon'ble CIT(A) erred in holding that the assessee's dealing in shares is investment only, without identifying the fact that the assessee has been buying and selling shares and units of mutual funds throughout the year continuously and regularly through an organized, full time and day-to-day activity as also through day trading transactions. 4. The Hon'ble CIT(A) ought to have appreciated the fact that the nature of activity in purchasing and selling of shares pertaining to the AY 2005-06 is purely of business in nature. 5. The Hon'ble CIT(A) ought to have appreciated the fact that the order of Hon'ble High Court for the AY 2006-07 is based on the specific facts and transactions corresponding to that particular year and is not in tune with that for the AY 2005- 06. 6. The Hon'ble CIT(A) erred in applying the decision of the Hon'ble High Court order for the AQY 2005-06 without analyzing the nature of transactions. 7. Any other ground(s) that may be urged at the time of he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by assessee, AO observed that assessee was involved in repeated buying and selling of the same shares in respect of 62 companies. He also observed that assessee purchased and sold units of mutual funds of 82 companies. From this, he concluded that assessee is regularly in the activity of buying and selling of shares and units. He observed that facts and figures make it clear that assessee is not investor making investment with an intention of deriving dividend and the sole motive of assessee in selling and buying of shares and units is to make profit. For coming to such conclusion, he also referred to Director's report wherein it was stated as under: "In the directors report while reviewing the operations of the company director writes that "during the year, the market was upbeat and the sensex was at 6492.82 and Nifty at 2035.65 as on 31 March and as such your company's investment in shares and mutual funds have yielded good result. This shows that the main & sole operation of the company is tracking movement of sensex and accordingly buying and selling of shares." The AO noted that assessee has been regularly buying and selling shares and units of mutual funds on a very hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose. It was submitted by assessee that assessability or otherwise of gain from transactions in shares and units was discussed in detail both at the original assessment stage and during the consequential appeal proceedings, hence, initiation of reassessment proceeding, that too after expiry of four years from the end of the relevant AY, on a mere change of opinion is not valid in law. It was also submitted, at the time of reopening of assessment, AO must have in his possession tangible material on the basis of which escapement of income would be established. However, the reasons recorded by AO do not disclose any such fact and only relying on the observations of the CIT in order passed u/s 263 for the AY 2006-07, assessment was reopened. In course of hearing, it was submitted by assessee that not only at the time of recording of reasons, but, in the assessment order also, AO has heavily relied upon the finding of CIT in his order u/s 263 for AY 2006-07, which was confirmed by ITAT. However, Hon'ble High Court of AP, in judgment dated 21/02/12 in ITTA NO. 512 of 2011, had set aside the orders of ITAT as well as of CIT while accepting assessee's claim that income derived from sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 512 of 2011, dated 21/02/2013, these conclusions of the AO cannot be held to be valid. The observation in the Annual Report as a basis of conclusions about the nature of activities of the appellant has been commented upon by the High Court in the following words in the appellant's case for AY 2006-07: 'We are unable to understand how the respondent at para 5.13 infers from the name of the assessee i.e. Spectra Shares and Scrips Pvt. Ltd. and a statement in the Director's report for the year 2005-06 that 'during the year the market is upbeat and the directors were hopeful of good results' indicates that it is only doing trading activity as there is nothing in these circumstances to show that the assessee cannot be an investor.' 4.10 I, therefore, hold that the reasons recorded by the AO do not show presence of any tangible material to conclude that there was escapement of income." 8. So far as the merits of the issue as to whether the gain from share transactions and units of mutual funds to be treated as 'profits and gains of business or income from capital gain, learned CIT(A) observed that in para 9 of the reasons recorded for reopening the assessment, AO has referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 1998-99. The learned AR submitted even in AY 2011-12 also during the scrutiny assessment proceeding, AO proposed to treat the gain derived from share transaction in shares and units as business income. However, when the assessee brought relevant facts and explained why it is to be treated as income from capital gain, AO accepted assessee's submission and treated it as income from capital gain while completing assessment u/s 143(3). A copy of the said assessment order was also produced before the bench. Thus, it was submitted by learned AR that when the manner and mode of investment in transaction in shares and units remained consistent from the date of inception itself and which has been accepted by AO till the assessment order was revised for AY 2006-07 by CIT u/s 263 and even latest assessment order passed for AY 2011-12, there is no reason to reopen the assessment only for the purpose of assessing the income from transactions in shares and units as income from business or profession. 11. We have heard the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. The undisputed facts are, assessee is transacting in share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and units as investments and not trading activity in A.Y. 2006-07, the very foundation on which assessment was reopened do not survive. Therefore, the finding of the learned CIT(A) with regard to the validity of reopening u/s 147 has to be sustained. 12. So far as merits of the issue is concerned, a perusal of the assessment order would clearly reveal the fact that AO has treated the transaction in shares and units as a trading activity only on the consideration that they are very high in frequency and volume. Though, AO has observed that assessee has indulged in repetitive purchases and sales of the same scrip, but, he has not given a single instance where the same share purchased by assessee was sold either on the same day or within a short duration. Only, because assessee had frequently purchased and sold shares of the same company does not mean that the same share was sold. Further, the statement made in director's report in no way helps in coming to a conclusion that the share transactions are in the nature of trading activity and not investment. It is further to be noted that AO has also observed that the very name of the assessee company indicates that the activity in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that the assessee is a trader. (m) The fact that the assessee is making repetitive purchases and sales of same shares is a factor in favour of holding that the assessee is an investor in view of the amendments to section 10(38) and section 115JB of the Act. (n) The revenue had accepted that the assessee was an investor whose income is chargeable under the head capital gains for a number of years." Accordingly, the Hon'ble Jurisdictional High Court set aside the order of ITAT as well as that of CIT. It is very much evident from the reasons recorded as well as assessment order that only on the basis of the order passed in case of assessee for AY 2006-07, AO has concluded that income derived from transactions in shares and units should be assessed as income from business activity. As the Hon'ble AP High Court has upheld the assessee's claim for AY 2006-07 and the department has failed to bring any material before us to show that facts obtaining in the impugned assessment year are different from the facts considered by the Hon'ble AP High Court in AY 2006-07 or for that matter, the parameters laid down by the Hon'ble High Court in 2006-07 do not apply to the facts of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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