Itta/393/2015 Of Commissioner Of Income Tax-Ii v. M/S Gajmuch Investments Pvt Ltd

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON’BLE SRI JUSTICE M. SEETHARAMA MURTI I.T.T.A.No.393 of 2015 JUDGMENT(Per the Hon’ble Sri Justice Ramesh Ranganathan) This appeal, under Section 260A of the Income Tax Act, 1961 (‘the Act’, forbrevity), is preferred against the order passed by the Income Tax Appellate Tribunal(‘the Tribunal’, for short) in ITA.No.1292/Hyd/2013 dated 27.06.2014. The appealbefore the Tribunal was preferred by the Revenue against the order passed by theCommissioner of Income Tax (Appeals) on 16.07.2013 setting aside the orderpassed by the Assessing Officer in the exercise of his jurisdiction under Section 147of the Act. Facts, to the limited extent necessary, are that the assessee is a Companycarrying on business in investments and securities. They filed a return of income on30.10.2005, for the assessment year 2005-06, declaring a loss of Rs.2,30,08,266/-which was processed under Section 143(1) of the Act. Thereafter, the assessee’sreturn was selected for scrutiny, and an order, under Section 143(3) of the Act, waspassed on 20.07.2007 determining ‘NIL’ income after setting off the brought forwardlosses of Rs.1,54,88,864/-, and long term capital loss of Rs.2,30,08,266/-. Onverification, the Assessing Officer noticed that the assessee had derived short termcapital gains of Rs.68,94,886/- from the sale of shares which was set off against longterm capital loss of Rs.2,99,03,153/-, and a net long term capital loss ofRs.2,30,08,266/- was carried forward. The Assessing Officer was of the view thatlong term capital loss could not be set off against the short term capital gain as perSection 74(i)(b) of the Act; and the assessee had set off income of Rs.1,13,83,250/-from the sale of property against brought forward business loss which, according tothe Assessing Officer, should have been assessed as short term capital gain. TheAssessing Officer reopened the assessment under Section 147 of the Act, andissued a notice under Section 148 of the Act on 26.03.2012. In reply, the assesseesubmitted a letter dated 20.11.2012 requesting that the return filed on 30.10.2005 betreated as a reply to the notice issued under Section 148 of the Act. During assessment proceedings, the assessee objected to the initiation of proceedingsunder Section 147 of the Act after expiry of a period of four years from the end of theassessment year. The objections were rejected, and the Assessing Officercompleted assessment under Section 143(3) read with Section 147 of the Actbringing to tax the profit derived from the sale of shares and sale of property treatingthem as short term capital gain which could not be set off against long term capitalloss and brought forward business loss. In appeal, the Commissioner of Income Tax (Appeals) held that reopening ofthe assessment, by the Assessing Officer, was bad in law; there was no newinformation on record; the Assessing Officer had not brought out any details showinghow income had escaped assessment, what was the default committed by theassessee, and what inaccurate information had been provided by them; theAssessing Officer had taken a conscious decision regarding the issue at hand and,after six years, the assessment could not be reopened on the basis of the very sameinformation as it was nothing but a change of opinion. The order of the AssessingOfficer was set aside. Aggrieved thereby, the Revenue carried the matter in appealto the Tribunal. In appeal, the Commissioner of Income Tax (Appeals) held that reopening ofthe assessment, by the Assessing Officer, was bad in law; there was no newinformation on record; the Assessing Officer had not brought out any details showinghow income had escaped assessment, what was the default committed by theassessee, and what inaccurate information had been provided by them; theAssessing Officer had taken a conscious decision regarding the issue at hand and,after six years, the assessment could not be reopened on the basis of the very sameinformation as it was nothing but a change of opinion. The order of the AssessingOfficer was set aside. Aggrieved thereby, the Revenue carried the matter in appealto the Tribunal. In the order under appeal, the Tribunal held that, in terms of the proviso toSection 147 of the Act, an assessment, completed under Section 143 or 147, couldnot be reopened after expiry of four years from the end of the relevant assessmentyear, unless such escapement of income was attributable to the failure on the part ofthe assessee to disclose fully and truly all material facts necessary for completion ofassessment; the reasons recorded by the Assessing Officer, for forming a belief thatthe income had escaped assessment, were already mentioned in the assessmentorder; it was evident that, on re-examination of the computation of income and otherstatements filed by the asseesee along with the return, the Assessing Officer hadformed an opinion that set off of short term capital gain, derived from the sale ofshares, against long term capital loss was not permissible; and the gain, derivedfrom the sale of house property, had to be assessed as short term capital gain andcould not be set off against brought forward business loss as the assessee wasengaged in the business of dealing with securities. The Tribunal held that neither inthe reasons recorded, nor anywhere in the assessment order, was there anyallegation by the Assessing Officer that there was failure on the part of the assesseeto disclose truly and fully all material facts necessary for completing the assessment; and the condition precedent for reopening the assessment, beyond four years, wasnot satisfied in the present case. The Tribunal further held that reopening ofassessment, in the present case, was not only on a mere change of opinion but alsoamounted to review of the assessment order passed earlier under Section 143(3) ofthe Act. The order of the Commissioner of Income Tax (Appeals) was affirmed, andthe appeal preferred by the Revenue was dismissed. Sri B. Narasimha Sarma, learned Senior Standing Counsel for the IncomeTax Department would submit that the Assessing Officer was justified in exercisingjurisdiction under Section 147 of the Act as the assesee has failed to disclose, fullyand truly, all material facts. Both the Commissioner of Income Tax (Appeals) and the Tribunal have heldthat the Assessing Officer had re-examined the assessment order passed earlierunder Section 143(3) on 20.12.2007; and, on re-examination of the computation ofincome and other statements, he had formed an opinion that set off of short termcapital gains, derived from sale of shares, against long term capital loss was notpermissible; and the gain derived from sale of house property had to be assessed asshort term capital gain and could not be set off against brought forward businesslosses as the assessee was engaged in the business of dealing with securities. Both the Commissioner of Income Tax (Appeals) and the Tribunal have heldthat the Assessing Officer had re-examined the assessment order passed earlierunder Section 143(3) on 20.12.2007; and, on re-examination of the computation ofincome and other statements, he had formed an opinion that set off of short termcapital gains, derived from sale of shares, against long term capital loss was notpermissible; and the gain derived from sale of house property had to be assessed asshort term capital gain and could not be set off against brought forward businesslosses as the assessee was engaged in the business of dealing with securities. Exercise of jurisdiction under Section 147 of the Act, in the present case, isnot for the failure of the assessee to disclose fully and truly all material factsnecessary for his assessment, but because the Assessing Officer was of the opinionthat the set off claimed by the assessee earlier, and which was accepted by himwhile passing an assessment order earlier under Section 143(3) of the Act,necessitated re-computation and re-determination. As has been rightly held by theTribunal such an exercise could not have been undertaken beyond the period of fouryears in view of the limitation prescribed under the proviso to Section 147 of the Act.The exercise undertaken by the Assessing Officer not only amounted to a change ofopinion, but also a review of the earlier assessment order passed under Section143(3) of the Act. We find no infirmity in the order of the Tribunal, much less can asubstantial question of law be said to have arisen, necessitating interference inproceedings under Section 260A of the Act. The appeal fails and is, accordingly, dismissed. Miscellaneous petitions, if any, pending in this appeal shall stand closed. 18[th] November, 2015 Vjl _____________________ RAMESH RANGANATHAN, J _____________________ M. SEETHARAMA MURTI, J 62 THE HON’BLE SRI JUSTICE RAMESH RANGANATHANAND THE HON’BLE SRI JUSTICE M. SEETHARAMA MURTI I.T.T.A.No.393 of 2015 (Judgment of the Bench delivered by Hon’ble Sri Justice Ramesh Ranganathan) th18November 2015