Nalini R. Mehta, Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K. BILLAIYA, AM

आयकर अपील सं./I.T.A. No.4347 /Mum/2013 ( नधा रण वष / Assessment Year : 2006-07 Smt. Nalini R. Mehta, बनाम/ Asstt. Commissioner of New Poornima Apartments, Income Tax - Circle Vs. D-207, 23 Pedder Road, 16(1), Mumbai -400 026. Mumbai. थायी ले खा सं . /PAN : AABPM4161F (अपीलाथ /Appellant) .. ( यथ / Respondent)

Appellant by Shri Dipak J. Shukla Respondent by Shri N. Padmanaban

ु वाई क तार ख / Date of Hearing सन : 23-3-2015 घोषणा क तार ख /Date of Pronouncement : 23-3-2015 [

आदे श / O R D E R PER VIJAY PAL RAO, J.M. :

This appeal by the assessee is directed against the order dated 15-03-2012 of ld. CIT(A)- 27, Mumbai pertaining to A.Y. 2006-07.

2. The assessee has raised the following grounds of appeal:-

"1. On the facts and circumstances of the case and in law the learned C.I.T. (Appeals) erred in holding that the assessment was validly reopened.

2. On the facts and circumstances of the case and in law the learned CIT(A) erred in rejecting the submission of the appellant that the reassessment was a review of the original assessment and as such in the absence of any new information such reassessment was bad in law and be declared ab initio void.

3. On the facts and circumstances of the case and in law the learned C.I.T. (Appeals) erred in concluding that in respect of certain transactions there was 'churning' in shares and hence the profit was taxable as 'Business 2 ITA 4347/M/13

Income' as against taxed as 'Short Term Capital Gains' in the original assessment.

4. Without Prejudice to above it is submitted that the learned C.LT. (Appeals) erred in holding that there was churning in the shares of McDowell Ltd. and the profit on these share transactions of Rs.25,20,747 j - was taxable as 'Business Income' instead of 'Short Term Capital Gains.'

5. It is prayed that Rs.26,92,862j - be directed to be assessed as 'Short Term Capital Gains."

3. Ground No. 1 & 2 is regarding validity of reopening. The original assessment was completed u/s 143(3) of the Income Tax Act, 1961 on 26-12-2008 determining total income at Rs. 1,07,50,684/-. Subsequently, the A.O. issued notice u/s 148 of the Act on 30-03-2011 for reopening of the assessment on the reason that one of the transactions of sale and purchase of shares amounting to Rs. 95,643/- was assessed to tax as capital gain @ 10% instead of income from speculative transaction which should have been taxed at 30%. The assessee filed return of income in response to notice u/s 148 of the Act. During the course of assessment proceeding, the assessee pointed out that there was a typing mistake in the details of sale and purchase of shares filed by the assessee and particularly in the date of sale of shares of Pfizer Ltd. which was shown to have been sold on 10-2-2005 instead of 10-02-2006. Thus there was a mistake in typing the year of sale and accordingly the A.O. has reopened the assessment on the basis of wrong date of sale of shares of Pfizer Ltd. The assessee filed purchase and sale contracts of the shares of Pfizer Ltd. to show the correct date of sale as 10-02-2006. Accordingly, the A.O. accepted the date of sale as 10-2-2006 and did not make addition on account of speculative income which was proposed for reopening of assessment. However the A.O. has made certain additions by treating the short term capital gain assessed in the original assessment as business income in the reassessment. The assessee challenged the action of the A.O. before the ld. CIT(A) including the validity reassessment of the short term capital gain as business income but could not succeed.

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4. Before us the ld. Counsel for the assessee has referred the details of purchase and sale of shares at page 9 & 10 of the paper book and submitted that at Sl. 77 of the details, the shares of Pfizer Ltd. was shown to have been sold on 10-2-2005 instead of 10-02-2006 whereas the shares were purchased on 5-12-2005, therefore, there was an apparent mistake in writing the date of sale. This mistake was the only reason for reopening of the assessment but in the reassessment proceeding when the assessee has pointed out the correct date of sale is 10-02-2006 then the A.O. has accepted the typographical mistake and did not make any addition on this account. The ld. A.R. has contended that once the A.O. has made no addition on the issue with reference to the assessment was reopened then the reassessment of other income is not open to the A.O. u/s 147. In support of his contention, he relied upon the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom.)

5. On the other hand, the ld. D.R. relied upon the orders of authorities below and submitted that as per Explanation 3 to section 147, the A.O. may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of proceeding u/s 147 of the Act.

6. In the rejoinder, the ld. A.R. has pointed out that in the course of original assessment, the A.O. made a proper enquiry on the issue of capital gain or business income. He has referred to the assessment order u/s 143(3) of the Act and submitted that the A.O. has discussed the issue in the original assessment order passed u/s 143(3) of the Act, therefore, there is no question of coming to the notice of the A.O. any income escaped assessment in respect of this issue during the course of reassessment proceedings.

7. Having considered the rival submissions as well as relevant material available on record we note that the original assessment completed u/s 4 ITA 4347/M/13

143(3) of the Act on 26-12-2008. Thereafter the A.O. reopened the assessment by issuing notice u/s 148 of the Act on 30-3-2011 on the basis of reason recorded for reopening as under:-

"SUB: Reason recorded for reopening of the assessment for A. Y. 2006-07 - reg.

Please refer to the above.

Your above assessment has been reopened in view of the fact that your entire income from capital gains which has been wrongly taxed at 10%. It is now noticed that this also includes income from speculative transaction amounting to Rs. 95,643/- which should have been taxed at 30%. This finding lead to the conclusion that the income to the extent of Rs. 95,643/- has escaped proper assessment within the meaning of section 148 of Act. A notice u/s. 148 read with section 147 has therefore already been issued and served upon you on 30.03.2011.

You are therefore, requested to file your return of income for above assessment year within 7 days from date of service of this letter. Notice u/s. 142(1) is enclosed for your compliance.

Yours faithfully, Sd/-

(V.S. JADHAV) Asstt. Commissioner of Income Tax - 16(1), Mumbai."

8. It s apparent from the above reasons recorded that the A.O. has reopened the assessment by noting the fact that there is a speculation transaction amounting to Rs.95,647/- which should have taxed at 30% but was taxed at 10% being short term capital gain in the original assessment passed u/s 143(3) of the Act. However, during the reassessment proceeding, the A.O. noted that the actual date of sale of the transaction of shares of Pfizer Ltd. is 10-02-2006 and not 10-02-2005. We note that in the details of the sales and purchase of the shares at Sl No. 77, the assessee has furnished the detail as under:-

Dt. Of purchase Amount Dt. Of sale Amount Gains "77 Pfizer 05/12/2005 457,765.05 10/02/2005 553,228.40 95,463.35" 5 ITA 4347/M/13

Thus, it is clear that there is an apparent mistake in the details which shows the date of purchase of shares as 5-12-2005 and date of sale as 10-2-2005 which is not possible. In the reassessment proceeding, the assessee produced the purchase and sale contract/bill to show that the correct date of sale was 10-2-2006 and not 10-2-2005. The A.O. accepted the correct date as 10-2-2006 and did not make any addition on this account and accordingly dropped the proceeding to treat such transaction as speculative transaction. However in the reassessment proceeding, the A.O. treated the entire short term capital gain accepted in the original assessment as business income and subsequently made the addition. We find that in the original assessment passed u/s 143(3) of the Act, the A.O. has specifically asked query as to why short term capital gain should not be treated as business income. In response to the query, the assessee furnished explanation which has been reproduced by the A.O. in para 2 of his assessment order. The A.O. after considering the reply has accepted the short term capital gain as under:-

"The number, frequency and pattern of the share transactions resulting in capital gain is examined in the light of criteria laid down in Instruction No. 4/2007 dated 15-06-2007 and in the light of the explanation of the assessee and various decisions of courts and tribunals quoted that assessee explanation is acceptable."

9. Thus it is manifest from the assessment order passed u/s 143(3) of the Act dt. 26-12-2008 that the A.O. has conducted detailed enquiry on the issue of short term capital gain should not be treated as business income. The issue on which the assessment was reopened, the A.O. accepted the contention of the assessee and hold that the income which he has initially formed a reason to believe had escaped assessment has as a matter of fact not escaped assessment, therefore, it is not open to him independently to assess some other income as held by the Hon'ble jurisdictional High Court in the case of Jet Airways (I) Ltd. (supra) in para No. 22 & 23 as under:-

"22. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on 6 ITA 4347/M/13

grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.

23. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a.matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1) as they stood after the amendment of 1-4-1989 continue to hold the field."

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10. In the case in hand, when there is no addition made by the A.O. on the issue of treatment of short term capital gain as speculative transaction by accepting the fact that it was not really speculative transaction then the additions made by the A.O. by way of reassessment of short term capital gain as business income is not permissible in the proceeding u/s 147 of the Act. Accordingly by following the decision of Hon'ble jurisdictional High Court in the case of Jet Airways (I) Ltd. (supra) we hold that the reassessment in the case of the assesse is not valid and the same is set aside.

11. Ground No. 3 to 5 are consequential and becomes infructuous in view of our finding on the legal issue of validity of re-assessment.

12. In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 23-03-2015.

ु े #यायालय म% &दनांकः 23-03-2015 को क गई ।

आदे श क घोषणा खल

Sd/- sd/- (N.K. BILLIAYA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER मंब ु ई Mumbai; &दनांक Dated 23-3-2015 [ व.5न.स./ R.K., Sr. PS

आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आय6 ु त(अपील) / The CIT(A) -13, Mumbai

4. आयकर आयु6त / CIT- -7I, Mumbai

5. 9वभागीय 5त5न;ध, आयकर अपील य अ;धकरण, मुंबई / DR, ITAT, Mumbai G Bench

6. गाड? फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

स या9पत 5त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai