TMI Blog2015 (7) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer was not disputed at any stage of the proceedings It was on the basis of the assessment for the year 2008-09 that the assessment for the year 2006-07 was re-opened and the same standard has been applied in respect of the assessment for 2010-11 also These findings, the factual correctness of which has been concurrently confirmed by the first appellate authority and the Tribunal, when appreciated in the light of the principles laid down by the Apex Court in Commissioner of Income Tax, Nagpur v Sutlej Cotton Mills Supply Agency Ltd [1975 (7) TMI 2 - SUPREME Court], only leads to the conclusion that the assessee was engaged in trading in shares and was not holding the shares as stock-in-trade to contend that the accretions are only capital gains. In such circumstances, the questions of law raised will have to be answered in favour of the Revenue - I.T.A.Nos.267, 274 & 280 of 2014 - - - Dated:- 3-7-2015 - ANTONY DOMINIC AND SHAJI P. CHALY, JJ. For The Appellant : SRI.JOSEPH MARKOSE (SR.), SRI.V.ABRAHAM MARKOS, SRI.BINU MATHEW, SRI.TOM THOMAS (KAKKUZHIYIL), SRI.ABRAHAM JOSEPH MARKOS, SRI.ISAAC THOMAS AND SRI.NOBY THOMAS CYRIAC For The Respondent : SRI.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case and in the light of the Department having accepted the assessment of similar income under the head capital gains for earlier Assessment Years and intervening Assessment Years, the assessment under the head income from business for this Assessment Year is justified? (5) Whether the Appellate Tribunal is right in law in disregarding the decisions of various High Courts including the jurisdictional High Court which were relied on at the time of hearing, without a speaking order as to why they are not followed. 4.We heard the senior counsel for the appellant and the learned senior standing counsel appearing for the Revenue. 5.According to the learned senior counsel, the re- opening of the assessment for the year 2006-07, invoking the power under section 147 of the Act, is illegal He also contended that the grounds contemplated for re-opening an assessment under section 147 are not existing in this case According to him, the assessee has been in the business since the assessment year 2002-03 and that till 2006-07, the income derived by the assessee from the sale and purchase of shares was accepted by the Department as capital gains and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment The word reason in the phrase reason to believe would mean cause or justification If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers As observed by the Supreme Court in Central Provinces Manganese Ore Co Ltd v ITO [1991 (191) ITR 662], for initiation of action under Section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential At that stage, the final outcome of the proceeding is not relevant In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re change of opinion which may not be, per se, reason to re-open Accordingly, the Apex Court held thus: ..However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, s.147 would give arbitrary powers to the AO to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen We must also keep in mind the conceptual difference between power to review and power to reassess The AO has no power to review; he has the power to reassess But reassessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the grab of reopening the assessment, review would take place One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the AO Hence, after 1st April, 1989, AO has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment Reasons must have a live link with the formation of the belief Our view gets support from the changes made to s.147 of the Act, as quoted hereinabove Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option, but did not take recourse to section 263 of the Act, in spite of audit objection Supervisory and revisionary power under Section 263 of the Act is available, if an order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue An erroneous order contrary to law that has caused prejudiced can be correct, when jurisdiction under Section 263 is invoked. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 of the Act is available and should be resorted to But initiation of reassessment proceedings will be invalid on the ground of change of opinion. 11.From the principles laid down in the above judgments, it can be seen that the power under section 147 of the Act can be invoked by the Assessing Officer, if, on the materials available before him, he has reason to believe that any income chargeable to tax has escaped assessment in any assessment year, provided such proceedings are not barred by the time limit prescribed in the first proviso to the said section The requirement that the Assessing Officer must have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year in which the return is made. 12.The scope of this provision was considered by the Apex Court in its judgment in Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers P Ltd (supra), where it was held thus: It is to be noted that substantial changes have been made to Section 143(1) with effect from June 1, 1999 Up to March 31, 1989, after a return of income was filed the Assessing Officer could make an assessment under Section 143(1) without requiring the presence of the assessee or the production by him of any evidence in support of the return Where the assessee objected to such an assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under Section 143(1), but wanted to make an inquiry, a notice under Section 143(2) was required to be issued to the assesse requiring him to produce evidence in support of his return After considering the material and evidence produced and after making necessary inquiries, the officer had power to make assessment under Section 143(3) With effect from April 1, 1989, the provisions underwent substantial and material changes A new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer completed the assessment under section 143(3) for the year 2008-09 by his order dated 30.12.2010 In that order, the income earned by the assessee in the purchase and sale of shares as capital gains, was treated as business income and was taxed It was thereafter that proceedings under section 147 were initiated with respect to the assessment year 2006-07 and assessment was completed under section 143(3) by order dated 15.12.2011 The question that is required to be considered is whether the reopening of assessment is based on the mere change of opinion of the Assessing Officer as contended by the counsel for the appellant 14.In our view, the aforesaid contention cannot be accepted Law mandates that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment for any assessment year to invoke the power to re-open assessments under section 147 Admittedly, assessments for the year 2006-07 were completed treating the income in question as capital gains Once the assessment for the year 2008-09 was completed and the income for that year was assessed as business income, the Assessing Officer had sufficient materials to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years when the assessee had returned profit Though this contention would appear to be attractive, a closer examination thereof would show that there is no substance in it Admittedly, for the assessment years 2007-08 and 2009-2010, the assessee had returned loss The assessment for such years were also completed under section 143(1) Re-opening of those assessments is permissible only under section 147 and power under that section could be invoked only if any income chargeable to tax has escaped assessment Here, in the instant case, the assessee has returned loss and therefore, no income chargeable to tax has escaped assessment, permitting invocation of the power under this provision 17.Similar is the case with the revisional power of the Commissioner under section 263, which also can be invoked only if any order passed is prejudicial to the interest of the Revenue Such being the case, the assessee cannot be heard to complain that the Revenue has adopted a pick and choose method in the matter of assessment for the years in question 18.The main question that arises for consideration is regarding the legality of assessment treating the income for the years in question as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in the nature of trade or not It has been said that a single plunge may be enough provided it is shown to the satisfaction of the court that the plunge is made in the waters of the trade; but mere purchase/sale of shares-if that is all that is involved in the plunge-may fall short of anything in the nature of trade Whether it is in the nature of trade will depend on the facts and circumstances Where the purchase of any article or of any capital investment, for instance, shares, is made without the intention to resell at a profit, a resale under changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character (see Commissioner of Income-tax v P.K.N.Co.Ltd (1966) 60 ITR 65 (SC) Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale (see Jenkinson v Freedland [(1961) 39 TC 636 (CA)], Radha Debi Jalan v Commissioner of Income-tax [(1951) 20 ITR 176 (Cal)], India N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conduct of the assessee and other circumstances, point to the business character of the transaction. 20.We may, in this context, also refer to the judgment of the Apex Court in M/s.Rajputana Textiles (Agencies) Ltd v Commissioner of Income tax, Bombay City [42 ITR 743], where the contention that buying and selling in shares was not one of the objects of the company was rejected and the court held that this was only one of the circumstances in the totality of the circumstances which must be considered, though this by itself is not determinative of the question Again, in its judgment in Sutlej Cotton Mills Ltd v Commissioner of Income Tax, West Bengal [(1979) 116 ITR 1], the Apex Court held that the way in which entries are made by the assessee in its books of accounts is not determinative of the question whether the assessee has earned any profit or suffered any loss Therefore, even if it is accepted that the objects clause in the Memorandum of Association of the assessee did not provide for trading in shares and that in the accounts it was shown as investments, that by itself would not be determinative of the issue involved in these appeals 21.While the precedents that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing transactions or whether these were in the nature of investment was a question of law This is a mixed question of law and fact 7 The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the Assessing Officers 8 The Authority for Advance Rulings (AAR) [2007] 288 ITR 641, referring to the decisions of the Supreme Court in several cases, has culled out the following principles (page 651): (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in- trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock- in-trade (and therefore giving rise to business profits) The Assessing Officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade 12 These instructions shall supplement the earlier Instruction No.1827 dated August 31, 1989 22.Bearing the above in mind, we may now proceed to consider the facts that are available before us to decide whether the authorities were right in treating the sale of shares as business income as against capital gains The transactions during the assessment year 2008-09, as reflected in the order of the Tribunal, show that the assessee has traded in the shares of 45 companies Among the 45 companies, the maximum weighted holding period is in respect of 219,641 shares held by the assessee in M/s.JK Investo Trade and the minimum weighted holding period is in respect of 30000 shares of KITEX Garments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of M/s.JK Investo Trade held by the assessee, which has the maximum weighted holding period In so far as these shares are concerned, along with I.A.1518/15, the Revenue has produced before us the details of acquisition of these shares which show that the company acquired these shares over a period of time from 8.12.2005 to 1.12.2006 and sold these shares during the period from 4.4.2007 to 26.11.2007 This particular transaction has been discussed in the assessment order for the year 2008- 09, where the Assessing Officer has found thus: 16 In order to see whether the shares of JK Investo Trade Ltd was held by the assessee as an investment or as a prudent step to earn more income, the price value chart of the above said share for the period 1.12.2005 to 30.11.2007 was called for The papers presented by the assessee is annexed as Annexure B, C D The assessee started purchasing the share on 8.12.2005 and went on buying it continuously till 1.12.2006 It started selling it off in 4.4.2007 and sold off the entire shares by 26.11.2007 Now a look at the price value chart show that except for a rise for the period May, 2006 to August, 2006, the price of the share was almost stat ..... 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