TaxTMI 
TaxTMI 
2021 (11) TMI 259
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....Ld. PCIT has wrongly and illegally exercised his revision jurisdiction u/s. 263 of the Income Tax Act, 1961 in setting aside the assessment order dt. 27-12-2018 for denovo assessment. 5. The brief facts of the case relevant to the issue are that in this case, the assessee filed his return of income electronically for the assessment year 2011-12 on 19-09-2013 declaring total income as 'NIL'. The return was processed u/s. 143(1) on 09-02-2012. The assessment u/s. 143(3) r.w.s 147 of the Act was made on 27-12-2018 accepting the income returned by the assessee. Subsequently, the Learned Assessing Officer (in short, the ld. AO) sent a proposal u/s. 263 of the Act to the Ld. PCIT for revision of the said assessment order, which was further recommended by the then Additional Commissioner of Income Tax, Range-33, Kolkata. It was noted by the Ld. AO that the assessee was in the business of share trading. Apart from that he had also made investments in shares from which he derived dividends and long/short term capital gains on sale of shares. Assessee, himself, was the chairman of M/s. C.D Equisearch Pvt. Ltd. through which all the transactions took place. The Ld. AO, further note....
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.... Para 3(b) of the said Circular, the AO could not have disturbed the claim of exemption made u/s. 10(38) on account of long term capital gain derived on sale of shares. The assessee therefore submit that the reason set forth in your show cause notice to the effect that the AO without carrying out proper enquiries had completed the assessment u/s. 143(3)/147 is not supported by the facts and materials available on record. Instead, the facts on record clearly demonstrate that the AO, had reopened the assessment u/s. 148 on this exact same reasoning i.e. to withdraw the claim made u/s. 10(38) of the Act. However, after examining the objections and details put forth by the assessee, he passed the order u/s. 143(3)/147 allowing the claim of exemption u/s. 10(38) of the Act. The assessee thus submits that the proposed revision u/s. 263 is devoid of any merit, baseless and totally bad in law. In this regard, your attention is drawn to the judgment of the Calcutta High Court in the case of CIT Vs J L Morrison & Co Ltd. (366 ITR 593) wherein High Court held that with where the assessee's claim is allowed by the AO after conducting necessary enquiry and application of mind then the order....
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....rs find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing [hat no universal principle in absolute terms can be laid down to decide the character of income from sale of shares and' securities, i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further Instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock in trade, the income arising from transfer of such shares/securities would be treated as its business income. b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desire....
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....s income from share trading business as to whether it is business income or capital gain and the admissibility of the exemption thereon u/s. 10(38) of the Act and pass a reasoned order after providing sufficient opportunities to the assessee of being heard." 8. Against the above action of the Ld. PCIT, the assessee has come in appeal before this Tribunal. We have heard the rival contentions and have also gone through the record. 9. At the outset, the Ld. Counsel for the assessee has submitted that the assessment order in question has been passed u/s. 147 of the Income Tax Act, 1961 after reopening of the assessment passed earlier u/s. 143(1) of the Act by the ld. AO on the same issue. The ld. Counsel in this respect has relied upon the notice dt. 30-03-2018 issued by the Ld. AO to the assessee u/s. 148 of the Income Tax Act. He has further relied upon the reasons recorded by the Ld. AO for re-opening of assessment, copy of which has been placed at page-8 of the paper book, the contents of the same are reproduced as under:- "Reasons for initiating proceedings u/s. 147 of the I.T. Act, 1961: In the instant case the assessee filed Return of Income u/s. 139(1....
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...., necessary approval is required from the Principal Commissioner of Income Tax." 10. The ld. Counsel has further invited our attention to the objections raised by the assessee against the reasons recorded for re-opening of the assessment vide letters dated 02.07.2018 and 10.07.2018. The Ld. Counsel has further relied upon the notice issued by the ld. AO u/s. 143(2) of the Act dated 12.07.2018. He has further relied upon the reply dt. 23-07-2018 filed by the assessee in response to the aforesaid notice issued u/s. 143(2) of the Act, along with the said reply, the assessee also furnished the copies of the following:-- - SEBI Circular dated 18.07.2001 - SEBI Notice dated 26.10.2012 - Circulars dated 24.06.2013 & 18.11.2013 issued by NSE - Demat statement for the period 01.04.2010 to 31.03.2011 - Statement giving details of long term capital gain along with relevant extracts of the Demat Account. 11. The ld. Counsel has further submitted that certain further queries were raised by the Ld. AO, in response to which, the assessee filed details of short term capital gain/loss for the A.Y 2011-12 vide letter dated 04-10-2018. He also invite....
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.... it was revealed that the assessee is engaged in certain malpractices with the sole motive to earn exempt income. The assessee has. Been maintaining total three different DEMAT accounts with CD Equisearch Pvt. Ltd., a sub-broker of Stock Exchange and in which the assessee himself is the chairman, for online purchase and sale of shares/mutual funds. They are marked as "Trading"; "Investments short term" and "Investments long term". But these nomenclatures are considered to be misleading and the assessee purchases/sales/settles everything(trades: investments) through a single bill. Later on, the profit making shares are treated as investments to earn exempt long term capital gain and the loss making ones are thrown as trading loss for; adjustments with other income. Thus, in this manner, he earns huge exempt income against very little/nil taxable income. It is also revealed that the assessee is engaged in this malpractice since inception. Based on the above observations, it can be deduced that the assessee is only engaged in trading of shares and the exemption u/s. 10(38) for long term capital gain has to be withdrawn. Hence, Rs. 1,79,05,273/- has to be brought back to income for tax....
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....at it was duly explained not only to the Ld. AO during assessment proceedings, but also to the Ld. PCIT during the proceedings u/s. 263 of the Act, that the assessee had been maintaining three accounts i.e. for trading, for short term and for long term investments in which separate transactions were carried out/maintained. That the DEMAT accounts were with M/s. C.D Eqisearch P. Ltd. in which the assessee himself was the chairman. That the DP's (Depository Participant) were maintained by CDSL (Central Depository Services Limited), which is run by the SEBI(Securities and Exchange Board of India), which is bound by the relevant rules. That, the entire proceedings were system driven and no manual interference could be done, nor the operations of depository could be manipulated by the D.P of the beneficiary. It was submitted that the investment account and trading account were totally different. It was further explained that as per SEBI guidelines, only one client code is allotted to a client irrespective of different portfolios and there was no provision for multiple client code. Therefore, the stock broker is required to execute the transaction(s) on behalf of its client through o....