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2016 (5) TMI 404 - ITAT KOLKATA

2016 (5) TMI 404 - ITAT KOLKATA - TMI - Reopening of assessment - income from speculation - Held that:- Learned AO had duly applied his mind on the impugned issue on the taxability of share trading profits as ‘income from speculation’. To this extent, the reasoning given by the Learned CIT(A) for upholding the validity of reassessment is not justified. We also hold that the Learned AO by his judicial behaviour in the original assessment proceedings u/s 143(3) of the Act had indeed formed an opin .....

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stitute new information. Hence subsequent action on the part of the Learned AO in reopening the assessment based on the same materials available on record would only amount to re-appreciation of existing facts already on record which would amount to review and would only tantamount to change of opinion.

Moreover we find that the proviso to section 147 of the Act would come into play in the facts of the instant case as admittedly the reopening is done after the end of 4 years from the .....

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ri M. Balaganesh, Accountant Member, and Shri S.S.Viswanethra Ravi, Judicial Member For The Appellant : Shri Rajat Kr. Kureel. JCIT, ld.Sr.AR For The Respondent : Shri D.S.Damle, FCA, ld.AR ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A), VIII, Kolkata in Appeal No. 225/CIT(A)-VIII/Kol/10-11 dated 14-12-2012 against the order of assessment framed for the Asst Year 2004-05 u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the A .....

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the assessee has preferred petition under Rule 27 of ITAT Rules in respect of ground decided against him by the Learned CIT(A). Accordingly we admit the petition under Rule 27 of the ITAT Rules on the legal validity of reassessment proceedings and proceed to adjudicate the same at the first instance before going into the merits of the addition. 3. The brief facts of the issue is that the assessee filed its return of income on 30.10.2004 for the Asst Year 2004-05 disclosing total income of ₹ .....

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reasons :- It was observed that the assessee had earned income from shares division and exports division during the period and has set off the B/F speculation loss with the normal business profit. The details of income / credits made in the profit & loss account in respect of shares division are as under: (i) Sales : ₹ 11,79,27,664/- (ii) Closing Stock : Mutual Fund : ₹ 2,72,06,433/- Shares : ₹ 1,25,65,881/- ₹ 3,97,72,314/- (iii) Profit from Derivative Trading : ͅ .....

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e transaction has been defined in section 43(5) and the assessee s aforementioned business transactions are obviously not covered in section 43(5). Thus the assessee has claimed profit earned in the normal business of share trading, as speculative profit under deeming provision of explanation to section 73 of the Act. However, Section 73 of the Act deals only with losses in speculation business. Needless to say, explanation to Section 73 also deals with losses in the share trading business. The .....

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arned CIT(A) upheld the validity of reassessment proceedings on the ground that the issue with regard to the profits derived from share trading is speculative in nature or not, was not considered by the Learned AO in the original assessment and hence it does not tantamount to formation of any opinion on the part of the Learned AO and consequently there is no question of any change of opinion. 6. The Learned AR placed the copy of the scrutiny assessment order framed u/s 143(3) of the Act dated 26 .....

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23 for A.Yr. 2003-04 is allowed to carry forward as per law) INCOME FROM OTHER SOURCES : ₹ 33,657/- Gross Total Income ₹ 9,62,636/- Less: Deduction u/s 80HHC ₹ 2,54,570/- Assessed Total Income ₹ 7,08,066/- Rounded off to ₹ 7,08,070/- Assessed u/s 143(3) as above. 6.1. The Learned AR argued that from the above assessment order it could be easily concluded that the Learned AO had duly applied his mind with regard to the taxing of profit from trading of shares as specu .....

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d that reopening the assessment on this ground would only amount to re-appreciation of existing materials available on record which would amount to review of the order , which is not permissible as per law. Further there was no tangible material that has come into the possession of the Learned AO after the completion of the scrutiny assessment u/s 143(3) of the Act to prove that the income has escaped assessment within the meaning of section 147 of the Act. He further argued that since the asses .....

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1 (SC) and the decision of the Hon ble Delhi High Court in the case of CIT vs Orient Craft Ltd reported in 29 taxmann.com 392 (Del), in support of his proposition. In response to this, the Learned DR relied on the order of the Learned AO. 7. We have heard the rival submissions. It is seen that in original scrutiny assessment, the Learned AO had duly applied his mind by concluding that the profit from trading of shares is speculative in nature and he had taxed the same as Income from Speculation .....

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To this extent, the reasoning given by the Learned CIT(A) for upholding the validity of reassessment is not justified. We also hold that the Learned AO by his judicial behaviour in the original assessment proceedings u/s 143(3) of the Act had indeed formed an opinion on proper application of mind. We also agree with the arguments of the Learned AR that there is no fresh tangible material available with the Learned AO to justify the impugned action of resorting to reopen the assessment. We hold t .....

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uld amount to review and would only tantamount to change of opinion. Moreover we find that the proviso to section 147 of the Act would come into play in the facts of the instant case as admittedly the reopening is done after the end of 4 years from the end of the relevant assessment year. Then it is the duty of the Learned AO to prove as per the proviso that the reopening is warranted due to failure on the part of the assessee by not making full and true disclosure of material facts necessary fo .....

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o review an earlier opinion. Hence, the condition precedent for exercising power for initiating proceeding u/s 147 of the Act is to make a reference to tangible material in the reasons recorded u/s 148(2) of the act. 7.1. It is pertinent to go into the various judicial decisions on the impugned subject:- a. In CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) [affirming CIT vs. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) (FB)] J. Kapadia held that the concept of change of opinion mu .....

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ep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfillment of certain preconditions and if the concept of change of opinion is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the .....

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expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer." The Delhi High Court in CIT vs. Kelvinator of India Limited [2002] 256 ITR 1 (Del.) [decision affirmed by the Supreme Court in [2010] 320 ITR 561 (SC)] held that if two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the ITO exercises his jurisdiction f .....

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ing the power under section 147 read with section 148 of the Act. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Ev .....

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ered by the Jurisdictional Calcutta High Court, it was held that where there was no new material or information which came to the knowledge of the AO to re-initiate proceedings and since he had derived the facts and materials placed by the assessee himself during the original assessment proceedings , that did not constitute new information. When on the same set of facts and materials Assessing Officer takes bonafide decision, it is not open for the subsequent officer to reopen the same just beca .....

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under :- Leave granted. We have heard counsel on both sides. The assessee had disclosed full details in the Return of Income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the assessing officer vide his order dated 23.6.2006, is clearly a change of opinion. In the circu .....

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er section 147 if the Assessing Officer has 'reason to believe' that income chargeable to tax has escaped assessment, is sound. It is true that no assessment order is passed when the return is merely processed under section 143(1) and an intimation to that effect is sent to the assessee. However, it has been recognized by the Supreme Court itself in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 / 161 Taxman 316 (SC), that even where proceedings under section 147 .....

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8] In absence of any tangible material, there will be a review in guise of reopening • In CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312 / 320 ITR 561 (SC), it was observed that after 1-4-1989 the Assessing Officer has power to reopen provided there is 'tangible material' to come to the conclusion that there is escapement of income. The judgment has laid emphasis on two more aspects: that there can be no review of an assessment in the guise of reopening and that a bare revie .....

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timation issued under section 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words 'reason to believe' vis-a-vis section 143(1) and section 143(3). [Par 13] • An assessee in whose case the return was processed under section 143(1) cannot be placed in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under section 143(3). Whether the return is put to scrutiny or is accepted without .....

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39;reason to believe ' in cases where assessments were framed earlier under section 143(3) and cases where mere intimations were issued earlier under section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. [Para 13] • The Supreme Court in Rajesh Jhaveri Stock brokers (P.) Ltd.'s case (supra) has held that the strict requirements of section 147 can be compromised. On the .....

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tandards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of change of opinion is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the .....

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