TaxTMI 
TaxTMI 
TaxTMI 
2014 (8) TMI 1029
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....e following facts: i. That the assessment order U/sec. 143(3) r.w.s. 147 is without jurisdiction and bad in law. ii. The assessment U/sec. 143(3) r.w.s. 147 is null and void as the same is based upon the change in the opinion of the A.O. iii. The learned A.O. erred in assessing the total income of the appellant at Rs. 32,10,750/- U/sec. 143(3) r.w.s. 147 of the Income Tax Act, 1961. 3. The learned CIT (Appeals), Pune has erred in law and on facts in confirming action of the AO of treating Short term capital gain of Rs. 24,56,773/- on shares as business income. 4. The learned CIT (Appeals), Pune has erred in law and on facts in not appreciating the fact that the appellant is an investor and not a trader. 5. The learned CIT (Appeals), Pune has erred in law and on facts in holding that the decision of Hon'ble Mumbai High Court in the case of CIT vs. Gopal Purohit is not applicable to the case of the appellant. 6. The learned CIT (Appeals), Pune has erred in law and on facts in not appreciating the following important factors: a. Appellant has treated the transaction in the shares as investment and duly disclosed the same in the books of accounts. b. Appellant has used his....
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....se of shares as main activity and a major source of income. According to him, income derived by the assessee from the above activity needed to be taxed as business income as against capital gains shown by the assessee. In the subsequent assessment finalized on 15.12.2010 u/s 147 r.w.s. 143(3) of the Act, the income from such activity has been assessed as business income whereby the total income has been assessed at Rs. 32,10,750/-. Although such assessed income corresponded to the income originally assessed, so however, the income from the aforesaid activity was taxed at normal rate of tax as against the 10% rate of tax paid by the assessee earlier on the short term capital gain. 5. In appeal before the CIT(A), assessee challenged the action of the Assessing Officer both in law and on facts. Firstly, assessee assailed the assumption of jurisdiction by the Assessing Officer by issuance of notice u/s 147/148 of the Act and secondly, assessee also assailed the action of the Assessing Officer in treating the short term capital gain on sale of shares amounting to Rs. 24,56,773/- as income from business. On both the aspects, the CIT(A) has disagreed with the assessee and upheld the stan....
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.... during the course of original assessment proceedings carried out u/s 143(3) of the Act the Assessing Officer was not only aware of the activity of purchase and sale of shares undertaken by the assessee but has fully applied his mind on such income, as is evident by the discussion in para 3 of the assessment order dated 26.12.2007 (supra). In this view of the matter, it is sought to be pointed out that the proceedings initiated by the Assessing Officer by issuance of notice u/s 147/148 of the Act are not in accordance with law and therefore the impugned assessment is liable to be quashed. 9. On the other hand, the learned Departmental Representative appearing for the Revenue has referred to the order of the CIT(A) in order to assail the arguments of the assessee. According to the learned Departmental Representative, in this case, the Assessing Officer had overlooked something at the first assessment and therefore it cannot be considered as a case involving change of opinion. The learned Departmental Representative pointed out that it was found that the Assessing Officer had not sought any clarification regarding the taxability of profits on purchase and sale of shares as short ter....
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....s u/s 147 of the Act was invalid because the material on the basis of which the assessment was sought to be reopened was always available during the time of original proceedings leading to the assessment finalized u/s 143(3) of the Act. The aforesaid concurrent finding recorded by the CIT(A) as well as the Tribunal was sought to be assailed before the Hon'ble High Court. The Hon'ble High Court upheld the aforesaid stand of the Tribunal by making the following discussion :- "8) Both the Commissioner of Income Tax (Appeal) and the Tribunal have correctly come to the conclusion that there was no fresh tangible material before the Assessing Officer to reach a reasonable belief that the income liable to tax has escaped assessment. The order passed originally on 29th March 2005 under Section 143(3) of the said Act was passed after the respondent had made adhoc claim for expenditure at 30% of the professional receipts in the revised return of income which was later withdrawn. In fact the reasons for reopening the assessment for the year 2002-03 itself records that the claim of 30% adhoc expenses was withdrawn when the respondent assessee was asked to substantiate the claim. Therefore, th....
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.... was earlier processed u/s 143(1) of the Act, absence of a tangible material bars the Assessing Officer from entertaining even a prima-facie belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. The following discussion in the order of the Third Member dated 12.05.2010 (supra) is relevant :- "9. After careful consideration of the matter I am inclined, with respect, to agree with the view taken by the learned Judicial Member. In my humble opinion, the recent judgment of the Supreme Court in the case of CIT vs. (1) Kelvinator of India Ltd. and (2) Eicher Ltd. [2010] 320 ITR 561 (SC) covers the present case. The contention of the Department that this judgment only covers cases where the first assessment was made under section 143(3) and that it does not apply to cases where the return was first processed under section 143(1) is, with respect, not acceptable because the Supreme Court was expounding to the provisions of section 147 and the words "reason to believe" appearing therein. It was held that a schematic interpretation has to be given to these words, failing which section 147 would give arbitrary powers to the Assessin....
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....lief is applicable equally to cases where the return was processed under section 143(1) as also to cases where the return was examined and an assessment was made by a speaking order under section 143(3). The only distinction recognized in section 147 between the two is where it Is provided by the proviso that where the earlier assessment was made under section 143(3), no action for reopening the assessment can be taken after the expiry of four years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment because of the failure on the part of the assessee to file a return or to disclose fully and truly all material facts necessary for the assessment. Such an exception has not been provided for in a case where the return has been processed under section 143(1) in which case the proviso will have no application. If it is correct that an intimation under section 143(1) as well as an assessment order under section 143(3) are both amenable to section 147, it should also be conceded that even in a case where the original return was merely processed under section 143(1) the Assessing Officer must have reason to believe that income chargeable to t....
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....upra) held that there should be "tangible material" to come to the conclusion that income had escaped assessment Thus, in my humble understanding of both the judgments, while resorting to section 147 even in a case where only an intimation had been issued under section 143(1)(a) it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment, 11. What the assessee contended before me and which contention had found favour with the learned Judicial Member is that there was no such tangible material before the Assessing Officer from which he can entertain the belief that the allowance of the non compete fees and the depreciation resulted in escapement of income chargeable to tax. In the reassessment order the Assessing Officer has stated in paragraph 3.2.3 that after the return was processed, it was noticed that the assessee has understated its income by claiming the aforesaid two items of expenditure, He has not referred to any tangible material before him, in terms of the judgment of the Supreme Court in CIT vs. Kelvinator of India Ltd. (supra), on the basis of which he entertained the prime fac....
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....cer to entertain a belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. If the Assessing Officer forms a belief that income chargeable to tax has escaped assessment on the basis of the material already available at the time of original assessment proceedings, it would obviously not be a valid reopening of assessment of section 147 of the Act. 14. In this background, we may now examine the facts of the present case. The reasons recorded by the Assessing Officer to initiate proceedings u/s 147 of the Act have already been extracted by us in the earlier part of this order. The said reasons show that the Assessing Officer noted that the major source of income of the assessee is from short term gain by selling of shares. Secondly, the Assessing Officer after going through the records and details regarding the sale of shares observed that the assessee frequently engaged in purchase and sale of shares. Thirdly, the Assessing Officer notices that the said trading is the main activity of the assessee. The Assessing Officer thereafter concludes that assessee has shown the income under the head short term capital gain and paid taxe....
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....ng Officer has made an addition also. The Assessing Officer has also discussed in para 3 of the assessment order the short term capital loss of Rs. 72,777/- declared by the assessee on sale of Reliance mutual fund, which has also been re-determined by him. The entire discussion in para 3 of the assessment order is in relation to the income/loss declared by the assessee under the head short term capital gain. The aforesaid factual position, which is emerging from record, clearly establishes that the Assessing Officer examined the transactions of sale and purchase of shares on the basis of the material and evidence on record and only thereafter he has accepted the income declared by the assessee under the head short term capital gains. In contrast, the reasons recorded thereafter to invoke section 147 of the Act do not show any fresh material which came to notice of the Assessing Officer so as to enable him to formulate a belief that income chargeable to tax has escaped assessment on the ground that the income from purchase and sale of shares was to be assessed as business income. In-fact, the reasons recorded clearly point out that the belief is formed only on the basis of a re-appr....