Following Questions Are Presented For Our Consideration v. Itxa 1287-16-O

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1287 OF 2016 The Principal Commissioner of Income Tax-8 … Appellant V/s. Motilal R. Todi… Respondent --- Mr.N.C.Mohanty for the Appellant.Mr.Ryan Saldanha for the Respondent. --- CORAM : AKIL KURESHI AND SANDEEP K. SHINDE, JJ. DATE : JANUARY 28, 2019. P.C.:- 1.This appeal is filed by the Revenue challenging the judgment of Income Tax Appellate Tribunal (“the Tribunal” forshort) dated 22[nd ] September, 2015. 2.Following questions are presented for our consideration:- “(a) Whether, on the facts and in thecircumstances of the case and in law, the Tribunalwas justified in not following the bindingjudgment of Jurisdictional High Court in the caseof Export Credit Corporation of India Vs. Addl.circumstances of the case and in law, the Tribunalwas justified in not following the bindingjudgment of Jurisdictional High Court in the caseof Export Credit Corporation of India Vs. Addl. Priya Soparkar CIT & Others, in WP No.502/2012, where theCourt held that something tangible need not benew?(b)Whether, in the facts and circumstances ofthe case and in law, the ITAT failed to appreciatethat fact of the case are distinguishable in asmuch as the reopening of the assessment hasbeen made within 4 years? (c)Whether, in the facts and circumstances ofthe case and in law, ITAT failed to appreciatethat reason to believe that income has escapedassessment on some tangible material is sufficientfor reopening of assessment? (d)Whether, on the facts and in thecircumstances of the case and in law, the Tribunalis justified in not giving finding on merits on theassessee's claim of treating income from sharetransaction as Short Term Capital Gain, instead ofbusiness income based on the frequency andquantum of transactions?” 3.Brief facts are as under: The respondent-assessee is an individual. For the assessmentyear 2006-07 the assessee had filed the return of income whichwas taken in scrutiny by the Assessing Officer. He passed an orderunder Section 143(3) of the Income Tax Act, 1961 ("the Act" forshort) on 15[th] December, 2008. To reopen such assessment,the Assessing Officer issued a notice on 23[rd] February, 2011. Inthe reasons recorded for issuing such notice he had raisedfollowing three grounds:- Priya Soparkar 324 itxa 1287-16-o (i) The assessee had derived dividend income, but nodisallowance under Section 14A of the Act was made to. (ii)The assessee had returned capital gain to the tune ofRs.91.28 lakhs. The same was also assessed. However, accordingto the Assessing Officer, looking to the transactions of the assesseeof sale and purchase of shares said gain should have been taxedas business income. (iii)The assessee had not deducted tax at source thoughrequired and hence, expenditure of Rs.24,000/- should havebeen disallowed under Section 40(a)(ia) of the Act. 4.Despite resistance from the assessee to the process ofreopening of assessment, the Assessing Officer passed order undersection 143(3) r/w 147 of the Act on 31[st] December, 2011. Insuch order he made no disallowance under Section 14A of the Act.The income of Rs.91.28 lakhs was treated as assessee's businessincome and he also disallowed expenditure of Rs. 24,000/- underSection 40(a)(ia) of the Act. The assessee carried the matter in appeal. CIT (Appeals) 424 itxa 1287-16-o (iii)The assessee had not deducted tax at source thoughrequired and hence, expenditure of Rs.24,000/- should havebeen disallowed under Section 40(a)(ia) of the Act. 4.Despite resistance from the assessee to the process ofreopening of assessment, the Assessing Officer passed order undersection 143(3) r/w 147 of the Act on 31[st] December, 2011. Insuch order he made no disallowance under Section 14A of the Act.The income of Rs.91.28 lakhs was treated as assessee's businessincome and he also disallowed expenditure of Rs. 24,000/- underSection 40(a)(ia) of the Act. The assessee carried the matter in appeal. CIT (Appeals) 424 itxa 1287-16-o first tested the validity of the notice of reopening. He held thatthe question of sale of shares leading to capital gain or businessincome was subjected to scrutiny assessment and that therefore,qua such issue, there was a change of opinion. He, however, didnot agree with the assessee that the notice of reopening wasotherwise bad in law. Since on other two grounds there was noscrutiny. On merits, he upheld the Assessing Officer's order uponwhich the assessee carried the matter in further appeal of theTribunal. 6.The Tribunal by the impugned judgment only touched onthe question of validity of the notice of reopening of assessment.In a detailed judgment the Tribunal held that the notice was badin law since there was no fresh tangible material in the possessionof the Assessing Officer while recording reasons for issuing thenotice. The Tribunal was of the opinion that this was the primecondition to be satisfied before examining the other aspects.The Tribunal placed heavy reliance on the decision of the HighCourt in case of CIT Vs. Orient Craft Ltd.[1]and declared that the 1(2013) 354 ITR 536 notice of reopening of assessment was bad in law. 7.Having heard learned counsel for the parties, we cannotpersuade ourselves to accept the view of the Tribunal. In thepresent case, the notice of reopening of assessment was issuedwithin the period of four years from the end of relevantassessment year. Therefore, insisting that the Assessing Officermust have some material outside of the assessment records whichwould provide him tangible material to form a belief that incomechargeable to tax had escaped assessment, would amount tobringing the element of true and full disclosures. 8. When an assessment has been reopened within four yearsfrom the end of relevant assessment year and the originalassessment has been framed after scrutiny, as held by theSupreme Court in case of CIT Vs. Kelvinator India Ltd[1], conceptof change of opinion would apply. In other words, if the groundson which the notice of reopening of assessment is issued, wassubjected to scrutiny assessment, in absence of any tangible 1320 ITR 561(SC) Priya Soparkar 624 itxa 1287-16-o material outside the case records coming within the possessionof the Assessing Officer, reopening of assessment would not bepermissible. The Tribunal has however, not gone along this line.It is undisputed that only the question of income arising out ofsale of shares was examined by the Assessing Officer during thescrutiny assessment, out of the three grounds mentioned by himin the reasons recorded. In other words, the remaining twogrounds were never subjected to scrutiny during the originalassessment. 9.The view expressed by the Tribunal would run contrary toseries of judgments of different High Courts including largerbench judgment of Delhi High Court in case Commissioner ofIncome Tax-VI, New Delhi Vs. Usha International Limited [1]and division bench judgment of Gujarat High Court in case ofInductotherm (India)(P) Ltd. Vs. M. Gopalan, DeputyCommissioner of Income Tax[2] and several judgments of thisour Court itself. In fact, we may record that the judgment ofDelhi High Court in the case of Orient Craft Ltd.(supra) came 1(2012) 348 ITR 485 (Del) 2(2013) 356 ITR 481(Guj) 9.The view expressed by the Tribunal would run contrary toseries of judgments of different High Courts including largerbench judgment of Delhi High Court in case Commissioner ofIncome Tax-VI, New Delhi Vs. Usha International Limited [1]and division bench judgment of Gujarat High Court in case ofInductotherm (India)(P) Ltd. Vs. M. Gopalan, DeputyCommissioner of Income Tax[2] and several judgments of thisour Court itself. In fact, we may record that the judgment ofDelhi High Court in the case of Orient Craft Ltd.(supra) came 1(2012) 348 ITR 485 (Del) 2(2013) 356 ITR 481(Guj) up for consideration before the said High Court in case ofInductotherm (India)(P) Ltd.(supra) and the earlier judgmentwas explained in this decision. 10.In facts of the present case, however, despite abovediscussion, we are not inclined to interfere. It is for the followingreasons. 11.The CIT (Appeals) had recorded that the issue of incomearising out of sale of shares was examined in the originalassessment. In fact, the reasons recorded also proceed on thisadmitted fact. If during such assessment the Assessing Officertreated the income arising from such source as capital gain, anyattempt on this part to tax the same as business income wouldbe a change of opinion. When admittedly no new material isavailable with the Assessing Officer to do so, permitting him toreassess the same income would amount to recognizing thereview powers which he did not possess. There was no additionmade by the Assessing Officer himself in the assessment order withrespect to the disallowance under section 14A of the Act. The Priya Soparkar remaining addition made by the Assessing Officer was ofminuscule sum of Rs.24,000/-. For such a small sum we find itwholly unnecessary to admit the appeal. We clarify that other than these three items recorded in the reasons, duringreassessment proceedings the Assessing Officer had not made anyother addition. 12.In the result, Income Tax Appeal is dismissed. (SANDEEP K. SHINDE, J.) (AKIL KURESHI,J.)….