TaxTMI 
TaxTMI 
2008 (5) TMI 354
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....34 allowing unabsorbed business loss of Rs. 86,14,332 and unabsorbed depreciation of Rs. 1,20,802 to be carried forward. The assessment was reopened and the Assessing Officer on entertaining a belief that the assessee had sold securities held as investments during the relevant year and the loss suffered on account of the sale was debited to the P&L A/c as business loss, as the assessee was holding securities as investments and had shown them as asset in the balance sheet and transfer of such assets attract the provisions of section 45 of the Act and, therefore, any loss on account of transfer of such asset are required to be treated as capital loss under the head 'Capital gain' which requires to be added back to the total income of the assessee company. Penalty proceedings under section 271(1)(c) of the Act was also initiated for furnishing inaccurate particulars of income and concealment of income. 3. Before the CIT(A), a grievance was raised by the assessee that, the assessment order passed by the Assessing Officer was bad-in-law and the contention was that, as the original assessment was made under section 143(3) of the Act, Assessing Officer was not justified in taki....
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.... is not the case where there was failure on the part of the assessee, either to file return as required under section, 139 or 142(1) or 148 or even to disclose fully and truly all material facts necessary for the assessment. He, therefore, contended that as per the proviso to section 147 no action (which included making of reassessment) could be taken under this section after expiry of four years from the end of relevant assessment year. He submitted that under the scheme of the Act, barring special assessments, an assessment is made either under section 143(3) or under section 144 or under section 147 of the Act. The last category of assessment is made when the income has escaped assessment and it has to be ordinarily made within four years from the assessment year. It can be after four years in a situation where- (i) Assessee failed to file return under section 139; (ii) Assessee failed to file return under section 142(1) or under section 148; (iii) Assessee failed to disclose fully and truly all material facts necessary for this assessment. 7. As per the scheme of the Act, an order under section 143(3) is to be passed where return is filed and notice is issued under ....
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....case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147; 154 stating that re-writing of statute is not permitted; in the case of Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821, 826 prohibiting reconstruction of language; in the case of Mohammad Ali Khan v. CWT [1997] 224 ITR 672 675 (SC) and Punjab and Haryana High Court decision in the case of Dalmia Biscuits Ltd. v. CIT [1992] 194 ITR 749, 751 regarding importance of each word in the statute; Supreme Court decision in the case of Orissa State Warehousing Corpn. v. CIT [1999] 237 ITR 589, 604-5 stating that natural meaning is to be given to the statute; decision of Supreme Court in CWT v. Smt. Hashmatunnisa Begum [1989] 176 ITR 98, stating that generally natural meaning should be given and the other meaning can be given only when there are two possible meanings. He then referred to Nani Palkiwala's Book, wherein it is stated that proviso to section 147 is an exception. In this connection decisions of Supreme Court in the case of CIT v. Indo Mercantile Bank Ltd. [1959] 36 ITR 1, H.E.H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC) and CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 were relie....
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....tion 147. This section however does not make the assessment or reassessment mandatory but leaves it to the discretion of the Assessing Officer. 13. Reference is also made to the Punjab and Haryana High Court, in the case of Mrs. Rama Sinha v. CIT [2002] 256 ITR 481, which held that one a notice under section 148 is issued, the assessment has to be completed under section 147 read with section 143(3). The High Court also observed that the position was the same even prior to the amendment of section 148 with effect from 1-4-1989 and as the return filed under section 139, the procedural provision for making an assessment under section 143(3) of the Act also comes into play. 14. The Special Bench Delhi in the case of Rajkumar Chawla further observed that:- "Proviso nowhere comes in conflict with the provisions of section 147. Had the proviso curtailed the limitation period as prescribed under section 153(2), then certainly it will not apply." 15. The ITAT, Hyderabad, in Solid State Devices India Ltd. v. ITO [1986] 19 ITD 169 was also referred to, which also had decided similar issue regarding reopening of assessment under section 147 (a) and applicability of section 153(2)(....
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.... to the proviso to the extent it allows initiation of the proceedings under section 147 on account of non disclosure of material facts by the assessee." 18. He also referred to Circular No. 549, dated 31-10-1989 explaining this amendment of provisions of section 147 by the Finance Act, 1987 with effect from 1-4-1989 stating that the Amending Act, 1987, has rationalized the provisions of section 147 and other connected sections to simplify the procedure for bringing to tax the income which escaped assessment, especially in non-scrutiny cases. Thus, the Amending Act, 1987, has substituted a new section 147 which contains simplified provisions as follows: (i) Separate provisions contained in clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so; (ii) The requirements in the old provisions that the Income-tax Officer should have 'reason to believe' or 'information in possession' before taking action to assess or re....
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....following absurd situation would arise- (a) Suppose notice is issued and served on the assessee on 31-3-2001 i.e., exactly on the expiry of four years period from the end of the relevant assessment year then the issue and service of the notice is valid as per this decision. In response to this notice the assessee is supposed to file return of income within the time period of about 30 days and then the Assessing Officer is supposed to pass an order under section 143(3) read with section 147 of the Act, after giving adequate opportunity of being heard to the assessee. In view of the decision of the Bangalore ITAT, Assessing Officer would have no alternative but to pass order in such cases on 31-3-2001 itself irrespective of the fact whether assessee has filed return of income on 31-3-2001 or not and irrespective of the fact whether any opportunity of being heard is given to the assessee. This would be in total violation of principle of natural justice. In other words, the Assessing Officer would have to pass assessment order by 31-3-2001 whether or not assessee files the ROI or opportunity of hearing is allowed to him or not; (b) As mentioned above there is specific provision of the ....
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....heard the parties and considered the rival submissions. In this case, original return declaring loss of Rs. 88,53,947 was filed on 30-11-1996. Assessment order under section 143(3) computing total loss of Rs. 87,35,130 was passed on 10-2-1999. A notice under section 148 was issued to the assessee on 14-6-2000 and assessment order under section 143(3) read with section 147 was passed on 26-2-2000. The assessee has taken an additional ground after relying on the judgment of ITAT, Bangalore that the assessment in this case has become time barred because of the provisions of the proviso to section 147 of the Act. As may be seen, the notice under section 148 for assessment year 1996-97 was issued on 14-6-2000 i.e., well before the expiry of four years from the end of the relevant assessment year (in this case the time of four years would expire on 31-3-2001). 24. We shall first discuss the issue raised by way of an additional ground, challenging the completion of assessment after 4 years from the end of the assessment year in question. For the sake of understanding it is necessary to reproduce section 147 of the Act. It reads: "If the Assessing Officer has reason to believe that a....
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....26. The controversy in this case is as to what is that action which is prohibited to be taken under this section by using the words 'no action under this section shall be taken after four years from the end of the assessment year'. What is that action that is contemplated under section 147 of the Act? This section, as we understand, grants an authority to the Assessing Officer to reopen an assessment, if income had escaped assessment, to assess, reassess or recomputed such income. Separate provisions are made as to the conditions and the time limit within which the notice to be issued for reopening and the assessment or reassessment or recomputation to be made. These are contained in sections 148 to 153, i.e., issue of notice is dealt by section 148, time limit for issue of notice is prescribed in section 149, section 150 deals with 'provisions for cases where assessment is in pursuance of an order of the appeals etc.', section 151 deals with 'sanction for issue of notice', section 152 deals with rates at which escaped income is to be charged and other specific provisions and section 153 deals with 'time limit for completion of assessment and reassessmen....
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....ng the proceedings and they can be commenced if the Assessing Officer has reason to believe that the income has escaped assessment notwithstanding that there was full disclosure of material facts on record. The assessee in such cases cannot defend the initiation of action on the ground that the facts were already placed on record and that the Assessing Officer must have or ought to have considered them. Explanation 1 to section 147 of the said Act has a bearing on disclosure aspect and it applies to the proviso to the extent if allows initiation of the proceedings under section 147 on account of non-disclosure of material facts by the assessee." 29. A heavy reliance is on behalf of the assessee on the decision of the ITAT Bangalore in the case of Amitronics (P) Ltd. which has taken a view that even reassessment cannot be completed after 4 years if there is no failure on the part of the assessee. The said decision decided the matter by observing: The decision held as under: "7. As far as assessment years 1992-93 and 1993-94 are concerned, under proviso to section 147 'no action shall be taken' after the expiry of four years from the end of relevant assessment year. In ....
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....', the Assessing Officer shall serve on the assessee a notice requiring him to furnish a return of income. Section 149 provides for time limit for issue of notice under section 148. Section 153(2) provides that 'no order of assessment, reassessment or re-computation shall be made under section 147' after the expiry of two years from the end of financial year in which the notice under section 148 was served. Thus, it is clear that even section 147 is the provision for assessment. As per definition of word 'assessment' in section 2(8) 'assessment includes reassessment'. Thus it is incorrect to say that section 147 is merely to assume jurisdiction for reassessment and assessments are made only under section 143. Section 147 also postulates actual assessment. Thus, the provision of section 148 regarding issue of notice, section 149 prescribing time limit for issuing of notice or section 153(2) for prescribing time limit for completion of reassessment applies to all the situations for reassessment under section 147. However, under the proviso where an assessment is earlier made under section 143(3), 'no action' shall be taken under section 147 after t....
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....iry of four years from the end of relevant assessment year. This means not merely issue of notice but also includes completion of reassessment under section 147." 31. We are unable to agree with that view because even though, as the Bench observed, the words 'no action' are wide enough to include in its sweep 'assuming jurisdiction by formation of belief' as well as to complete the reassessment, it has to have the reference of the first action and that is that for initiating the jurisdiction under section 147. In our opinion section 147 is only an enabling provision empowering the Assessing Officer to reopen the assessment of income that had escaped assessment and rest of things are provided in the following sections 148 to 153 of the Act. 32. Even assessment is to be framed as per the procedure laid down in sections 143 and 144 as held in R. Dalmia's case by the Supreme Court when it held that 'in making assessment and reassessment under section 147, the procedure laid down in section subsequent to section 139 including that laid down by section 144B has to be followed'. Further, stating that there is no inconsistency between sections 143(2) and 1....
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....procedural provisions for making an assessment under section 143(3) of the Act also come into play. A perusal of section 143 shows that the procedure prescribed therein applies to a return which 'has been made under section 139...'. In view of the clear provisions of law as discussed above, the findings of the Tribunal on this issue are in accordance with law and warrant no interference." 36. While explaining the provisions of section 147 as amended by the Finance Act, 1987 with effect from 1-4-1989 the Circular No. 549, dated 31-10-1989 stated as under:- "(iv) A proviso to thy new section provides that an assessment which has been completed under section 143(3) or 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessee to file a return of income or to disclose fully and truly all material facts necessary for his assessment." 37. The underlined provisions make it clear that the expression used in the proviso namely 'no action shall be taken in this section after expiry of four years from the end of the releva....
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...., such an eventuality is for completion of assessment which is also provided in section 153(2) of the Act. The contention that such a position for action was provided in the proviso to section 148 up to 2005 and thereafter, on amendment of provisions its incorporation, it is in the proviso to section 147, which is claimed to be not a section under which notice for reopening is issued and therefore, Legislature has misfired, has no force. It is because section 147 is an enabling section authorizing Assessing Officer to reopen the case. It provides that if there is no fault of the assessee no action (of reopening to assess or reassess) shall be taken after 4 years from the end of the relevant assessment year. Further, the submission that the time limit for completion of assessment is provided under section 153(2) is an outer limit has also no force. It would amount to restricting the scope of section 153(2) of the Act. Similarly the submission that section 153(2) is a general provision and section 147 is a specific provision, and therefore, specific provision should prevail over the general provision has also no force and amounts to reading something which is not there in the statute....
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...., observed as under:- "(6) The contentions raised have been considered. The provisions regarding reopening of assessment have been amended with effect from 1-4-1989. Under the amended provisions, the pre-requisite conditions for reopening, namely, failure on the part of the assessee to disclose fully and truly all material facts and (ii) there was information in the possession of the Assessing Officer, have been done away with and under the amended provisions, the only condition which is now required to be met in reopening is that the Assessing Officer should have reason to believe that income has escaped assessment. The judicial decisions which have been referred to by the Ld. Counsel and as discussed above are in connection with the old provisions and therefore would not apply to the action taken by the Assessing Officer in the appellant's case. Under the new provisions, within four years of the end of the relevant assessment year, the Assessing Officer has wide powers to reopen the assessment. In the appellant's case, the notice under section 147 was issued on 14-6-2000 which is well within the period of four years from the end of the relevant assessment year. As such....
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.... therefore justified in issuing notice under section 147. This ground is therefore rejected." 45. The learned counsel of the assessee submitted that the CIT(A) is not justified in upholding the validity of reopening which was invalid on facts and circumstances. The assessment framed on misconception that the loss had occurred on capital account was also invalid. It was a change of opinion On the same facts. The reason to believe that income escaped assessment was on a wrong premises and therefore invalid. The CIT-DR on the other hand submitted that a wrong claim was made by the assessee and that was sufficient for reopening of the case. 46. We have heard the parties and considered the rival submissions. The provisions regarding reopening of assessment have been amended with effect from 1-4-1989. In the case of the assessee, the notice under section 147 was issued on 14-6-2000 which is, as aforesaid, well within the period of four years from the end of the relevant assessment year. Therefore, the only condition to be satisfied for reopening the assessment is that there should be a reason to believe that income has escaped assessment. The Assessing Officer noticed that the asse....
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....ring the year. He has also noted that the said investments were shown as asset in the balance sheet. As the transfer of such assets attracted provisions of section 45, he held that the loss arising on transfer of such assets was required to be treated as capital loss. He therefore disallowed the claim of loss of Rs. 1,06,66,818. The Assessing Officer did not accept the contention of the assessee that the shares/securities were not purchased for the purpose of making investment of surplus funds but with the object of trading regularly in purchase and sale of shares and therefore the resultant profit/loss was a business loss. 48. Before the CIT(A) the assessee reiterated that it was in the business of purchase and sale of shares, stocks, debentures, investments, etc.; that in the earlier assessment years the said activity was treated as business activity, specifically in assessment year 1995-96; and that in the original assessment order, the business loss has been allowed. Therefore, there was no reason to take a reverse. The details of the scripts along with sale and purchase amounts on which loss of Rs. 1,06,66,817 was claimed and copies of relevant ledger accounts were submitte....
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....ngle business; that therefore the income of both these businesses will be computed together as per the provision of sections 28 to 44 of the Act; that a statement, showing income from operation for 5 years revealed that except for financial year 1994-95 relevant to assessment year 1995-96 and financial year 1995-96 relevant to assessment year 1996-97, the company has not earned any income on dealing in investment; that in fact, the company has not carried out such activity; and that therefore, the Explanation to section 73 would not be applicable and loss incurred on dealing of shares was to be held as 'Business Loss'. Apart from the above, the assessee also challenged the authority of CIT(A) to make addition with reference to the new source of income not considered in the assessment order pointing out that the Assessing Officer had disallowed business loss by treating it as capital loss and therefore the CIT(A) was not empowered to apply the Explanation to section 73. To support its contention, it relied upon the cases of (i) Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC); (ii) Prabhudas Ramji v. CIT [1966] 62 ITR 621 (Guj.); (iii) CIT v. Jagdish Mills Ltd. [1....
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....ed by the appellant company. The extent of transactions in granting of loans and advances and sale of shares far exceeds the extent of transactions in granting of loans and advances. Therefore, it is apparent that the principal business of the appellant company is not that of granting of loans and advances. The loss arising from the business of purchase and sale of shares is therefore deemed to be speculation loss. The contention of the Ld. counsel that in the other assessment years the appellant company has not earned any income by way of investments proves that the main business is that of loans and advances, is not acceptable. Even if no income has been earned, the amount of transactions in dealing in shares and the investment in shares is much higher as compared to transactions of loans and advances. Specifically in the assessment year under consideration, the investment and the extent of transactions in shares is far in excess of transaction in loans and advances. The Explanation to section 73 is therefore consequently applicable to the case of the appellant company: Consequently, as the loss in trading of shares declared by the appellant company is treated as speculative loss....
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....es and considered the rival submissions. The assessee had not explained either before the CIT(A) and also before us as to the position of the date of purchase of the scrip being after the date of its sale. This is a clear indication of the fact the transaction was settled without delivery and was in the nature of speculation. The loss of Rs. 52,11,500 incurred thereon was therefore as speculative loss and was required to be disallowed, in any case. 55. The assessee being a company its loss as relates to purchase and sale of shares would be on speculation account because of the specific provision of Explanation to section 73 of the Act unless it falls in the exception provided in the Explanation to section 73 of the Act. Explanation to section 73 for sake of convenience is reproduced hereunder: "Where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources', or a company the principal business of which is the business of banking or the granting of loans an....
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....ase of the assessee any further. The loss arising from the purchase and sale of shares was therefore rightly held to be speculation loss. 58. The contention of the assessee that in the other assessment years the appellant company has not earned any income by way of investments proves that the main business is that of loans and advances, has rightly been rejected by the CIT(A) by stating 'Even if no income has been earned, the amount of transactions in dealing in shares and the investment in shares is much higher as compared to transactions of loans and advances. Specifically in the assessment year under consideration, the investment and the extent of transactions in shares is far in excess of transaction in loans and advances.' The assessee's case, therefore, does not fall in any of the exceptions in the Explanation to section 73 of the Act. Loss in trading of the shares therefore has rightly been treated as speculative loss. We accordingly reject assessee's appeal on this issue. 59. The second appeal is with regard to levy of penalty for concealment. It was levied for and on account of the disallowance of the loss discussed aforesaid. In the penalty order the....
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....e, i.e., as a result of trading of shares, that, therefore it was not a new source of income which has been considered by the CIT(A); that only the nomenclature or the nature of the loss had been changed in view of the provisions of the Act; that the assessee claimed wrong deduction of Rs. 1,06,66,817 which has been upheld by the CIT(A) in quantum appeal; that the assessee has not been able to substantiate the said wrong claim by any documentary evidence and it has also failed to prove that explanation offered was bona fide; that by claiming wrong deduction, the assessee has concealed the particulars of correct income; that as per the Explanation 1 to section 271(1)(c), wherein respect of any facts material to the computation of the total income of any person under this Act.... Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide... then, the amount added or disallowed in computing the total income of such person... be deemed to represent the income in respect of which particulars have been concealed. He referred to Rajasthan High Court in case of CIT v. Mohd. Mohtram Farooqui [2003] 259 ITR 132; that the onus ....
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....as nothing but a rejection of assessee's claim not amounting to concealment. He invited our attention to decision of Gujarat High Court in the cases of (i) CIT v. Lakhdir Lal Ji [1972] 85 ITR 77; (ii) Sarabhai Chemicals (P.) Ltd. v. CIT [2002] 257 ITR 355; (iii) CIT v. Baroda Tin Works [1996] 221 ITR 661 and National Textiles v. CIT [2001] 249 ITR 125 and submitted that the penalty initiated on a particular ground cannot be levied or upheld on a different ground. The penalty in this case was initiated on the ground that the assessee claimed a capital loss. It was levied on a ground that it was a speculation loss. The CIT(A) accepted that the disallowance cannot be made on capital account as according to him the loss was on trading account as claimed by the assessee. He, however, upheld the disallowance on different ground that it was a speculation loss. He, therefore, submitted that levy of penalty is not justified. The CIT-DR, on the other hand, supported the levy by submitting that it was a wrong claim made by the assessee and therefore penalty was rightly levied and confirmed for the reasons, stated in order of the CIT(A). 62. We have heard the parties and considered the ....
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.... (SC)]. 64. It is by virtue of Explanation only, that the Assessing Officer has been given a right to raise a presumption to deem certain sum added to income or disallowed in computing the income of a person, to represent the income in respect of which particulars have been concealed, if the assessee did not furnish an explanation or when explanation furnished was found false; and also when such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. In other words in a later case, the Explanation exonerate an assessee, if that was bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by an assessee. We may refer to in this connection the following observations of the Gujarat High Court in the case of Sarabhai Chemicals (P.) Ltd.: "The deeming fiction that the added/disallowed amounts represent the income in respect of which particulars have been concealed contained in Explanation 1 will not apply if the explanation that was ....
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....e. On the contrary he proved that explanation was correct. It is different matter that the CIT(A) found another ground to uphold the disallowance, not even contemplated by the Assessing Officer at the time assessment or reassessment in the course of which the penalty proceedings were initiated and the assessee was required to show cause and give explanation for making a claim of loss at that stage. 68. The third sentence of Part B of the Explanation is 'and that all the facts relating to the same and material to the computation of his total income have been disclosed by him'. The assessee had disclosed all material facts that are relevant for computing the income of the assessee not only during the assessment proceedings but at the threshold in the return of income itself, i.e., by furnishing the details of share dealing and by disclosure in the annexed Balance sheet and profit and loss account. It would be relevant to note that on the basis of these very materials, and not more, the Assessing Officer has reopened the assessment under the main provisions of section 147 without invoking the proviso thereto, meaning thereby was not alleging any failure on the part of the a....
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....e appellate authority and, therefore, cannot, in any case, be equated with concealment. The Addl. CIT v. Delhi Cloth & General Mills Co. Ltd. [1986] 157 ITR 822 (Delhi) in similar circumstances deleted the penalty observing that the mere fact that a claim for expenditure stands disallowed does not, by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to that item. Similarly, Madhya Pradesh High Court in the case of J.K. Jajoo v. CIT [1990] 181 ITR 410 observed that: "But from the mere fact that a claim for certain expenditure is rejected, it cannot be held that the claim for expenditure made by the assessee was false or inaccurate to his knowledge or was as a result of gross negligence." 71. We may examine the issue from a, different angel also. A claim of loss was made by the assessee, which was not found admissible against the income of the year under consideration. It is not that there was no loss as such or that it was a bogus loss or that a loss the claim was not allowable at all. It was, either a business loss as claimed by the assessee, or a loss under the head 'Capital gains' as held by the Assessing Officer, or a sp....
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....said, that is evident by the fact that the assessment was reopened not because of the failure of the assessee but because of allowance of a wrong claim allowed in the original assessment completed under section 143(3) of the Act. The assessee has given an explanation that the loss was on trading account and not on account of sale of investment and that explanation was found to be correct and upheld by the CIT(A) as well. Thus the assessee has been able to substantiate the said claim on the basis of which the penalty was initiated by the Assessing Officer and it has also proved that explanation offered was bona fide. The loss which has been claimed as a trading loss but disallowed by Assessing Officer as on capital account and as speculative loss by the CIT(A) and for claiming the deduction thereof, the assessee cannot be held to have concealed the particulars of income or furnished inaccurate particular thereof. 73. We do not find any force in the finding of the CIT(A) that the onus was on the assessee to prove that it had not furnished inaccurate particulars of income. In our opinion, it was on the Revenue earlier by the dint of substantive provisions of section 271(1)(c) and i....