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BHARAT JAYANTILAL PATEL Versus UNION OF INDIA AND OTHERS

2015 (5) TMI 950 - BOMBAY HIGH COURT

Reopening of assessment - capital gains earned by the assessee should be assessed as such or as business income - Held that:- The legal position has been summarised that the capital gains earned by the assessee should be assessed as such and not as business income. Thus, each of the queries which have been raised came to be replied and, then, there is a further communication on December 11, 2009, under which the petitioner furnished the details of profits on share credit and calculated in the ma .....

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duly considered. The issue of disallowance under section 40(a)(ia) of the Income-tax Act has been dealt with from paragraph 6.1 onwards. In the circumstances, we do not find as to on what basis the assessment could have been reopened. If not only the main contention and stand of the assessee has been dealt with but even the alternate contention and there is a reference to all the details which were supplied, then there was no reason at all for reopening the assessment. We have also been shown t .....

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o quash and set aside the impugned notice and the assessment order following the same. - Decided in favour of assessee. - Writ Petition (L.) No. 1044 of 2015. - Dated:- 5-5-2015 - S. C. DHARMADHIKARI and A. K. MENON, JJ. Percy Pardiwalla, Senior Advocate, Ms. Aarti Sathe, Kalpesh Turalkar, Nikhil J. and Ashish Rao,instructed by M and M Legal Ventures, for the petitioner. A. K. Malhotra with N. A. Kazi for the respondents. JUDGMENT 1. Rule. The respondents waive service. By consent heard finally. .....

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e trading and investment in the name and style depicted in the cause title of these petitions. The petitioner is a member of the Bombay Stock Exchange. He carries on transactions in shares on behalf of his clients on which he receives brokerage that constitutes his income. In similar manner, he functions as a sub-broker on the National Stock Exchange. The petitioner has carried on share trading and speculation in shares from which activities, he has earned share trading profits and speculation p .....

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crutiny and a notice under section 142(2) of the Income- tax Act dated August 25, 2008, was issued. The petitioner appeared and filed all the requisite details required by the third respondent. 6. By another notice dated August 12, 2009, the Assessing Officer sought details and on the points which have been set out in paragraph 5 of the writ petition. Annexure B is the copy of this notice issued by respondent No. 3. 7. The petitioner has set out as to how the notices were complied with and the t .....

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ed long- term capital gains and short-term capital gains in sums mentioned in paragraph 8 of the writ petition. The petitioner pointed out as to how these amounts were offered to tax. Thus, there was a series of letters prior to the assessment order dated December 14, 2009, under which the petitioner's income was determined at ₹ 4,45,57,283. There were certain disallowances made. However, the treatment of the gains arising to the petitioner and the shares held by him by way of investme .....

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s notice and the same purports to reopen the assessment and for the reasons recorded by the Assessing Officer. 10. On receipt of this notice, the petitioner filed a letter dated April 28, 2014, and submitted that the return of income filed by the petitioner earlier be treated as return of income in pursuance of the notice under section 148 of the Income-tax Act and at the same time, the reasons recorded for reopening the assessment be supplied to the petitioner. Annexure I to the writ petition i .....

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ished are inadequate and do not meet the statutory requirements. The petitioner pointed out that respondent No. 3 was duty bound to dispose of the objections by a speaking order. This was pointed out by the petitioner by letter dated December 8, 2014, a copy of which is at annexure M. The petitioner complains that by a communication dated March 5, 2015, the objections raised by the petitioner came to be rejected and without any speaking order. Annexure N is a copy of this communication from resp .....

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t the said order not being in conformity with the law laid down by this court in the case of Aroni Commercials Ltd. v. Deputy CIT in Writ Petition No. 137 of 2014, decided on February 11, 2014-since reported in [2014] 362 ITR 403 (Bom). Thirdly, it is urged that notice purportedly issued and invoking section 147 of the Income-tax Act does not satisfy the statutory requirements. The pre-conditions for reopening the assessment are that the Assessing Officer must have reason to believe that income .....

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ed at the time of the assessment order under section 143(3) of the Income-tax Act. The petitioner's income has not escaped any assessment. The declared long-term capital gains and short-term capital gains earned on the sale of shares have been fully set out and disclosed. They form part of the order passed by the Assessing Officer as well. In the circumstances, when all requisite details were furnished, explanation offered in respect of this assessment and the earning of share income by way .....

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by this court in Aroni Commercials Ltd. (supra). There as well the Assessing Officer without waiting for the period of four weeks had chosen to pass an assessment order. That assessment order was, therefore, completely ignored by the Division Bench and it proceeded to test the validity and legality of the notice. 17. On the legality and validity of the notice, Mr. Pardiwalla points out that there is a Circular No. 4 of 2007, dated June 15, 2007, issued by the Revenue. That is on the subject of .....

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such income should be dealt with by the Assessing Officer is set out in this circular, according to Mr. Pardiwalla. Mr. Pardiwalla also submits that the reopening of the assessment is not permissible merely because of a change of opinion. He would submit that the reasons furnished completely ignore the fact that how the income has been dealt with in the assessment order and if it is dealt with and discussed in a particular manner, then, revisiting that conclusion or decision is not permissible. .....

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e of more than one lakh rupees chargeable to tax has escaped assessment in the case of the assessee for the assessment year 2007-08. Further, what are the material facts and relevant to the assessment which are not fully and truly disclosed have not been set out in the impugned notice. He, therefore, submits that the notice be quashed and set aside. 18. On the other hand, it has been pointed out by Mr. Malhotra that the petitioner is a trader and not an investor. If this court was to entertain t .....

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ier/original assessment order under sub-section (3) of section 143 of the Income-tax Act was passed on December 14, 2009. The notice under section 148 of the Income-tax Act is dated March 29, 2014. The petitioner by a letter addressed to the Assessing Officer sought reasons for reopening the assessment and the reasons recorded were supplied/furnished along with a communication dated August 20, 2014. 20. The reasons recorded would be referred a little later. 21. For the first contention of Mr. Pa .....

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ed to by him. The petitioner specifically requested the Assessing Officer not to proceed with the scheduled hearing till the objections raised to the reasons have been disposed of by a speaking order. 22. On March 5, 2015, a communication was addressed to the petitioner which purported to reject his objections. The objections have not been referred to in detail but what has been stated is that the case has not been reopened merely on the basis of a change of opinion. The fact that came to light .....

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objections and which is required by the law laid down in the case of GKN Driveshafts (India) Ltd. v. ITO reported in [2003] 259 ITR 19 (SC) and Asian Paints Ltd. v. Deputy CIT reported in [2009] 308 ITR 195 (Bom). The petitioner specifically invited the attention of the Assessing Officer to the directions in the case of Asian Paints (supra) and to the effect that if the Assessing Officer does not accept the objections to the reopening of the assessment or the reasons recorded, he shall not proc .....

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mmercials Ltd. (supra), the impugned assessment order has been passed, that is, dated March 27, 2015. That is clearly within the period of four weeks from March 5, 2015. The first contention of Mr. Pardiwalla, therefore, deserves acceptance as nothing contrary to the same has been placed before us. 24. However, we will not rest our conclusion only on the first contention. Suffice it to state that we have observed and held that the first contention deserves acceptance only to hold that we are not .....

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14. Therefore, the requirement in law is that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for the relevant assessment year and in this case on account of failure of the assessee-petitioner to disclose fully and truly all material facts necessary for the assessment for that assessment year. Thus, the argument is that the assessment cannot be reopened on a mere change of opinion. We find, in the present case, that the reasons for reope .....

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use property, income from business or profession, income from speculation business and income from long-term capital gains and income from short-term capital gains and income from other sources was set out. The reasons furnished to the petitioner and in support of the reopening of the assessment refer to the figures. The reasons conclude that the assessee is earning from business or profession. He has also earned income from the capital gains. The petitioner-assessee was investor or trader but h .....

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e of purchase and sale and the ratio between purchase and sale, the holding of share is taken as a price to determine the nature of transaction. All these aspects and which have been set out in the reasons disclose that the Revenue intends to revisit the conclusion in the assessment order. They are also sought to be revisited, without reference to the order passed by the Commissioner of Income-tax (Appeals) on September 27, 2010. That may be an appeal preferred by the petitioner-assessee aggriev .....

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clear change of opinion on the part of the respondents. Nothing prevented the Assessing Officer from treating the income and in the manner suggested in these reasons. The reasons recorded do not indicate as to what aspects of the case could not be examined or were not examined for failure on the part of the assessee to fully and truly disclose material facts relevant to the assessment and for the assessment year concerned. In that regard, Mr. Pardiwalla has rightly placed reliance upon the prov .....

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e stock valuation methods. Then, the petitioner complied with this on August 24, 2009, and produced the tax audit report, balance-sheet, profit and loss account along with schedules, TDS certificates and copy of tax payment challans. 26. On October 12, 2009, the petitioner pointed out the details of the office and residential address. The petitioner has also invited the attention of the Assessing Officer to the nature of his business and income that he earned. At page 41 of the paper book and at .....

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t made to persons specified under section 40A(2a)(b) of the Income-tax Act are given in annexure D the auditor's report, stock details were also furnished. The petitioner also pointed out as to how the investment in shares has been made for which he received dividend and capital gain income. What we find and further material for our purpose is the details which have been forwarded on November 6, 2009, along with the letter annexure E, page 43. There the petitioner explained the details of th .....

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order. Our attention has also been invited to pages 45 and 46 of the paper-book, particularly a response to the queries of the Assessing Officer as to why the income from the assessment could not be treated as business income. In that regard, the petitioner replied as under : "With reference to your honour's query as to why income from investment should not be treated as 'business income', we are to sub mit that the assessee has not taken any loans whatsoever for making investme .....

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al gain." 27. We find similar response at item Nos.13.3, 13.4, so also 13.5. The legal position has been summarised that the capital gains earned by the assessee should be assessed as such and not as business income. Thus, each of the queries which have been raised came to be replied and, then, there is a further communication on December 11, 2009, under which the petitioner furnished the details of profits on share credit and calculated in the manner set out in this communication. The shar .....

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