Reassessment under section 147 quashed due to improper approval from Principal Commissioner instead of required Principal Chief Commissioner

The ITAT Mumbai allowed the appeal, quashing reassessment proceedings initiated under section 147. The tribunal held that approval for reassessment under section 148A(d) was improperly obtained from Principal Commissioner instead of Principal Chief Commissioner, as required when more than three years have elapsed from the assessment year end, following Siemens Financial Services precedent. On merits, the tribunal found the mutual fund transactions were legitimate, not sham or fictitious, where the assessee purchased units, earned dividend, and sold at reduced NAV resulting in capital loss. The transaction did not fall under section 94(7) avoidance provisions, making dividend income exempt and capital loss allowable.

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Issues Involved:
1. Validity of reopening the assessment u/s 147.
2. Legitimacy of dividend income and short-term capital loss claims.

Summary:

Issue 1: Validity of Reopening the Assessment u/s 147

In ITA No. 3218/Mum/2023, the assessee, Goldiam International Limited, challenged the reopening of the assessment u/s 147. The grounds included the notice being based on external information, change of opinion, and being barred by limitation. The assessee argued that the approval for reopening should have been obtained from the Principal Chief Commissioner of Income Tax, as more than three years had elapsed from the end of the relevant assessment year, citing the Bombay High Court decision in Siemens Financial Services Private Limited. The Tribunal quashed the reassessment proceedings, holding that the approval was improperly obtained from the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax, following the precedent set by the Bombay High Court.

Issue 2: Legitimacy of Dividend Income and Short-Term Capital Loss Claims

On the merits, the assessee contended that the dividend income and short-term capital loss were genuine transactions based on publicly available information and not sham or fictitious. The Tribunal noted that the assessee had invested in JM Balanced Fund after public notices of dividend declarations, fulfilling the conditions specified in section 94(7) of the Act. The Tribunal found no merit in the lower authorities' conclusions that the transactions were sham or fictitious and reversed the disallowance of the dividend income exemption and short-term capital loss claims.

ITA No. 3219/M/2023:

For the sister concern, Goldiam Jewelry Limited, with identical facts and circumstances, the Tribunal similarly quashed the reopening of the assessment and allowed the claims for dividend income exemption and short-term capital loss.

Conclusion:

Both appeals were partly allowed, quashing the reassessment proceedings and reversing the disallowance of dividend income exemption and short-term capital loss claims.

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