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2016 (6) TMI 854 - GUJARAT HIGH COURT

2016 (6) TMI 854 - GUJARAT HIGH COURT - TMI - Reopening of assessment - capital gain v/s business income - Held that:- Assessing Officer was acutely conscious of the nature of transactions, the assessee's contention that the income was in the nature of capital gain and not business income. It was in this context that the assessee had claimed such expenditure for earning such income. Assessing Officer disallowed such expenditure while not disturbing the source of income disclosed by the assessee. .....

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: MR KM PARIKH, ADVOCATE FOR THE OPPONENT : MR B S SOPARKAR, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These appeals involve similar facts. We may record facts from Tax Appeal No.275/2016. Tax appeal pertains to assessment year 2004-2005. The Assessing Officer carried out scrutiny assessment of the return filed by the assessee. One of the claims was of capital gain arising out of sale of shares. In the context, the assessee had claimed various expenditures in the nature .....

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u/s. 143(3) on 31.12.2007 by the Addl. CIT, Range1, Baroda. It was observed by him that the assessee has shown huge income as short term capital gains and long term capital gains arising out of investments. These incomes were held to be income assessable under the head profits and gains of the business or profession to the tune of ₹ 16,54,53,272/- and thereby brought to the net of higher slab of the tax net. The perusal of the records for the year under consideration shows identical facts .....

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48 of the Act. 3. By the impugned judgement, the Tribunal held that the process of reopening was invalid on two grounds. First, that the Assessing Officer had examined the claim at length and that therefore, by virtue of judgement of the Supreme Court in case of CIT v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561, without there being anything more, reassessment would not be permissible. The second ground was that according to the Tribunal the issue was carried in appeal before the CIT .....

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the Assessing Officer in the original scrutiny assessment had examined at length the claim of the assessee in context of deduction of expenditure incurred by the assessee for earning such income. The Assessing Officer had proceeded on the basis that the income was in the nature of capital gains and thereupon proceeded to disallow the expenditure. This view was also upheld by CIT(Appeals) who confirmed the disallowance of expenditure. It would now not be open for the Revenue to take a different .....

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professional charges claimed by the assessee it is noticed that the assessee has claimed ₹ 60 lacs to Krishnadeep House Finance Development Ltd, Rs. l280000/- to Samar Singh Association. ₹ 219396/- to P.N.Vijay Financial Service Ltd and ₹ 919789/- to Kotak Securities Limited on account of professional services in the nature of investment portfolio, professional services pertaining to investment and portfolio, professional advisory services for equity investment and investment .....

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lacs. The funds of the appellant are invested in fixed assets, stocks, debtors, advances; inter corporate deposits, bank deposits, immovable properties, shares, mutual funds etc. Depending on exigencies and in the best interests of the company, funds also keep getting redeployed from one asset to another from time to time. The management of funds of this magnitude requires expert advice for which the company retained the above persons The payment for various services including the following:Pag .....

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vestment decisions. - To advise on investment decisions from time to time, including such other advise may require to the issue. - To assist our executives in transacting investment decisions pursuant to our advice in respect thereof. These specialised services are essential for managing investments of the company in such complex capital market governed by various statutory rules and regulations. In view of the above, we request you not to make any disallowance in this respect. PNVF and Kotak is .....

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by various statutory rules and regulations. In view of the above, we request you not to make any disallowance in this respect. I have considered the submission of the assessee. It is perused from the balance sheet of the assessee that it has made investments in Shares, units of mutual funds, bonds and other securities. As per the balance sheet of the assessee as on 31.3.2004, the total value of investment is at ₹ 25903.76 lacs. In the computation of its total income, the assessee has shown .....

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ed wholly and exclusively for the purpose of the business in order to claim other related expenses also in view of the following case laws - 7) Swadeshi Cotton Mills Co. Ltd. vs. CIT ITR 57 (SC) 8) Laxmi Ratan Cotton Mills Co. Ltd. vs. CIT, 73 ITR 634 (SC) 9) Harinagar Sugar Mills Ltd. vs. CIT, 117 ITR 945 (Bombay) 10) CIT vs. Southern Sea Food Ltd., 205 ITRI 76 (Mad) 11) CIT vs. Industrial Development Corporation of Orissa Ltd. 249 ITR 401 (Ori.) 12) CIT vs. Udaipur Mineral Development Syndicat .....

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an cost of acquisition is admissible, and allowable under the head capital gains . Secondly, all the receipts which are falling under the head income from other sources in the instant case which are the dividend and tax free interest are exempt i.e. not includible in the total income of the assessee. Therefore, as per provisions of section 14A also the expenses pertaining to earning of the exempt income are not allowable. Consequently, these expenses are not allowable either under the head capit .....

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e above discussion the total amount of ₹ 8419185/- as claimed by the assessee under legal and professional charges on this account is disallowed and added back to its total income. 7. Thus clearly the Assessing Officer was acutely conscious of the nature of transactions, the assessee's contention that the income was in the nature of capital gain and not business income. It was in this context that the assessee had claimed such expenditure for earning such income. Assessing Officer disa .....

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t Commissioner of Incometax reported in (2013) 350 ITR 266(Guj), in context of earlier judgement in case of Praful Chunilal Patel v. M.J. Makwana, Asst. CIT reported in (1999) 236 ITR 832 (GUJ) held as under : 44. At this stage, we may examine the decision of the Division Bench of this Court in the case of Praful Chunilal Patel v. M. J. Makwana, Assistant Commissioner of Income Tax, (supra) more closely. This was a case wherein assessment previously framed under section 143(3) of the Act was sou .....

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ch income was subjected to an assessment. The court was of the opinion that in the original assessment, the Assessing Officer never really formed an opinion on a particular contentious issue. It was in this background that the Court was of the opinion that since no opinion was formed in this regard, consequently there would be no question of a mere change of opinion. The Court also expressed an opinion that in view of the explanation 2 to section 147 of the Act, power to make assessment or reass .....

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even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. In our view, the words "escaped assessment" where the return is filed, are apt to cover the case of a discovery of a mistake in the assessment caused by either an erroneous construction of the t .....

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see had not been considered for assessment in the original proceedings. Such observations, therefore, would not be in the nature of laying down a ratio as the question whether even where a particular claim had been examined by the Assessing Officer in the original assessment can be subject matter of reopening on the ground that such claim was accepted on erroneous construction of the transaction or by mistake of law applicable to such a transaction. We are also of the opinion that by virtue of s .....

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for deduction under Section 80IB(8A) of the Act came for detailed scrutiny by the Assessing Officer in the original scrutiny assessment. Series of queries were raised by the Assessing Officer. All such questions were answered at length by the assessee. He filed several replies before the Assessing Officer. Only after considering such replies and documents accompanying such replies, Assessing Officer framed the assessment in such assessment order. He disallowed only a small portion of the petitio .....

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he called upon the petitioner to furnish details of transactions with various companies, such as M/s Cadila Healthcare Ltd., Lupin Ltd. Etc. These are the companies with whom the petitioner had entered into detailed agreements for carrying out scientific research. In paragraph 4 of such notice, he called upon the petitioner to furnish note on claim of deduction under Section 80IB(8A) of the Act to produce necessary evidence in support of such claim. He also directed the petitioner to furnish no .....

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