2024 (9) TMI 863 - AT - Income Tax

Revenue's appeal dismissed: invalid section 147 reopening and failed re-characterization of capital gains as business income

ITAT Chennai dismissed Revenue's appeal on two grounds. First, the tribunal held that reopening assessment under section 147 was invalid as it constituted ... Validity of reopening of assessment - change of opinion on the part of the AO - re-opening of assessment of the case on the basis of factual information given by the Audit Party - HELD THAT:- It is neither the case of the Revenue that the Audit Party has brought out any new facts (on this issue), which was not disclosed by the assessee during the original assessment nor it is the case of the Audit Party that assessee has not disclosed fully and wholly all material facts necessary for assessee’s assessment on the issue of sale of shares of M/s. United Spirits. In this regard, it is noted that while re-opening the assessment, the AO has asserted that the assessee didn’t produce any evidence to show that interest paid was part of the cost of acquisition of shares and the details of the interest paid has not been submitted viz., no ledger account of interest as well as loan was submitted etc., which omissions if any, on the part of the AO during the original assessment, could have been interfered by the Ld.PCIT exercising his jurisdiction u/s. 263 of the Act, and not the AO himself u/s. 147 of the Act, which power he doesn’t enjoy. Therefore, in the facts of the present case reliance by department of the Hon’ble Supreme Court decision in the case of PVS Beedies case [1997 (10) TMI 5 - SUPREME COURT] does not come to the aid of Revenue, because, audit team has not brought any fact which AO has not noticed during the scrutiny assessment on 31.12.2015. Therefore, there is no merits in the grounds of appeal raised by the Revenue, so, it is dismissed and we confirm the action of the Ld.CIT(A) holding the re-assessment bad in law. Re-characterization of Short Term Capital Gains (STCG) from the sale of shares as business income, to be taxed at 30% instead of the beneficial rate of 15% under Section 111A - CIT(A) deleted the addition as the assessee has transacted in share of a single scrip, M/s. United Spirits and that share was held for a short period of time and noted that the AO had neither given any details of the share transaction nor reasons ‘as to why’ these transactions needs to be treated as “business transaction’ - According to the CIT(A), the AO failed to give the analysis of the frequency of the share transactions nor has given any information about the earlier activities of the assessee [preceding and succeeding years], reversed the action of the AO to treat the income from STCG as ‘business income’ - HELD THAT:- We concur with the findings of the Ld.CIT(A), because, the AO didn’t appreciate the relevant facts and materials in respect of the issue, which shows that the transaction of purchase and sale of single Scrip, M/s. United Spirits was in the nature of trade and hence, it can’t be held that the transaction in question was an adventure in the nature of trade. It should be borne in mind that the question whether a transaction is in the nature of trade is a mixed question of fact and law; and the AO has to place on record all relevant facts and materials necessary for the purpose of determining whether transaction is in the nature of trade/adventure in the nature of trade. AO failed to place on record the relevant/primary facts necessary for determining this mixed question of fact as well as law. In order to hold the transaction of shares as business income of the assessee, it is noted that the AO hasn’t even given the essential details viz., date of purchase and sale of scrips, holding period of scrips, sales of scrips, purchase/sale price etc., and the AO has not given the details as to whether the assessee was engaged in any such kind of transaction in the earlier/subsequent assessment years. No relevant details whatsoever have been brought on record by the AO. In the light of the aforesaid facts and circumstances of the case, we uphold the impugned action of the CIT(A) who held that transaction in question as not a trading transaction. Therefore, we concur with the action of the Ld.CIT(A) on merits as well and dismiss the appeal filed by the Revenue. Issues Involved:1. Legality of re-opening the assessment.2. Merits of the addition made by the Assessing Officer (AO).Detailed Analysis:1. Legality of Re-opening the Assessment:The Revenue challenged the decision of the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] that the re-opening of the assessment was bad in law. The re-opening was based on a change of opinion by the AO, which is not permissible. The assessee filed a return of income for AY 2013-14 declaring a total income of Rs. 11,48,60,850/-, which was accepted in the original assessment completed under Section 143(3) of the Income Tax Act, 1961. The AO later re-opened the assessment under Section 147 by issuing a notice under Section 148 after the expiry of four years from the end of the relevant Assessment Year.The Tribunal noted that the AO must satisfy the additional condition under the first proviso to Section 147, which requires that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The AO's reasons for re-opening did not indicate any new material facts that were not disclosed by the assessee. The Tribunal emphasized that the reasons recorded by the AO must be self-explanatory and should not keep the assessee guessing. The Tribunal found that the AO's action was based on the same material that was already on record during the original assessment, which amounted to a change of opinion and was akin to a review of the original assessment, which is not permissible in law.The Tribunal concluded that the AO did not have the jurisdiction to re-open the assessment, and the Ld.CIT(A) rightly held that the re-opening was invalid. The Tribunal confirmed the action of the Ld.CIT(A) on the legal issue and dismissed the Revenue's grounds of appeal on this matter.2. Merits of the Addition:On the merits of the addition, the AO had re-opened the assessment and re-characterized the Short Term Capital Gains (STCG) from the sale of shares of M/s. United Spirits as business income, to be taxed at 30% instead of the beneficial rate of 15% under Section 111A. The AO's reasoning was based on the high interest loan taken by the assessee, the short holding period of the shares, and the significant profit earned, which the AO argued indicated an intention to trade rather than invest.The Ld.CIT(A) reversed the AO's decision, noting that the AO had not provided any details or analysis of the share transactions or the frequency of such transactions in the preceding and succeeding years. The Tribunal concurred with the Ld.CIT(A), stating that the AO failed to provide relevant facts and materials necessary to determine whether the transaction was in the nature of trade. The Tribunal emphasized that the question of whether a transaction is in the nature of trade is a mixed question of fact and law, and the AO did not place on record the necessary details such as the date of purchase and sale, holding period, purchase/sale price, and whether the assessee engaged in similar transactions in other years.The Tribunal upheld the Ld.CIT(A)'s decision that the transaction in question was not a trading transaction and confirmed that the income should be treated as STCG taxed at 15%. The Tribunal dismissed the Revenue's appeal on the merits of the addition.Conclusion:The Tribunal dismissed the Revenue's appeal on both the legal issue of re-opening the assessment and the merits of the addition. The order was pronounced on the 30th day of August, 2024, in Chennai.