Ita/267/2014 Of Equity Intelligence India Pvt. Ltd v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE SHAJI P.CHALY FRIDAY, THE 3RD DAY OF JULY 2015/12TH ASHADHA, 1937 ITA.No. 267 of 2014 () -----------------------AGAINST THE ORDER IN ITA 240/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 08-08-2014 APPELLANT(S)/APPELLANT: -------------------------------------------- EQUITY INTELLIGENCE INDIA PVT. LTD. 5TH FLOOR, AREEKAL MANSION, MANORAMA JUNCTION PANAMPILLY NAGAR, COCHIN - 682 036. BY ADVS.SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.TOM THOMAS (KAKKUZHIYIL) SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.NOBY THOMAS CYRIAC RESPONDENT(S)/RESPONDENT: -------------------------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -1 (1), ERNAKULAM, KOCHI - 682 018. R-R BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R-R BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26-06-2015ALONG WITH ITA. 274/2014, ITA. 280/2014, THE COURT ON 03-07-2015, DELIVEREDTHE FOLLOWING: APPENDIX IN ITA.267/14 APPELLANTS' EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER DATED 23.12.2008 FOR AY2006-07.2006-07. ANNEXURE B: TRUE COPY OF THE REASSESSMENT ORDER DATED 15.12.2011ISSUED UNDER SECTION 147 OF THE ACT.ISSUED UNDER SECTION 147 OF THE ACT. ANNEXURE C: TRUE COPY OF THE APPELLATE ORDER DATED 3.3.2014 PASSED BYTHE COMMISSIONER OF INCOME TAX (APPEALS) -11, KOCHI.THE COMMISSIONER OF INCOME TAX (APPEALS) -11, KOCHI. ANNEXURE D: TRUE COPY OF THE APPEAL DATED 23.5.2014 PREFERRED BY THEAPPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. ANNEXURE E: CERTIFIED COPY OF THE IMPUGNED COMMON ORDER DATED 8.8.2014PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. /TRUE COPY/ C.R. ANTONY DOMINIC & SHAJI P. CHALY, JJ.-----------------------------------I.T.A.Nos.267, 274 & 280 of 2014 ----------------------------------- Dated this the 3[rd] day of July, 2015 JUDGMENT Antony Dominic, J. 1.These three appeals are filed by the assessee, who isaggrieved by the orders passed by the Income TaxAppellate Tribunal, Cochin Bench, upholding theassessment orders passed for the assessment years2006-07, 2008-09 and 2010-11. 2.Assessee is a company engaged in portfolio managementservices having obtained necessary registration fromthe SEBI. The return of income for the assessmentyear 2008-09 was filed and assessment under section143(3) of the Income Tax Act was completed, treatingthe transactions in purchase and sale of shares as'business income' instead of capital gains as shownby the assessee company. In so far as the assessmentyear 2006-07 is concerned, return of income wasprocessed under section 143(1) of the Act andassessment was completed. After completing theassessment for the assessment year 2008-09, theassessment for 2006-07 was reopened by the Assessing Officer invoking his power under section 147 of theAct. Accordingly, assessment was completed undersection 143(3), where also, the income of theassessee from the purchase and sale of shares, whichwas originally treated as short term capital gainsand taxed at the lower rate, was assessed as businessincome. The assessment for the year 2010-11 was alsocompleted under section 143(3) as in the case of theassessment year 2008-09. These orders were confirmedby the Commissioner of Income Tax (appeals) and theTribunal, dismissing the appeals filed by theassessee. This is the background in which theseappeals are filed. 3.The questions of law framed in ITA.267/14, which iscommon in these appeals, are the following:common in these appeals, are the following: Officer invoking his power under section 147 of theAct. Accordingly, assessment was completed undersection 143(3), where also, the income of theassessee from the purchase and sale of shares, whichwas originally treated as short term capital gainsand taxed at the lower rate, was assessed as businessincome. The assessment for the year 2010-11 was alsocompleted under section 143(3) as in the case of theassessment year 2008-09. These orders were confirmedby the Commissioner of Income Tax (appeals) and theTribunal, dismissing the appeals filed by theassessee. This is the background in which theseappeals are filed. 3.The questions of law framed in ITA.267/14, which iscommon in these appeals, are the following:common in these appeals, are the following: “(1) Whether on the facts and circumstances ofthe case, the Appellate Tribunal is right inconfirming the reopening of assessment underSection 147? (2) Whether on the facts and circumstances ofthe case, the Appellate Tribunal is right inconfirming that the profit on sale of shares is to be assessed under the head “income business”and not under the head “capital gains”? (3) Whether there was any material or documentson record to justify the finding of the AppellateTribunal that the Appellant is engaged in tradingactivity and therefore profit on sale of sharesshould be assessed under the head “income frombusiness”? (4) Whether on the facts and circumstances of the case and in the light of the Departmenthaving accepted the assessment of similar incomeunder the head “capital gains” for earlierAssessment Years and intervening AssessmentYears, the assessment under the head “incomefrom business” for this Assessment Year isjustified? (5) Whether the Appellate Tribunal is right in lawin disregarding the decisions of various HighCourts including the jurisdictional High Courtwhich were relied on at the time of hearing,without a speaking order as to why they are notfollowed.” 4.We heard the senior counsel for the appellant and thelearned senior standing counsel appearing for theRevenue. ITA.267/14 & con. cases 5.According to the learned senior counsel, the re-opening of the assessment for the year 2006-07,invoking the power under section 147 of the Act, isillegal. He also contended that the groundscontemplated for re-opening an assessment undersection 147 are not existing in this case. Accordingto him, the assessee has been in the business sincethe assessment year 2002-03 and that till 2006-07,the income derived by the assessee from the sale andpurchase of shares was accepted by the Department ascapital gains and that by treating such income forthe aforesaid three assessment years as businessincome, the Department has shown that it did not haveconsistency in the matter of assessment and treatmentof income. It was also his case that even after re-opening the assessments for the year 2006-07 andcompleting the assessments for the years 2008-09 and2010-11, the Department has left out assessments forthe years 2007-08 and 2009-2010. According to thecounsel, such picking and choosing some of the yearsand leaving out the remaining years when the assesseehad returned loss is impermissible. 6.These contentions were contradicted by the learnedsenior counsel appearing for the Revenue.senior counsel appearing for the Revenue. 6.These contentions were contradicted by the learnedsenior counsel appearing for the Revenue.senior counsel appearing for the Revenue. 7.We have considered the submissions made. The firstissue that is required to be considered is the scopeof the power of the Assessing Officer under section147 of the Act. Section 147 of the Act provides thatif the Assessing Officer has reason to believe thatany income chargeable to tax has escaped assessmentfor any assessment year, he may, subject to theprovisions of sections 148 to 153, assess or re-assess such income and also any other incomechargeable to tax which has escaped assessment andwhich comes to his notice subsequently in the courseof the proceedings under this section, or recomputethe loss or the depreciation allowance or any otherallowance, as the case may be, for the assessmentyear concerned. Under the first proviso, a timelimit of 4 years from the end of the relevantassessment year has been fixed for taking actionunder section 147, unless any income chargeable totax has escaped assessment by reason of the failureon the part of the assessee to make a return under section 139 or in response to a notice under section142(1) or section 148 or to disclose fully and trulyall material facts necessary for his assessment forthat year. This provision, therefore, shows that thepower thereunder can be invoked by an AssessingOfficer if he has reason to believe that any incomechargeable to tax has escaped assessment for anyassessment year. 8.The expression 'reason to believe' incorporated inSection 147 by Act 3 of 1989 with effect from1.4.1989 came up for the consideration of courts onvarious occasions. In Assistant Commissioner ofIncome Taxv. Rajesh Jhaveri Stock Brokers P. Ltd[(2007)291 ITR 500], the Apex Court examined thisexpression and held thus: “Section 147 authorises and permits theAssessing Officer to assess or reassess incomechargeable to tax if he has reason to believe thatincome for any assessment year has escapedassessment. The word reason in the phrasereason to believe would mean cause orjustification. If the Assessing Officer has causeor justification to know or suppose that income had escaped assessment, it can be said to havereason to believe that an income had escapedassessment. The expression cannot be read tomean that the Assessing Officer should havefinally ascertained the fact by legal evidence orconclusion. The function of the Assessing Officeris to administer the statute with solicitude forthe public exchequer with an inbuilt idea offairness to taxpayers. As observed by theSupreme Court in Central Provinces ManganeseOre Co. Ltd. v. ITO [1991 (191) ITR 662], forinitiation of action under Section 147(a) (as theprovision stood at the relevant time) fulfilment ofthe two requisite conditions in that regard isessential. At that stage, the final outcome of theproceeding is not relevant. In other words, at theinitiation stage, what is required is reason tobelieve, but not the established fact ofescapement of income. At the stage of issue ofnotice, the only question is whether there wasrelevant material on which a reasonable personcould have formed a requisite belief. Whetherthe materials would conclusively prove theescapement is not the concern at that stage. Thisis so because the formation of belief by theAssessing Officer is within the realm ofsubjective satisfaction (see ITO v. SelectedDalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597(SC)]; Raymond Woollen Mills Ltd. v. ITO [1999(236) ITR 34 (SC)]. The scope and effect of Section 147 assubstituted with effect from April 1, 1989, as The scope and effect of Section 147 assubstituted with effect from April 1, 1989, as also Sections 148 to 152 are substantiallydifferent from the provisions as they stood priorto such substitution. Under the old provisions ofSection 147, separate clauses (a) and (b) laiddown the circumstances under which incomeescaping assessment for the past assessmentyears could be assessed or reassessed. To conferjurisdiction under Section 147(a) two conditionswere required to be satisfied firstly theAssessing Officer must have reason to believethat income profits or gains chargeable to incometax have escaped assessment, and secondly hemust also have reason to believe that suchescapement has occurred by reason of either (i)omission or failure on the part of the assessee todisclose fully or truly all material facts necessaryfor his assessment of that year. Both theseconditions were conditions precedent to besatisfied before the Assessing Officer couldhave jurisdiction to issue notice under Section148 read with Section 147(a). But under thesubstituted Section 147 existence of only thefirst condition suffices. In other words if theAssessing Officer for whatever reason hasreason to believe that income has escapedassessment it confers jurisdiction to reopen theassessment. It is however to be noted that boththe conditions must be fulfilled if the case fallswithin the ambit of the proviso to Section 147.The case at hand is covered by the main provisionand not the proviso.” ITA.267/14 & con. cases 9. Commissioner of Income Taxv. Kelvinator of IndiaLtd.[(2010) 228 CTR 488] is another case where theApex Court had again considered the scope of thisprovision and it was held that one needs to give aschematic interpretation to the words 'reason tobelieve', failing which, section 147 would givearbitrary powers to the Assessing Officer to re-openassessments on the basis of 'mere change of opinion'which may not be, per se, reason to re-open.Accordingly, the Apex Court held thus: “. . . . . However, one needs to give a schematicinterpretation to the words “reason to believe”failing which, we are afraid, s.147 would givearbitrary powers to the AO to reopenassessments on the basis of “mere change ofopinion”, which cannot be per se reason to reopen.We must also keep in mind the conceptualdifference between power to review and power toreassess. The AO has no power to review; he hasthe power to reassess. But reassessment has tobe based on fulfillment of certain pre-conditionand if the concept of “change of opinion” isremoved, as contended on behalf of theDepartment, then, in the grab of reopening theassessment, review would take place. One musttreat the concept of “change of opinion” as aninbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power toreopen, provided there is “tangible material” tocome to the conclusion that there is escapementof income from assessment. Reasons must have alive link with the formation of the belief. Ourview gets support from the changes made tos.147 of the Act, as quoted hereinabove. Underthe Direct Tax Laws (Amendment) Act, 1987,Parliament not only deleted the words “reason tobelieve” but also inserted the word “opinion” ins.147 of the Act. However, on receipt ofrepresentations from the companies againstomission of the words “reason to believe”,Parliament re-introduced the said expression anddeleted the word “opinion” on the ground that itwould vest arbitrary powers in the AO. . . . . . “ 10.The Full Bench of Delhi High Court had occasion toconsider the above expression in its judgment inCommissioner of Income Taxv. Usha InternationalLtd.[(2012) 348 ITR 485] and after survey of allrelevant precedents on the subject, the position wassummarised thus: “It is, therefore, clear from the aforesaidposition that: 10.The Full Bench of Delhi High Court had occasion toconsider the above expression in its judgment inCommissioner of Income Taxv. Usha InternationalLtd.[(2012) 348 ITR 485] and after survey of allrelevant precedents on the subject, the position wassummarised thus: “It is, therefore, clear from the aforesaidposition that: (1) Reassessment proceedings can be validlyinitiated in case return of income is processedunder Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no changeof opinion. (2) Reassessment proceedings will be invalidin case the assessment order itself records thatthe issue was raised and is decided in favour ofthe assessee. Reassessment proceedings in thesaid cases will be hit by the principle of “changeof opinion”. (3) Reassessment proceedings will be invalidin case an issue or query is raised and answeredby the assessee in original assessmentproceedings but thereafter the AssessingOfficer does not make any addition in theassessment order. In such situations it should beaccepted that the issue was examined but theAssessing Officer did not find any ground orreason to make addition or reject the stand ofthe assessee. He forms an opinion. Thereassessment will be invalid because theAssessing Officer had formed an opinion in theoriginal assessment, though he had not recordedhis reasons. In the second and third situation, theRevenue is not without remedy. In case theassessment order is erroneous and prejudicial tothe interest of the Revenue, they are entitled toand can invoke power under Section 263 of theAct. This aspect and position has beenhighlighted in CIT v. DLF Power Ltd. I.T.A.No.973of 2011 decided on November 29, 2011 - sincereported in [2012] 345 ITR 446 (Delhi) and BLBLtd. v. Asst. CIT Writ Petition (Civil)No.6884 of 2010 decided on December 1, 2011 - sincereported in [2012] 343 ITR 129 (Delhi). In thelast decision it has been observed (page 135): “The Revenue had the option, but did nottake recourse to section 263 of the Act, inspite of audit objection. Supervisory andrevisionary power under Section 263 of the Actis available, if an order passed by the AssessingOfficer is erroneous and prejudicial to theinterest of the Revenue. An erroneous ordercontrary to law that has caused prejudiced canbe correct, when jurisdiction under Section263 is invoked.” Thus, where an Assessing Officer incorrectly orerroneously applies law or comes to a wrongconclusion and income chargeable to tax hasescaped assessment, resort to section 263 of theAct is available and should be resorted to. Butinitiation of reassessment proceedings will beinvalid on the ground of change of opinion.” 11.From the principles laid down in the above judgments, it can be seen that the power undersection 147 of the Act can be invoked by theAssessing Officer, if, on the materials availablebefore him, he has reason to believe that any incomechargeable to tax has escaped assessment in any assessment year, provided such proceedings are notbarred by the time limit prescribed in the firstproviso to the said section. The requirement thatthe Assessing Officer must have 'reason to believe'cannot be taken to mean that the Assessing Officermust be satisfied that there exists grounds forreopening the assessment or the Assessing Officershould have formed an opinion about the nature of thefinal order that is likely to be passed after re-opening the assessment. The question is whether theAssessing Officer was justified in re-opening theassessment for the year 2006-07. For the assessmentyear 2006-07, assessment was initially completedunder section 143(1) of the Act. The scope ofenquiry that is permissible in an assessmentproceedings under section 143(1) is very limited asis evident from the section itself, which reads thus: “143. Assessment - (1) Where a return has beenmade under section 139, or in response to anotice under sub-section (1) of section 142, suchreturn shall be processed in the following manner,namely:- (a) the total income or loss shall be computedafter making the following adjustments,namely:-after making the following adjustments,namely:- (i) any arithmetical error in the return; or(ii) an incorrect claim, if such incorrect claimis apparent from any information in thereturn;(ii) an incorrect claim, if such incorrect claimis apparent from any information in thereturn; (b) the tax and interest, if any, shall becomputed on the basis of the total incomecomputed under clause (a);computed on the basis of the total incomecomputed under clause (a); (c) the sum payable by, or the amount of refunddue to, the assessee shall be determinedafter adjustment of the tax and interest, ifany, computed under clause (b) by any taxdeducted at source, any tax collected atsource, any advance tax paid, any reliefallowable under an agreement under section90 or section 90A, or any relief allowableunder section 91, any rebate allowable underPart A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwiseby way of tax or interest;due to, the assessee shall be determinedafter adjustment of the tax and interest, ifany, computed under clause (b) by any taxdeducted at source, any tax collected atsource, any advance tax paid, any reliefallowable under an agreement under section90 or section 90A, or any relief allowableunder section 91, any rebate allowable underPart A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwiseby way of tax or interest; (d) an intimation shall be prepared or generatedand sent to the assessee specifying the sumdetermined to be payable by, or the amountof refund due to, the assessee under clause(c); andand sent to the assessee specifying the sumdetermined to be payable by, or the amountof refund due to, the assessee under clause(c); and (e) the amount of refund due to the assessee inpursuance of the determination under clause(c) shall be granted to the assessee:pursuance of the determination under clause(c) shall be granted to the assessee: Provided that an intimation shall also be sentto the assessee in a case where the loss declaredin the return by the assessee is adjusted but notax or interest is payable by, or no refund is dueto him; provided further that no intimation underthis sub-section shall be sent after the expiry ofone year from the end of the financial year inwhich the return is made.” 12.The scope of this provision was considered by theApex Court in its judgment in Assistant Commissionerof Income Taxv. Rajesh Jhaveri Stock Brokers P. Ltd(supra), where it was held thus: “It is to be noted that substantial changeshave been made to Section 143(1) with effectfrom June 1, 1999. Up to March 31, 1989, after areturn of income was filed the Assessing Officercould make an assessment under Section 143(1)without requiring the presence of the assessee orthe production by him of any evidence in supportof the return. Where the assessee objected tosuch an assessment or where the officer was ofthe opinion that the assessment was incorrect orincomplete or the officer did not complete theassessment under Section 143(1), but wanted tomake an inquiry, a notice under Section 143(2)was required to be issued to the assessee “It is to be noted that substantial changeshave been made to Section 143(1) with effectfrom June 1, 1999. Up to March 31, 1989, after areturn of income was filed the Assessing Officercould make an assessment under Section 143(1)without requiring the presence of the assessee orthe production by him of any evidence in supportof the return. Where the assessee objected tosuch an assessment or where the officer was ofthe opinion that the assessment was incorrect orincomplete or the officer did not complete theassessment under Section 143(1), but wanted tomake an inquiry, a notice under Section 143(2)was required to be issued to the assessee requiring him to produce evidence in support ofhis return. After considering the material andevidence produced and after making necessaryinquiries, the officer had power to makeassessment under Section 143(3). With effectfrom April 1, 1989, the provisions underwentsubstantial and material changes. A new schemewas introduced and in the new substitutedSection 143(1) prior to the subsequentsubstitution with effect from June 1, 1999, inClause (a), a provision was made that where areturn was filed under section 139 or in responseto a notice under section 142(1), and any tax orrefund was found due on the basis of such returnafter adjustment of tax deducted at source, anyadvance tax or any amount paid otherwise by wayof tax or interest, an intimation was to be sentwithout prejudice to the provisions of Section143(2) to the assessee specifying the sum sopayable and such intimation was deemed to be anotice of demand issued under Section 156. Thefirst proviso to Section 143(1)(a) allowed theDepartment to make certain adjustments in theincome or loss declared in the return. They wereas follows : (a) any arithmetical errors in the return, accounts and documents accompanying it were tobe rectified; (b) any loss carried forward, deduction, allowance or relief which on the basis of theinformation available in such return, accounts or documents, was prima facie admissible, but whichwas not claimed in the return was to be allowed; (c) any loss carried forward, relief claimedin the return which on the basis of theinformation as available in such returns accountsor documents were prima facie inadmissible wasto be disallowed. What were permissible under the firstproviso to Section 143(1)(a) to be adjusted were,(i) only apparent arithmetical errors in thereturn, accounts or documents accompanying thereturn, (ii) loss carried forward, deductionallowance or relief, which was prima facieadmissible on the basis of information available inthe return but not claimed in the return andsimilarly (iii) those claims which were on the basisof the information available in the return, primafacie inadmissible, were to be rectified/allowed/disallowed. What was permissible wascorrection of errors apparent on the basis of thedocuments accompanying the return. TheAssessing Officer had no authority to makeadjustments or adjudicate upon any debatableissues. In other words, the Assessing Officerhad no power to go behind the return, accounts ordocuments, either in allowing or in disallowingdeductions, allowance or relief.” 13.For the assessment year 2006-07, assessment undersection 143(1) was completed by order dated23.12.2008. It was thereafter the Assessing Officer 13.For the assessment year 2006-07, assessment undersection 143(1) was completed by order dated23.12.2008. It was thereafter the Assessing Officer completed the assessment under section 143(3) for theyear 2008-09 by his order dated 30.12.2010. In thatorder, the income earned by the assessee in thepurchase and sale of shares as capital gains, wastreated as business income and was taxed. It wasthereafter that proceedings under section 147 wereinitiated with respect to the assessment year 2006-07and assessment was completed under section 143(3) byorder dated 15.12.2011. The question that isrequired to be considered is whether the reopening ofassessment is based on the mere change of opinion ofthe Assessing Officer as contended by the counsel forthe appellant. 14.In our view, the aforesaid contention cannot beaccepted. Law mandates that the Assessing Officershould have reason to believe that income chargeableto tax has escaped assessment for any assessment yearto invoke the power to re-open assessments undersection 147. Admittedly, assessments for the year2006-07 were completed treating the income inquestion as capital gains. Once the assessment forthe year 2008-09 was completed and the income for that year was assessed as business income, theAssessing Officer had sufficient materials to believethat income chargeable to tax as business income forthe assessment year 2006-07 had escaped assessment.It was on that basis, proceedings under section 147was initiated. The initiation of such proceedingsunder section 147, according to us, is fully withinthe four corners of section 147 of the Act. 15.It is true that returns treating the income as capital gains were accepted in the previousassessment years also. It is on that factual basisthat contention was raised by the assessee thatDepartment should maintain consistency in the matterof assessment. In support of this contention,counsel for the appellant relied on the judgment ofthe Bombay High Court in Commissioner of Income Taxv. Gopal Purohit[(2011) 336 ITR 287]. This again isan untenable argument for the reason that in thematter of assessment of income tax, the decisionarrived at in the previous year cannot be regarded asbinding in the assessment for the subsequent years.It has been so held by the Apex Court in Dwarakadas Kesardeo Morarkav. Commissioner of Income Tax[(1962) XLIV ITR 529], the relevant paragraph ofwhich is extracted herein: “. . . . . It cannot be said that because in the previous years the shares were held to be stock-in-trade, they must be similarly treated for theassessment year 1949-50. In the matter ofassessment of income-tax, each year'sassessment is complete and the decision arrivedat in a previous year on materials before thetaxing authorities cannot be regarded as bindingin the assessment for the subsequent years. . . . “ Therefore, though consistency is desirable, the desirability of consistency cannot operate againstthe Revenue in completing assessments for subsequentyears in accordance with law. This is all the moreso since the assessments for the previous years werecompleted under section 143(1) of the Act. In so faras the judgment of the Bombay High Court in GopalPurohit(supra) is concerned, though the court hashighlighted the need for consistency, it has alsotaken note of the fact that in that case, the Revenuedid not furnish any justification for adopting a ITA.267/14 & con. cases divergent approach for the assessment year inquestion. Therefore, though consistency is desirable, the desirability of consistency cannot operate againstthe Revenue in completing assessments for subsequentyears in accordance with law. This is all the moreso since the assessments for the previous years werecompleted under section 143(1) of the Act. In so faras the judgment of the Bombay High Court in GopalPurohit(supra) is concerned, though the court hashighlighted the need for consistency, it has alsotaken note of the fact that in that case, the Revenuedid not furnish any justification for adopting a ITA.267/14 & con. cases divergent approach for the assessment year inquestion. 16. It is true, as contended by the learned counsel,that assessments for the years 2007-08 and 2009-2010were left out and according to the counsel, theRevenue has, therefore, adopted a pick and choosemethod, choosing the assessment years when theassessee had returned profit. Though this contentionwould appear to be attractive, a closer examinationthereof would show that there is no substance in it.Admittedly, for the assessment years 2007-08 and2009-2010, the assessee had returned loss. Theassessment for such years were also completed undersection 143(1). Re-opening of those assessments ispermissible only under section 147 and power underthat section could be invoked only if any incomechargeable to tax has escaped assessment. Here, inthe instant case, the assessee has returned loss andtherefore, no income chargeable to tax has escapedassessment, permitting invocation of the power underthis provision. ITA.267/14 & con. cases 17.Similar is the case with the revisional power of theCommissioner under section 263, which also can beinvoked only if any order passed is prejudicial tothe interest of the Revenue. Such being the case,the assessee cannot be heard to complain that theRevenue has adopted a pick and choose method in thematter of assessment for the years in question.Commissioner under section 263, which also can beinvoked only if any order passed is prejudicial tothe interest of the Revenue. Such being the case,the assessee cannot be heard to complain that theRevenue has adopted a pick and choose method in thematter of assessment for the years in question. 18.The main question that arises for consideration isregarding the legality of assessment treating theincome for the years in question as 'business income'instead of 'capital gains'.regarding the legality of assessment treating theincome for the years in question as 'business income'instead of 'capital gains'. 19.Before we proceed to consider the relevant facts,it would be appropriate to examine the legalprinciples which govern the issue. Although bothsides have cited before us various precedents on thesubject, in our view, having regard to the principleslaid down by the Apex Court in its judgment inCommissioner of Income Tax, Nagpur v. Sutlej CottonMills Supply Agency Ltd.[(1975) 100 ITR 706], it isunnecessary to refer to all those judgments. In thisjudgment, after referring to various otherit would be appropriate to examine the legalprinciples which govern the issue. Although bothsides have cited before us various precedents on thesubject, in our view, having regard to the principleslaid down by the Apex Court in its judgment inCommissioner of Income Tax, Nagpur v. Sutlej CottonMills Supply Agency Ltd.[(1975) 100 ITR 706], it isunnecessary to refer to all those judgments. In thisjudgment, after referring to various other ITA.267/14 & con. cases authorities, the Apex Court summarised the principlesthus: ITA.267/14 & con. cases authorities, the Apex Court summarised the principlesthus: “In the absence of any evidence of tradingactivity in cases of purchase and resale ofshares, it has been held that profit arising fromthe resale is an accretion to the capital. If atransaction is in the assessee's ordinary line ofbusiness there can be no difficulty in holdingthat it is in the nature of trade. But thedifficulty arises where the transaction is outsidethe assessee's line of business and then, it mustdepend upon the facts and circumstances of eachcase whether the transaction is in the nature oftrade. It is not necessary to constitute trade thatthere should be a series of transactions, both ofpurchase and of sale. A single transaction ofpurchase and sale outside the assessee's line ofbusiness may constitute an adventure in thenature trade. Neither repetition nor continuityof similar transactions is necessary to constitutea transaction an adventure in the nature oftrade. If there is repetition and continuity, theassessee would be carrying on a business and thequestion whether the activity is an adventure inthe nature of trade can hardly arise. Atransaction may be regarded as isolated althougha similar transaction may have taken place afairly long time before [see Commissioners ofInland Revenue v. Reinhold (1953) 34 TC 389]. The principles underlying the distinctionbetween a capital sale and an adventure in thenature of trade were examined by this court inG.Venkataswami Naidu & Co. v. Commissioner ofIncome-tax [(1959) 35 ITR 594 (SC)], where thiscourt said that the character of a transactioncannot be determined solely on the application ofany abstract rule, principle or test but mustdepend upon all the facts and circumstances ofthe case. Ultimately, it is a matter of firstimpression with the court whether a particulartransaction is in the nature of trade or not. Ithas been said that a single plunge may be enoughprovided it is shown to the satisfaction of thecourt that the plunge is made in the waters ofthe trade; but mere purchase/sale of shares-ifthat is all that is involved in the plunge-may fallshort of anything in the nature of trade.Whether it is in the nature of trade will dependon the facts and circumstances. Where the purchase of any article or of anycapital investment, for instance, shares, is madewithout the intention to resell at a profit, aresale under changed circumstances would onlybe a realisation of capital and would not stampthe transaction with a business character (seeCommissioner of Income-tax v. P.K.N.Co.Ltd(1966) 60 ITR 65 (SC). Where a purchase is made with the intentionof resale, it depends upon the conduct of the assessee and the circumstances of the casewhether the venture is on capital account or inthe nature of trade. A transaction is notnecessarily in the nature of trade because thepurchase was made with the intention of resale(see Jenkinson v. Freedland [(1961) 39 TC 636(CA)], Radha Debi Jalan v. Commissioner ofIncome-tax [(1951) 20 ITR 176 (Cal)], India NutCo. Ltd. v. Commissioner of Income-tax [(1960)39 ITR 234 (Ker)], Mrs.Sooniram Poddar v.Commissioner of Income-tax [(1939) 7 ITR 470,478-9 (Rang)(FB)], Ajax Products Ltd. v.Commissioner of Income-tax [(1961) 43 ITR 297,310 (Mad)], Gustad Irani v. Commissioner ofIncome-tax [(1957) 31 ITR 92 (Bom)] andMrs.Alexander v. Commissioner of Income-tax[(1952) 22 ITR 379, 402 (Mad)]. A capital investment and resale do not losetheir capital nature merely because the resalewas foreseen and contemplated when theinvestment was made and the possibility ofenhanced values motivated the investment (seeLeeming v. Jones [(1930) 15 TC 333 (HL)] andalso the decisions of this court in Saroj KumarMazundar v. Commissioner of Income-tax [(1959)37 ITR 242, 250-1(SC)] and Janki Ram BahadurRam v. Commissioner of Income-tax [(1965) 57ITR 21 (SC)]. A capital investment and resale do not losetheir capital nature merely because the resalewas foreseen and contemplated when theinvestment was made and the possibility ofenhanced values motivated the investment (seeLeeming v. Jones [(1930) 15 TC 333 (HL)] andalso the decisions of this court in Saroj KumarMazundar v. Commissioner of Income-tax [(1959)37 ITR 242, 250-1(SC)] and Janki Ram BahadurRam v. Commissioner of Income-tax [(1965) 57ITR 21 (SC)]. In Commissioner of Inland Revenue v. Fraser[(1942) 24 TC 498, 502] Lord Normand said: “The individual who enters into a purchase of anarticle or commodity may have in view the resaleof it at a profit, and yet it may be that that isnot the only purpose for which he purchased thearticle or the commodity, nor the only purpose towhich he might turn it if favourable opportunityfor sale does not occurr.... An amateur maypurchase a picture with a view to its resale at aprofit and yet he may recognise at the time orafterwards that the possession of the picturewill give him aesthetic enjoyment if he is unableultimately, or at his chosen time, to realise it at aprofit.....” An accretion to capital does not becomeincome merely because the original capital wasinvested in the hope and expectation that itwould rise in value; if it does so rise, itsrealisation does not make it income. LordDunedin said in Leeming v. Jones at page 360: “The fact that a man does not mean to hold aninvestment may be an item of evidence tending toshow whether he is carrying on a trade orconcern in the nature of trade in respect of hisinvestments but per se it leads to no conclusionwhatever.” This court laid down in G.Venkataswami Naidu& Co. v. Commissioner of Income-tax [(1959) 35ITR 594, 610, 622(SC)] that the dominant oreven sole intention to resell is a relevant factorand raises a strong presumption, but by itself is not conclusive proof, of an adventure in thenature of trade. The intention to resell would, in conjunction with the conduct of the assessee and othercircumstances, point to the business character ofthe transaction.” 20.We may, in this context, also refer to the judgmentof the Apex Court in M/s.Rajputana Textiles (Agencies) Ltd. v. Commissioner of Income tax,Bombay City[42 ITR 743], where the contention thatbuying and selling in shares was not one of theobjects of the company was rejected and the courtheld that this was only one of the circumstances inthe totality of the circumstances which must beconsidered, though this by itself is notdeterminative of the question. Again, in itsjudgment in Sutlej Cotton Mills Ltd.v. Commissionerof Income Tax, West Bengal [(1979) 116 ITR 1], theApex Court held that the way in which entries aremade by the assessee in its books of accounts is notdeterminative of the question whether the assesseehas earned any profit or suffered any loss.Therefore, even if it is accepted that the objects ITA.267/14 & con. cases clause in the Memorandum of Association of theassessee did not provide for trading in shares andthat in the accounts it was shown as investments,that by itself would not be determinative of theissue involved in these appeals. 21.While the precedents that we have referred to abovelead to the irresistible conclusion that it is thetotality of the circumstances which is determinativeof the question as to whether the profit earned bythe assessee is an accretion to the capital or is atrading profit, it is also relevant that the CentralBoard of Direct Taxes issued circular No.4/2007 dated15.6.2007 indicating the tests to draw a distinctionbetween the shares held as stock-in-trade and sharesheld as investment. This circular being relevant isextracted below for reference: C.B.D.T. Circulars Circular No.4/2007, dated June 15, 2007 Sub: Distinction between shares held as stock-in-trade and shares held as investment-Testsfor such a distinction. 21.While the precedents that we have referred to abovelead to the irresistible conclusion that it is thetotality of the circumstances which is determinativeof the question as to whether the profit earned bythe assessee is an accretion to the capital or is atrading profit, it is also relevant that the CentralBoard of Direct Taxes issued circular No.4/2007 dated15.6.2007 indicating the tests to draw a distinctionbetween the shares held as stock-in-trade and sharesheld as investment. This circular being relevant isextracted below for reference: C.B.D.T. Circulars Circular No.4/2007, dated June 15, 2007 Sub: Distinction between shares held as stock-in-trade and shares held as investment-Testsfor such a distinction. The Income-tax Act, 1961 makes adistinction between a capital asset and a tradingasset. 2. Capital asset is defined in section 2(14)of the Act. Long-term capital assets and gainsare dealt with under section 2(29A) and section 2(29B). Short-term capital assets and gains aredealt with under section 2(42A) and section 2(42B). 3. Trading asset is dealt with under section 28of the Act. 4. The Central Board of Direct Taxes (CBDT)through Instruction No.1827 dated August 31,1989, had brought to the notice of the AssessingOfficers that there is a distinction betweenshares held as investment (capital asset) andshares held as stock-in-trade (trading asset). Inthe light of a number of judicial decisionspronounced after the issue of the aboveinstructions, it is proposed to update the aboveinstructions for the information of the assesseesas well as for guidance of the Assessing Officers. 5. In the case of CIT v. Associated IndustrialDevelopment Company (P) Ltd. [1971] 82 ITR 586,the Supreme Court observed that (headnote): Whether a particular holding of shares is byway of investment or forms part of the stock-in-trade is a matter which is within the knowledgeof the assessee who holds the shares and heshould, in normal circumstances, be in a positionto produce evidence from his records as towhether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way ofinvestment. 6. In the case of CIT v. H.Holck Larsen [1986] 160 ITR 67, the Supreme Court observed (page87): The High Court, in our opinion, made amistake in observing whether transactions of saleand purchase of shares were trading transactionsor whether these were in the nature ofinvestment was a question of law. This is a mixedquestion of law and fact. 7. The principles laid down by the SupremeCourt in the above two cases afford adequateguidance to the Assessing Officers. 8. The Authority for Advance Rulings (AAR) [2007] 288 ITR 641, referring to the decisionsof the Supreme Court in several cases, has culledout the following principles (page 651): (i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power topurchase and sell shares in the memorandum ofassociation is not decisive of the nature oftransaction; (ii) the substantial nature of transactions, themanner of maintaining books of account, themagnitude of purchases and sales and the ratiobetween purchases and sales and the holdingwould furnish a good guide to determine thenature of transactions; (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would resultin the transaction being in the nature oftrade/adventure in the nature of trade; butwhere the object of the investment in shares ofa company is to derive income by way of dividendetc. then the profits accruing by change in suchinvestment (by sale of shares) will yield capitalgain and not revenue receipt. 9. Dealing with the above three principles, theAAR has observed in the case of Fidelity group asunder (page 661): (ii) the substantial nature of transactions, themanner of maintaining books of account, themagnitude of purchases and sales a