High Court Of Andhra Pradesh
Spectra Shares & Scrips (P.) Ltd. vs. CIT – III, Hyderabad
Assessment Year : 2006-07
Section : 45, 28(i), 263
Goda Raghuram And M.S. Ramachandra Rao, JJ.
I.T.T.A. Nos. 512 Of 2011 & 177 Of 2012
February 21, 2013
M.S. Ramachandra Rao, J. – These two appeals are filed under section 260A of the Income-tax Act, 1961 (for short “the Act”) by M/s Spectra Shares & Scripts Private Limited, Hyderabad (for short “the assessee”) challenging the order dated 05-11-2011 in I.T.A. No.748/HYD/2011 and the order dated 16-03-2012 in M.A.No.193/HYD/2011 in the said I.T.A. of the Income Tax Appellate Tribunal “A” Bench, Hyderabad (for short “the Tribunal”) for the assessment year 2006-07.
2. The assessee is a private limited company incorporated in the year 1963. It is registered as Non-Banking Finance Company (NBFC) with the Reserve Bank of India. Initially, it was a franchisee of M/s Coca-Cola Company and was engaged in the Bottling business. In December, 1997, the business of the assessee was taken over by the said Company as a going concern and the assessee received Rs.56.23 Crores as consideration/compensation. This amount received by the assessee was invested by it in stages in shares of Companies quoted on the Stock Exchange and in units of Mutual Funds. The assessee also owns a Kalyanamandapam at Vijayawada from which it gets rental income by letting it out for various functions.
3. For the assessment year 2006-07, the assessee filed its return of income on 25-10-2006 declaring a loss of Rs.45,38,701/- under normal computation and loss of Rs.21,93,252/- under sec.115JB of the Act. During the relevant year, it also claimed exemption under Sec.10(38) on Long Term Capital Gains (for short “LTCG”) of Rs.18,45,50,782/- from the sale of quoted shares and equity oriented Mutual Funds. It also had LTCG of Rs.43,65,508/- and Short Term Capital Gains (for short “STCG”) of Rs.16,96,089/- which was offered for taxation.
4. The case of the assessee for assessment year 2006-07 was selected for scrutiny proceedings. The Assessing Officer issued a show cause notice dated 04-08-2008 asking the assessee to file various details including (i) a detailed note on the business activity of the assessee, (ii) to substantiate the claim of exemption of LTCG, (iii) details of LTCG from the transfer of unquoted shares, (iv) details of STCG from sale of shares and Mutual Fund Units and (v) computation of capital gain under various categories.
5. Vide letter dated 29-08-2008, the assessee filed its reply giving all the details sought by the Assessing Officer including a note on its business activity, statement/working of LTCG and STCG of income which was claimed as exempt and which was chargeable to tax.
6. After considering the submissions of the assessee, by an order dated 16-12-2008, the Assessing Officer completed the assessment under Sec.143(3) of the Act stating that he had gone through the information furnished and computed the total income accepting the assessee to be an Investor and holding that the income chargeable from sale of shares and units of Mutual Funds was chargeable under the head “Capital Gains”.
7. The Commissioner of Income-tax – III, Hyderabad (for short “the Respondent”) issued a show cause notice dated 20-01-2010 under Sec.263 of the Act stating that the Capital Gain on the sale of 6100 shares of M/s ITC Limited had been wrongly categorized as LTCG and Rs.81,06,084/- was claimed as exemption by the assessee but it was clear from the Balance Sheet that the said shares were acquired and sold during the year and therefore to show cause on 29-01-2010 as to why exemption claimed on the sale of shares of M/s ITC Limited should not be revoked.
8. By a letter dated 29-01-2010, the assessee clarified that during the year 2005-06 relevant to the A.Y. 2006-07, the assessee company had got allotment of 660 equity shares of M/s. ITC Limited against the existing holding of 5500 equity shares of M/s. ITC Hotels pursuant to a scheme of amalgamation of M/s. ITC Hotels with M/s. ITC Limited; that the newly allotted 660 equity shares of Rs.10/- each of M/s. ITC Limited, were received in demat form during May, 2005 and further they were sub-divided into 6600 equity shares of Re.1/- each during September, 2005; that the assessee was holding the original shares of M/s. ITC Hotels for more than a year prior to the year relevant to the A.Y. 2006-07; that the cost and date of acquisition of original shares of M/s. ITC Hotels would be the cost and date of the newly acquired merger shares of M/s. ITC Limited; and that since the holding of the original shares of M/s. ITC Hotels was more than a year, the capital gain arising on the sale of shares of M/s. ITC Limited would be long term in nature and therefore the claim of the assessee of LTCG of Rs.8,16,084/- is correct.
9. The respondent did not proceed further and it appeared that he was satisfied with the reply of the assessee. There was a change of incumbent and the succeeding Commissioner called upon the assessee to appear before him and orally required it to furnish further information relating to activity of acquisition and sale of shares and other related information. The assessee submitted the information sought by the respondent on 18-10-2010, 13-12-2010, 22-12-2010 and 6-1-2011. Subsequently also further information was sought which went beyond the notice dated 20-01-2010 under Sec.263 of the Act which had been issued only with regard to shares of M/s ITC Limited.
10. The respondent thereafter issued a “Revised Show Cause Notice” dated 21-02-2011 under Sec.263 of the Act raising a new issue i.e., that the appellant is an investor or trader in shares generally and also stating that on further examination of the records, it is noticed that the assessee is engaged in the business of trading in shares, Mutual Fund Units and other securities; that the Assessment Order dated 16-12-2008 under Sec.143(3) of the Act is erroneous insofar as it relates to the above issues and is prejudicial to the interest of the Revenue; and the assessee should show cause why the profits from the sale of shares and Mutual Funds should not be taxed under the head ” income from business” instead of ” Capital Gains” in the light of a CBDT Circular No.04/2007, dated 15-06-2007 and the judgment of the Supreme Court in Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685
11. The assessee submitted a reply dated 09-03-2011 challenging the validity of the revised show cause notice inter alia contending:
“(a) that the revised show cause notice on a completely different ground from the earlier show cause notice on the examination of the same records is invalid and bad in law;
(b) that the revised show cause notice is based on material collected by the respondent and it cannot be said to be based on the record and hence, invalid in law;
(c) that the view of the respondent is only on account of his difference of opinion from that of the Assessing Officer and it is not permissible to undertake revision under Sec.263 of the Act on the said ground;
(d) when the Assessing Officer has taken one of the possible views on the facts of the case and the same view has been accepted in earlier and subsequent years, proceedings under Sec.263 of the Act cannot be initiated; and
(e) That the assessee is an investor and not a trader and the income from the sale of shares is chargeable as “Capital Gains” and not as “Business Income”.’
12. By order dated 31-03-2011, the respondent held that the order of the Assessing Officer passed on 16-12-2008 is erroneous and prejudicial to the interest of the Revenue; that the assessee is holding the shares and Mutual Funds as “Stock-in-Trade” and not as “Investment” and Profit from the sale of the same is chargeable as “Income from Business” and not as “Capital Gains”; that this inference has to be drawn on the basis of information available before the Assessing Officer and in Assessment Records; that the Assessing Officer has not examined the issue in detail and erroneously accepted the claim of the assessee on LTCG; issuing a modification to the notice under Sec.263 of the Act based on the same record before conclusion of the proceedings under Sec.263 would not amount to change of opinion and is well within the powers under Sec.263(1) and as per the time limit provided under Sec.263(2) of the Act; that the application of mind by the Assessing Officer and coming to a wrong conclusion is not a bar for exercising jurisdiction under Sec.263 by the Commissioner; that failure of the Assessing Officer to make an enquiry before granting a deduction would render the Assessment erroneous; that under Sec.263, the Commissioner can correct both errors of fact and of law; that the order of a Revisional Authority is not an infringement of the power of the Assessing Authority and is not a mere change of opinion; that the concept of change of opinion would not arise in the case of revision by a superior authority; that an analysis of the transactions carried out by the assessee during the year in question indicates that it is buying and selling shares in the same year frequently; that there is a correlation of buy and sell day after day of huge number of shares of the same scrip i.e. M/s Andhra Sugars Limited; similar pattern is found on analysis of purchase and sale of several other scrips; that the assessee has been regularly buying and selling shares and Mutual Fund Units through very high volume of transactions throughout the year; the fact that the assessee is doing buying and selling of shares on day-to-day basis shows that it is monitoring the stock markets and buying at dips and selling at highs with an intention to make profit from these transactions; the assessee’s earning of dividend income is incidental to the trading activity as stocks held by it through rolling at any given point of time is so huge that on the record dates, the assessee has been able to receive dividend income also; that such dealing in shares and Mutual Funds as an organized activity with high volume and frequency is to be construed as business activity and not as investment activity; that the Taxing Authority are entitled to draw different conclusions in different assessment years and principles of res judicata do not apply to Income Tax proceedings; that name or label given by a party to a particular amount in its books of account is not conclusive; that the borrowing of fund for the purpose of buying of shares or Mutual Funds is not conclusive as to the nature of activity of an assessee; that passing of a resolution in a meeting of the Board of Directors of the assessee authorizing its Directors to make investments does not conclusively show that the intention is only to make investments and not trading; that the assessee is a closely held company with the family members of the Chairman running its business and such board resolutions of closely held Companies are intended to cover up its true activity i.e. trading in shares; the fact that the assessee had an elaborate administrative set up with considerable administrative expenditure proves that it was indulging in trading activity and not investments; that the very name of the assessee i.e., M/s Spectra Shares and Scrips Private Limited indicates its business activity of dealing in shares and Scrips; that the annual report for the year 2005-06 shows the income of the Company in the Profit and Loss account drawn only for an entity carrying on business as it shows net profit before depreciation; the remarks in the Director’s Report for 2005-06 that during the year, the market was up-beat and the Directors were hopeful of good results supports this conclusion; that merely because the assessee is registered as an NBFC with RBI would not mean that it cannot do trading activity; that the assessee is using its registration as NBFC as a camouflage for its trading activity; one of the objects in the Memorandum and Articles of Association of the assessee states ” the company will raise funds to acquire or hold, sell, buy or otherwise deal in shares, debentures, bond units, obligations and other securities” and these along with its actions are all reflective of its business activity and not investment activity; that the only and sole objective of purchase and sale of shares is to derive profits and not to earn dividend therefrom; that the ratio between dividend income and profits is 2:40 which shows that the dividend income is meager compared to income from sale of Share; that it is fair to conclude that its main business is only purchase and sale of shares and Units while its ancillary activity is running of a marriage hall at Vijayawada; therefore, the income declared by the assessee under the head LTCG amounting to Rs.18,98,06,611/- and STCG amounting to Rs.20,70,510/-, together amounting to Rs.19,18,77,121/- is to be held as the income chargeable under the head “business”.
13. Challenging the order dated 31-03-2011 of the respondent, the assessee filed I.T.A. No. 748/HYD/2011 before the Tribunal. The assessee also filed elaborate written arguments and a paper book showing the incorrect factual assumptions made by the respondent in his order under Sec.263 of the Act.
14. The Tribunal by order dated 5-8-2011, dismissed the appeal. It held:
“(a) that the order of the Assessing Officer becomes erroneous when an enquiry has not been made by him and he had not examined the genuineness of the claim of the assessee and not necessarily because there is anything wrong with his order; that arbitrariness in decision making by the Assessing Authority is amenable to correction under Sec.263 of the Act; that perusal of the Assessment Order does not show any application of mind by the Assessing Officer; that he simply accepted the income declared by the assessee under the head LTCG as it is though the assessee has been carrying on business in shares; that he did not bother to examine the nature of business carried on by the assessee though it was mentioned in the Tax Audit Report that it is engaged in the business of ” investment/trading of shares and securities” ; that the evidence available on record is not enough to hold that the claim made by the assessee was objectively examined or considered by the Assessing Officer; that the Assessing Officer completely omitted the issue in question from consideration and made assessment in an arbitrary manner by a completely non-speaking order and it was a fit case for the Commissioner to exercise his revisional jurisdiction under Sec.263 of the Act.
(b) that the assessee’s contention that the Assessing Officer had taken a possible view in accepting its return with reference to head of income and, therefore, the Commissioner was not justified in revising it under Sec.263, is not tenable as there was a failure on the part of the Assessing Officer in making enquiries and to examine the claim of the assessee rendering his order erroneous and prejudicial to the interest of the Revenue. Therefore, a view taken by the Assessing Officer without examination and evaluation cannot be presumed to be a permissible view or a possible view; that the order of the Assessing Officer is not supported by “judicial strength” and such order if allowed to stand would have disastrous consequences making honest taxpayer to pay more than others to compensate for the loss caused by such erroneous orders; that the Assessment Order is passed on an incorrect assumption of fact/incorrect application of law/without application of mind/without making requisite enquiries and will satisfy the requirement under Sec.263; that the plea of the assessee that consistency has to be followed would not apply to matters of assessment under the Income-tax Act as each assessment year is an independent assessable distinct unit and principles of res judicata do not apply.
(c) on the merits, the Tribunal held on an analysis of data relating to the purchase and sale of shares of M/s Andhra Sugars Limited by the assessee that it is buying and selling shares in the same year very frequently; that there is correlation of buying and selling day after day of huge number of shares of the same scrip and the pattern is similar for several other scrips also; similar activity is done in respect of purchase and sale of Mutual Fund Units of the same fund throughout the year; that this points to trading activity in shares and Mutual Fund Units with a view to earn profit and the intention of the assessee to carry on “business” and not ” investment” . Therefore, the profit arising to the assessee on sale of shares and Mutual Funds acquired by it was rightly treated as “income from business” by the CIT and not as “income from capital gain”.’
15. Challenging the same, the assessee filed I.T.T.A.No.512 of 2011 before this Court.
16. The assessee also filed M.A. No.193/HYD/2011 under Sec.254(2) of the Act before the Tribunal seeking rectification of certain mistakes in it’s order dated 05-08-2011 in I.T.A.No.748/HYD/2011, which according to it, were apparent on the face of the record. The assessee contended that there were several mistakes of law and fact in the order of the Tribunal and, therefore, the order of the Tribunal requires to be amended in exercise of its power under Sec.254(2) of the Act.
17. By order dated 16-03-2012, M.A. No.193/HYD/2011 in I.T.A.No.748/HYD/2011 was dismissed by the Tribunal.
18. Aggrieved thereby, the assessee has filed I.T.T.A. No.177 of 2012 in this Court.
19. Heard Sri S.E. Dastoor, Senior Counsel for Sri Challa Gunaranjan, Counsel for the assessee/Appellants and Sri B. Narasimha Sarma, Standing Counsel for the Income-tax Department.
20. The learned counsel for the Appellant/assessee contended as follows:
A. On the issue of jurisdiction of the Commissioner under Sec.263 of the Act.
I. If Assessing Officer takes a possible view, then the Assessment Order cannot be said to be erroneous and the Commissioner is not entitled to exercise jurisdiction under Sec.263 of the Act, and relied on the decisions in the cases of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) ; CIT v. Max India. Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC).
II. If the Assessing Officer has issued show cause notices with respect to an issue and the assessee has replied thereto fully, Commissioner is not entitled to interfere as every decision or view that the Assessing Officer takes is not to be reflected in the Assessment Order and an item finds mention only if he does not agree with the assessee’s contention. Hence, the assessment order cannot be said to be erroneous, and relied on the decisions in the cases of CIT v. Vikas Polymers [2010] 194 Taxman 57 (Delhi); CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi); and CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.).
III. The Commissioner cannot under Sec.263 interfere on an issue which has been accepted by the Revenue for a number of years. In the present case, as the Revenue has accepted the Appellant to be an investor whose income is chargeable under the head “Capital Gains” for a number of years, the Assessment order of the Assessment year 2006-07 cannot be said to be erroneous if the same view has been accepted by the Assessing Officer, and relied on a decision in the case of CIT v. Escorts Ltd.[2011] 338 ITR 435/198 Taxman 324/9 taxmannn.com 222 (Delhi).
IV. Tribunal cannot uphold the jurisdiction of the Commissioner under Sec.263 on a ground different from what has been mentioned in the notice under Sec.263 or the order of the Commissioner under Sec.263.The Commissioner has held that the Assessing Officer has applied its mind but has come to an erroneous conclusion. The Tribunal held that the Assessment Order was passed without proper examination or enquiry or verification or objective consideration of the claim made by the Appellant and, hence, Commissioner was justified in revising the order. As the Commissioner in the order passed under section 263 has not given this reason for exercising jurisdiction under Sec.263, the Order of the Tribunal is erroneous and relied on the decisions in the cases of CIT v. Jagadhari Electric Supply & Industrial Co. [1983] 140 ITR 490/[1981] 7 Taxman 56 (Punj & Har); and CIT v. Howrah Flour Mills Ltd. [1999] 236 ITR 156 (Cal.).
B. On the merits of the case:
I. Principle of Consistency: When the facts in the assessment year are same as that of earlier years, then the Assessing Officer cannot take a view contrary to the view taken in the earlier years. As the Assessing Officer has accepted that right from assessment year 1998-99, the Appellant was accepted by the Revenue as an investor and the shares and mutual funds are investment and not stock-in-trade, in the relevant assessment year i.e. 2006-07, the Assessing Officer cannot take a contrary view. Indeed even for the assessment year 2007-08, the Assessing Officer took the same view. He relied on the decisions in the cases of CIT v. Darius Pandole [2011] 330 ITR 485/11 taxman.com 262 (Bom.); CIT v. Gopal Purohit [2011] 336 ITR 287/[2010] 188 Taxman 140 (Bom.); and Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC).
II. On the basis of the following facts, the Appellant submits that the Appellant is an investor and not a trader:
(a) In the books of account the shares and the Mutual Funds have been shown as investments;
(b) The investments are valued at cost and not ‘cost or market value’ whichever is lower, which is required as per Accounting Standard 13 applicable to valuation of Stock-in-trade;
(c) The appellant has always been accepted as investor (not trader) in the earlier years from A.Y. 1998-99 and in the subsequent year i.e. 2007-08;
(d) There are no borrowings by the appellant;
(e) The appellant has earned substantial dividend income;
(f) 99% of the total gains are ‘Long Term Capital Gains” and less than 1% is “Short Term Capital Gains”;
(g) Almost 40% of the investments are in mutual funds;
(h) The appellant has never dealt in futures, derivates and options;
(i) All the transactions of purchase and sale were delivery based;
(j) The appellant has never claimed set off of the losses arising from sale of investments against other incomes;
(k) The frequency of the transaction in the current year is on account of the change proposed in sections 10(38) and 115JB by the Finance Bill, 2006 presented on 28th February, 2006, which provided that w.e.f. A.Y. 2007-08 (i.e. transactions from 1-4-2006), Long Term Capital Gains though exempt for normal computation would be chargeable to tax under sec.115JB of the Act for book profit tax. The appellant has entered into transactions in the month of March, 2006 to sell the present holding and to repurchase the same to get High cost of the shares which would save the MAT payable by the assessee in the subsequent year. Out of the total transaction of Rs.25,97,34,057/- (including Rs.2.66 Crores on sale of Hindustan Coca Cola Beverage (P.) Ltd) in shares, the appellant has entered into Rs.13,58,64,244/- in the month of March itself;
(l) The appellant has only made use of the exemption provision under sec. 10(38) and sec.115JB by carrying out transactions in the month of March, 2006 and use of a provision to get benefit has been permitted by the Supreme Court in the case of CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1/192 Taxman 211.
(m) It is incorrect to say that there has been frequency of transaction as the sales by the appellant has been from the shares acquired by the appellant in the earlier years. It is not a case of buying and selling of the shares in quick time as is apparent from the fact that the majority of the gains are long term capital gains.
(n) Without prejudice to the above, the appellant also submitted that the frequency of the transactions cannot be the only basis to determine whether the appellant is a trader or an investor and it has to be determined on the basis of the totality of the facts and circumstances of the case and relied on the Circular No.4 of 2007.
21. The learned Standing Counsel contended as follows:
(i) Powers and scope of Sec.263 to be exercised by the Commissioner where the assessment order is erroneous and prejudicial to the interest of the Revenue and the Commissioner is entitled to examine not only the material available before the Assessing Officer but also the other records which are available at the time of examination by him and the said powers are very wide to revise the erroneous and prejudicial assessment order videM.S. Raju v. Dy. CIT [2008] 298 ITR 373 (AP.).
(ii) When the Assessing Officer erroneously allowed an exemption claimed by the assessee under Sec.10(38) of the Act, did not conduct any enquiry so as to decide the fundamental aspect of the case i.e. whether the sale and purchase of the shares by the assessee with high magnitude and frequency throughout the year is a trading activity or investment and the Assessing Officer did not take any view on such fundamental aspect, such erroneous and prejudicial assessment orders are liable to be revised under sec.263 of the Act. The plea of res judicata is not applicable in the tax proceedings and each assessment year is independent proceedings and more particularly when the fundamental aspect of the case was not enquired and no view was taken by the Assessing Officer. Hence, the Assessment Order is unsustainable in law and rightly revised under Sec.263 by elaborative consideration by supporting material furnished by the assessee and relied upon the reported decisions in the cases of Raja Bahadur Visheshwara’s (supra); New Jahangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 (SC): and Malabar Industrial Co. Ltd. (supra).
(iii) Buying and Selling of shares/Units with high magnitudes and frequency throughout the year by systematic and regular activity is a trading activity and not an investment as claimed by the assessee and the profits are exigible to tax under the head of “business profits” and relied on the decisions in the cases of G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC); Raja Bahadur Visheshwara’s Case (supra); New Jahangir Vakil Mill’s Co. Ltd. case (supra); Dalhousie Investment Trust Co. Ltd. v. CIT [1968] 68 ITR 486 (SC); and P.V.S. Raju v. Addl. CIT [2012] 340 ITR 75/18 taxmann.com 3 [2013] 213 Taxman 13 (Mag.) (AP.).
(iv) The ITAT being the final fact finding authority, its findings are supported by facts on record and contain elaborate consideration of each and every submission of the assessee and reasoning. Hence, no substantial question of law has been made out by the assessee as required under Sec.260A of the Act and the appeals filed by the assessee are liable to be dismissed.
(v) It is submitted that the order of the Assessing Officer is erroneous and prejudicial as it is a case of “lack of enquiry” on the fundamental aspect of the case mentioned above and it is a case of “no view” by the Assessing Officer on the said fundamental aspect. The assessee did not plead about its tax planning to reduce the MAT liability consequent to changes brought by Finance Act, 2006 with effect from 1-4-2007 before the CIT as there is no mention of the same in its reply. The assessee’s submission in regard to purchase and sale of Reliance shares on a single day before the Income Tax Appellate Tribunal (ITAT) is contrary to its submissions before the CIT.
(vi) Day-to-day variation in portfolio of the scripts based on market trend is a clear indication of its business activity as otherwise the assessee as an investor could have parked its scripts/investments till year end to get the benefit of dividend income. Frequent variation in scripts by sale and purchase is a business activity for the benefit of profit. Analysis of sale and purchase of shares during the year by a regular trading as well as sample study of single day transaction of sale scripts or different scripts is a guiding factor to decide the trading activity of the assessee. Hence, the matching of the net balance is not a conclusive proof for to support the case of the assessee.
(vii) The Assessment Orders for the assessment years 2005-06 and 2006-07 were reopened and completed, holding that the sale and purchase of Share is a business activity and liable to tax. From the assessment year 2008-09 onwards the income from sale of shares has been assessed as business income.
(viii) Where the order would be erroneous if it is based on an incorrect assumption of facts or an incorrect application of law or non-application of mind or based on no or insufficient materials vide Arvee International v. Addl. CIT [2006] 101 ITD 495/8 SOT 452 (Mum.).
(ix) Where assessment without proper enquiry – unlike the Civil Court which is neutral to give a decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. He cannot remain passive on the face of a return which is apparently in order but the facts stated in the return when the circumstances of the case are such as to provoke inquiry – If there is failure to make such enquiry, order is erroneous and prejudicial to revenue and Commissioner of Income-tax need not prove that it is erroneous and he can revise it under Sec.263 on the decisions in the cases of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC); Malabar Industrial Co. Ltd. (supra); Swarup Vegetable Products Industries Ltd. v. CIT [1991] 187 ITR 412/54 Taxman 175 (All.); Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi); Rajalakshmi Mills Ltd. v. ITO [2009] 121 ITD 343/31 SOT 353 (Chennai) (SB); and SRM Systems & Software (P.) Ltd. v. Asstt. CIT [T.C. (A) No. 824 of 2010, dated 31-8-2010]
22. We have considered the submissions of the parties.
23. Sec.263 of the Act states as follows:
“263. Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.—For the removal of doubts, it is hereby declared that, for the purpose of this sub-section,—
(a) An order passed (on or before or after the 1st day of June, 1988,) by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “Record” shall include, and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal National Tax Tribunal the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purpose of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
24. In Malabar Industrial Co. Ltd. (supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent – if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue – recourse cannot be had to Sec.263(1) of the Act. It also held at pg-88 as follows:
“The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)”.
25. In Max India Ltd. (supra), reiterated the view in Malabar Industrial Co. Ltd.(supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. On the facts of that case, Sec.80HHC(3) as it then stood was interpreted by the Assessing Officer but the Revenue contended that in view of the 2005 Amendment which is clarificatory and retrospective in nature, the view of the Assessing Officer was unsustainable in law and the Commissioner was correct in invoking Sec.263. But the Supreme Court rejected the said contention and held that when the Commissioner passed his order disagreeing with the view of the Assessing Officer, there were two views on the word “profits” in that section; that the said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263.
26. In Vikas Polymers (supra), the Delhi High Court held that the power of suo motu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an “erroneous judgment” means one which is not in accordance with law; that if an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as “erroneous” by the Commissioner simply because, according to him, the order should have been written differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income-tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income-tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.
27. In Sunbeam Auto Ltd. (supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income-tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. In that case, the Delhi High Court held that the Commissioner in the exercise of revisional power could not have objected to the finding of the Assessing Officer that expenditure on tools and dies by the assessee, a manufacturer of car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income-tax Authorities. It held that the Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry.
28. In Gabriel India Ltd. (supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It held that the Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prejudicial to the interests of the Revenue. Otherwise, it would amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh inquiry in matters which have already been concluded under law.
29. In M.S. Raju (supra), this Court has held that the power of the Commissioner under Sec.263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment.
30. In Rampyari Devi Saraogi (supra), the Commissioner in exercise of revisional powers cancelled assessee’s assessment for the years 1952-1953 to 1960-61 because he found that the Income Tax Officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever. He directed the Income Tax Officer to do fresh assessment after making proper enquiry and investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereotyped assessment order for each assessment year; that on the face of the record, the orders were pre judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not”
31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out:
(a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent – if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue – recourse cannot be had to Section 263 (1) of the Act.
(b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law.
(c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.
(e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted
(f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed.
(g) The power of the Commissioner under Sec.263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment.
32. In the light of the above principles, we have to see whether the respondent has rightly exercised revisional powers under Sec.263 (1) of the Act.
33. The Assessing Officer had passed the assessment order on 16-12-2008 accepting the case of the assessee that its income has to be taxed under the head “Capital Gain” as he was satisfied with the explanation and data submitted by the assessee vide its letters dated 08-02-2008, 15-05-2008, 29-08-2008 (to his queries made vide his letter dated 22-01-2008, 17-04-2008, 04-08-2008), that it is an investment company carrying on business in shares and such investment is made for the sole purpose of deriving dividend income. The correspondence exchanged between the parties shows that the Assessing Officer raised specific queries about the business activity of the assessee and also its claim of LTCG income from quoted shares, unquoted shares and Mutual Fund Units apart from STCG from sale of shares and Mutual Fund Units. The assessee had also given details of computation of Capital Gains under various categories. It is settled law that the Assessing Officer is not called upon to write an elaborate judgment giving detailed reasons. In para-5 and 5.2 of his order dated 31-03-2011 u/Sec.263, the respondent also held that substantial information had been furnished by the assessee , and at Para 5.1 he held that there was application of mind by the Assessing Officer but the conclusion of the Assessing Officer is wrong.
34. It may be that in the Assessment Order, the Assessing Officer has not made an elaborate discussion on the issue as to the nature of activity of the assessee i.e. whether it is an investment or whether it is business income and did not refer to his query on the issue to the assessee before passing the order (in his letter dt.4.8.2008) or the reply given by the assessee to his query (vide it’s letter dt.29.8.2008). As held in Vikas Polymers (supra), Sunbeam Auto (supra) and Gabriel India Ltd. (supra), when it is not incumbent on the Assessing Officer to pass a detailed order, merely because the order does not contain reasons as to why he accepted that the assessee is a trading company, his order does not become susceptible for revision. The Assessing Officer while making an assessment had examined the accounts, made inquiries, applied his mind to the facts and circumstances of the case and determined the income of the assessee. Therefore, it is not open to the Commissioner, on the ground that a different view is possible, to reopen the assessment on the ground that the Assessing Officer did not make an elaborate discussion in that regard.
35. Admittedly, the assessee had given full details of these transactions in its letter/reply dated 29.08.2008 to the Assessing Officers letter dated 04.08.2008, giving details of dates of acquisition of the shares in question and dates of sale of shares. As such this material was available before the Assessing Officer. In its reply dt. 09-03-2011 to the revised show cause notice issued by the respondent also, the appellant had enclosed the list of transactions in relation to the scrips of M/s. Amara Raja Battery, M/s. Reliance Industries, M/s. Gujarat NRE Coke and M/s. Andhra Sugars Limited contending that having purchased the shares of the said companies, it had retained them for periods ranging from 1 year 2 months to 3 years 6 months before selling them. The counsel for the appellants has taken us through the said statements/list of transactions.
36. On a perusal of the list of transactions, we notice that:
(a) In relation to M/s. Amara Raja Battery shares, 51 transactions of purchase of the said shares took place between 05-06-2003 and 28-03-2005. They were retained by the appellant for a minimum period of 1 year extending up to a maximum period of 2 years 5 months before being sold. For example 1000 shares purchased on 05-06-2003 (first transaction) were sold on 19-04-2005; 1000 shares purchased on 26-06-2003 (17th transaction) were sold on 08-06-2005; 500 shares purchased on 04-09-2003 (32nd transaction) were sold on 25-01-2006; 2444 shares purchased on 19-09-2003 (42nd transaction) were sold on 20-03-2006; 975 shares purchased on 02-03-2005 (50th transaction) were sold on 27-03-2006.
(b) In relation to shares of M/s. Reliance Industries, 39 transactions of purchase of shares were done between 05-06-2002 to 27-01-2005. They were retained by the appellant for a minimum period of 1 year 2 months to 3 years 6 months before being sold. For example 200 shares purchased on 05-06-2002 (1st transaction) were sold on 22-07-2005; 1000 shares purchased on 12-07-2002 (15th transaction) were sold on 18-01-2006; 2000 shares purchased on 14-05-2004 (25th transaction) were sold on 16-03-2006; 1000 shares purchased on 25-01-2005 (37th transaction) were sold on 20-03-2006.
(c) 47 transactions of purchase of shares of M/s. Gujarat NRE Coke were done between 22-04-2004 and 09-02-2005 by the appellant. The period of retention of shares after their purchase and before their sale was from 11 months 10 days to 1 year 6 months. For example 2000 shares purchased on 22-04-2004 (1st transaction) were sold on 05-04-2005; 1000 shares purchased on 19-05-2004 (14th transaction) were sold on 13-06-2005; 500 shares purchased on 02-08-2004 (30th transaction) were sold on 18-08-2005; 18000 shares purchased on 09-02-2005 (46th transaction) were sold on 16-03-2006.
(d) 156 transactions of purchase of shares of M/s. Andhra Sugars were done between 09-01-2001 and 25-02-2005. These shares were held for periods ranging from 1 year 1 month to 5 years before their sale. For example 2000 shares purchased on 09-01-2001 (1st transaction) were sold on 31-08-2005; 500 shares purchased on 25-01-2002 (50th transaction) were sold on 03-02-2006; 826 shares purchased on 23-08-2002 (100th transaction) were sold on 09-03-2006; 1603 shares purchased on 25-02-2005 (156th transaction) were sold on 28-03-2006.
Illustratively, we have mentioned a few transactions in relation to each of the above scrips to demonstrate that the appellant is right in its contention that almost every transaction entered into by it indicated that its dealing in shares was only by way of investment (evidenced by retention of shares for at least 11 months up to 5 years) attracting capital gains tax, and the assumption by the respondent that the shares are held as “stock-in-trade” and its business activity is buying and selling of shares, is incorrect.
37. But both the respondent ( at Para 5.4 of his order) and the Tribunal (at Para 45 of its order) do not take note of the dates of acquisition of the shares which are sold in March, 2006 and presume that the assessee was purchasing and selling shares in the same year. Both the respondent and the Tribunal refer only to the purchase and sale by the assessee of its shares in M/s. Andhra Sugars Limited and conclude (at Para 5.4 and Para 45 of their respective orders) that similar pattern is found in respect of several other scrips also without considering the details of the date of purchase and sale of the other scrips. This shocks our judicial conscience.
38. Both the respondent and the Tribunal state (at Para 5.4 and Para 45 of their respective orders) that on 31.01.2006, the assessee bought 15500 shares and sold 1500 shares of M/s. Andhra Sugars Ltd. This is clearly erroneous as the assessee had in fact sold 15000 shares of the said company on that date as can be seen from the written submissions made by the assessee before the Tribunal. Also the respondent at Para 2.5 and Para 5.15(i) of his order states that the assessee sold 1,01,23,003 shares of 53 listed companies during the year, but in fact the assessee had sold only 10,23,003 shares. The figure ‘1’ was interpolated after the figures ’10’ and before the figures ‘23003’ to give a misleading impression of the volume of shares traded. Even though this error was pointed out by the assessee in the written submissions made by it to the Tribunal at Para 29, the Tribunal does not deal with it.
39. One of the reasons assigned by the respondent to base his conclusion that the assessee carried out day trading (at Para 5.15(ii) of his order) was the sole instance of the assessee purchasing and selling 500 shares of Reliance Industries Ltd., on 08.08.2005 i.e., on the same day by squaring the account without taking delivery. This was not pointed out in the original show-cause notice dated 20.01.2010 or in the revised show-cause notice dated 21.02.2011 specifically. The assessee in its written submissions before the Tribunal sought to explain at Para 17 that this was a solitary transaction which happened by mistake on the part of the broker; that when the assessee was informed of the purchase, it immediately told the broker to cancel the transaction which was done accordingly even though this resulted in a loss of Rs.1,197/-; that there was nothing wrong if the assessee had availed the services of three leading brokers for the purpose of investment in shares and that fact has no bearing on the nature of the activity; that more than 90% of the transactions are carried out by one broker who has only NSE Terminal and that for shares listed only on BSE, the transactions are being done with other two brokers; and this sole instance cannot be taken to conclude that the assessee is a trader in shares as other transactions show that the shares were held for a long time after their purchase before being sold. The Tribunal in its order makes no reference to this submission at all and does not deal with it.
40. The respondent at Para 5.15(v) of his order states that the ratio between dividend and profits is 2:40 and arrives at it by comparing – the profit earned from buying and selling of shares of Rs.19,18,77,121/-(consisting of LTCG of Rs.18,98,06,611 + STCG of Rs.20,70,510/-) with the dividend income of Rs.47,19,169/-. He therefore comes to a conclusion that the dividend income is meagre compared to profit on sale of shares. But the figure of Rs.18,98,06,611/- of LTCG taken by the respondent includes the figure of Rs.5,41,58,133/- which is LTCG from sale of Mutual Fund units. To be fair to the assessee, the respondent should have computed the dividend income from the companies with the LTCG from the sale of quoted shares of Rs.13,56,48,478/- only and if he intended to include LTCG from sale of Mutual Funds units also, he should have taken into account the income from Mutual Funds and added it to the dividend income as indicated in Para 2 of his order. When it comes to cost of shares for purpose of computation of “Capital Gains”, the respondent takes the cost of the shares at the time of their purchase, but he refuses to look at the date of purchase (to decide whether they are LTCG or STCG) and holds that the purchase and sale is in the same year. This indicates a very disturbing and dishonest intention on the part of the respondent to twist the figures to justify a preconceived conclusion adverse to the assessee and we strongly deprecate it.
41. In response to the revised show-cause notice of the respondent dated 21.02.2011, the petitioner filed a detailed reply on 9.3.2011 showing that shares purchased between 2002 and 2005 were sold from 2005 and before 31.3.2006. It is pertinent to note that the respondent in his show-cause notice dated 20.01.2010 u/s. 263 of the Act or in the revised show-cause notice dated 21.02.2011 did not at all refer to the volume of transactions in March, 2006 specifically. Therefore, the assessee had no occasion to point out to the respondent the reason for the high volume and frequency of transactions in March, 2006. For the first time in his order dated 31.03.2011 at Para 5.4, the respondent refers to the said fact.
42. The explanation given by the assessee for large volume of sale and purchase of shares in March, 2006 is that by Finance Bill 2006, presented on 28.02.2006 (w.e.f A.Y 2007-08 (i.e., to transactions from 1.4.2006)), L.T.C.G though exempt for normal computation would be chargeable to tax u/s. 115JB of the Act for book profit tax; that the assessee had entered into transactions in the month of March, 2006 to sell its present holding and to repurchase the same to get high cost of the shares which would save the MAT payable by it in the subsequent year; out of total transaction of Rs.25,97,34,057/-(including Rs.2.66 crore on sale of Hindustan Coca-cola Beverage P Ltd) in shares, the assessee had entered into Rs.13,58,64,244/- in March, 2006 itself. It is clear that the assessee had only made use of the exemption provision u/s. 10(38) and S.115JB by carrying out transactions in March, 2006 and such use of a provision to get benefit is permissible. In Walfort share & Stock Brokers (P.) Ltd.(supra), the assessee earned income mainly from share trading and brokerage. The CFT Mutual Fund came out with an advertisement stating that tax free dividend income of 40% could be earned if investments were made before 24.03.2000. The assessee by virtue of its purchase on 24.03.2000, became entitled to dividend on the units at Rs.4/- per unit and earned a dividend of Rs.1,82,12,862.80/-. As a result of the dividend payout, the value of the unit stood reduced from Rs.17.23 to Rs.13.23 per unit on 27.03.2000. On 27.03.2000, the assessee sold all the units at Rs.13.23 per unit and collected an amount of Rs.5,90,55,207.75/-, as well as an incentive of Rs.23,76,778/- in respect of the transaction. In all the assessee received back Rs.7,96,44,847/- as against the initial payment of Rs.8,00,00,000/-. In its return, the assessee claimed the dividend received of Rs.1,82,12,862.80/- as exempt from tax u/s.10(33) of the Act, and also claimed a set off of Rs.2,09,44,793/- as loss incurred on the sale of the units. The I.T department disallowed the set off claimed. However, the Appellate Tribunal, on appeal, deleted the disallowance by holding that the assessee was entitled to set off the loss from the transactions in question against its other income chargeable to tax. This view was affirmed by the High Court and by the Supreme Court. The Supreme Court held that it was established that there was a sale and the assessee received dividend and that dividend was tax free. The use by the assessee of the provisions of S.10(33) of the Act cannot be said to be “abuse of law”; even assuming that the transaction was preplanned, there was nothing to impeach the genuineness of the transaction; that the ruling of the Supreme Court in McDowell & Co Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11was clarified in the subsequent ruling of the Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) that a citizen is free to carry on its business within the four corners of the law and that mere tax planning, without any motive to evade taxes through colourable devices, is not frowned upon even by the judgment in McDowell & Co. Ltd. (supra).
43. In our view the said decision in Walfort Share & Stock Brokers (P.) Ltd. (supra) squarely applies to the present case and the respondent at Para 5.14 of his order dated 31.3.2011 erred in applying the ratio in McDowell & Co. Ltd. (supra) and holding that the assessee by taking advantage of its registration as an NBFC is camouflaging its trading activity in shares and units of Mutual Funds and the Tribunal erred in confirming the same. Although in the written arguments filed before the Tribunal the said contention was specifically raised and it was contended that the assessee only did tax planning , and the Tribunal recorded by it at Para 11 of its order, the Tribunal did not deal with the said contention at all in its order.
44. The C.B.D.T had issued a circular no.4/2007 in exercise of its powers u/s. 119 of the Act laying out certain guidelines for Assessing Officers to distinguish between shares held as stock-in-trade and shares held as an investment. It referred to the decision of the Supreme Court in CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 (SC), CIT v. H Holck Larsen [1986] 160 ITR 67/26 Taxman 305 (SC) and a ruling of the Authority for Advance Ruling in Fidelity Northstar Fund, In re [2007] 288 ITR 641/158 Taxman 372 (AAR-New Delhi) and instructed the Assessing Officers as under:
“(a) Whether a particular holding of shares is by way of investment or forms part of the stock in trade is a matter which is within the knowledge of the assessee who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock in trade and those which are held by way of investment;
(b) The question whether a transaction of sale and purchase of shares is a trading transaction or whether it is in the nature of an investment is a mixed question of law and fact;
(c) Where a company purchases and sells shares, it must be shown that they were held as stock in trade and that the existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of the transaction;
(d) The substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions;
(e) Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/ adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc., then, the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt;
(f) One has to verify as to how the shares were valued/ held in the books of account i.e., whether they were valued as stock-in-trade at the end of the financial year for the purpose of arriving at business income or held as investment in capital assets;
(g) Regulation 18 of the SEBI Regulations enjoying upon every FII to keep and maintain books of account containing true and fair accounts relating to remittance of initial corpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances;
(h) It is possible for a taxpayer to have two portfolios i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income;
(i) The Assessing Officers should keep in mind that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock in trade.”
45. This Court in PVS Raju (supra), held that the question whether shares of a company held by an assessee constitute his capital assets or his stock-in-trade is not a pure question of law but essentially one of fact; that in judging the character of such transaction, several factors are significant such as voluminous share transactions; purchase of shares not made for the purpose of earning dividend but with dominant intention of resale in order to earn profits; the magnitude, frequency and the ratio of sales to purchases on the total holdings; the period of holding of a majority of stock; and that a transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale. It held that the distinction between capital accretion and income is that, for the purpose of ascertaining whether profits made upon a sale of an article are taxable profits, the question to be asked is; “is the article acquired for the purpose of trade?”, and that if it is so, the profit arising from a sale, it must be brought into a revenue account. The profit is chargeable as capital gains if the sale is of a capital asset and as business profit if the sale is in the course of business. It held that no single criterion is decisive in determining the question whether a particular receipt is capital or revenue and that the answer to the question must ultimately depend on the facts of each case.
46. In G. Venkataswamy Naidu & Co. (supra) while construing provisions of the Income Tax Act, 1922, the question as to what is “Adventure in the nature of trade” was considered by the Supreme Court. The appellant firm in the said case acting as managing agents purchased four contiguous plots of land adjacent to the place where the mills of the company managed by it were situated. As long as the appellant firm was in possession of the lands it made no effort to cultivate them or erect any super structure on them but allowed them to remain unutilized except for the rent received from the house which existed on one of the plots. Subsequently it sold the lands to the company six years later. The question was whether the sum received by the appellant firm which is in excess of the purchase price was assessable to income tax. The Income Tax Appellate Tribunal rejected the contentions of the appellant firm that the properties were bought as an investment and that the plots were acquired for building tenements for the labourers of the mills as well as the alternative contentions that the managed company desired to purchase the plots on account of an award of an industrial tribunal recommending that the company should provide tenements for its labourers and held that since the appellant was in a position to influence the decision of the managed company to purchase the properties, the plots were purchased by the appellant wholly and solely with the idea of selling them at a profit to the company. The tribunal, therefore, came to the conclusion that the amount was not a capital accretion but was a gain made in an adventure in the nature of business and was therefore taxable. On a reference, the High Court confirmed the said view. On appeal, the Supreme Court confirmed the said view in the facts and circumstances of the said case. It held at Page 609-610 as follows:
“As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the Courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income tax for some time and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realization of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us.
In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property….. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.”
Ultimately the Supreme Court held at Page 622 that the fact that the assessee was actuated by the sole intention to sell it at a profit, may raise a presumption that the purchase and subsequent sale are an adventure in the nature of trade but the said presumption is not conclusive and it may be rebutted or offset by other relevant circumstances.
47. The respondent did not dispute that the assessee had not borrowed any funds and it had made all the investments with its funds; that the closing stock was valued in its books of account consistently at cost and not at cost or market price whichever is lower; it had earned substantial dividend income amounting to Rs.3,19,04,901/- for A.Y 2006-07, Rs.2,17,25,781/- for A.Y 2007-08 and Rs.2,13,38,005/- for A.Y 2008-09 i.e., more than Rs.8,00,00,000/-; that 99 % of the total gains are LTCG and less than 1 % is STCG; that 40% of investments are in mutual funds; the assessee had never dealt in futures, derivatives and options; that all the transactions of purchase and sale were delivery based except the one solitary instance of Reliance Industries Limited explained above; that the assessee was registered as NBFC with the R.B.I; and the assessee had never claimed set off of the losses arising from sale of investments against other incomes. Merely because of large frequency and volume of transactions, a conclusion that an assessee is a trader cannot be drawn without considering the period of holding of those shares by the assessee. A trader in shares normally holds them for a short time only; is unlikely to invest in unquoted shares or in mutual funds (which the assessee did ); and is likely to borrow funds for it’s trading activity. The fact that the assessee is monitoring the stock markets and buying at dips and selling at highs with an intention to make profit from these transactions is not conclusive of the fact that the assessee is a trader because even an investor would not buy or sell blindly and take the risk of suffering losses. The fact that the assessee has an administrative set up and incurs considerable administrative expenditure also cannot be a factor to hold that the assessee is a trader because online trading is prevalent today and there is nothing special about the assessee having a few computer terminals or staff to operate them and help it in making the investments. The fact that the assessee is making repetitive purchases and sales of the same shares is a factor in favour of holding that the assessee is an investor as the assessee has explained that this was done due to amendments by Finance Bill, 2006 w.e.f, 01.04.2006(A.Y 2007-08) to S.10(38) and S.115JB of the Act. The conclusion of the respondent that the only and sole objective of purchase and sale of shares is to derive profits and not to earn dividend is belied by the admitted fact that the assessee had earned dividends more than Rs.8,00,00,000/- for A.Y 2006-07, 2007-08 and 2008-09. We are unable to understand how the respondent at para 5.13 infers from the name of the assessee i.e. Spectra Shares and Scrips Private Limited and a statement in the Director’s report for the year 2005-06 that “during the year the market is upbeat and the directors were hopeful of good results”indicates that it is only doing trading activity as there is nothing in these circumstances to show that the assessee cannot be an investor. In our opinion, it is the total effect of all relevant factors and circumstances that determines the character of the transaction. The fact that the Revenue from A.Y 1998-99 had accepted that the assessee is an investor and the shares and mutual funds are investments and not stock-in-trade (except for A.Y 2006-07) ; the fact that 99 % of the shares were held for considerable time after their purchase before their sale; that the action of the assessee in undertaking large volume of transactions in March,2006 was because of the change in law sought to be made effective from 01.04.2006 with regard to treatment of LTCG u/s.115JB of the Act for book profit tax and was not a colourable action and was permissible under the law, lead to an irrefutable conclusion that the assessee was only an investor and the Assessing Officer had rightly taxed his income under the head “Capital Gains”.
48. Admittedly the Revenue had accepted that the assessee was an investor whose income is chargeable under the head “capital gains” for a number of years from 1999-2000, particularly for the assessment years 2005-06 and 2007-08 i.e. before and after the assessment year 2006-07 which is the subject-matter of these proceedings. The assessee has filed assessment order for 2004-05, 2005-06, 2007-08 from which it is clear that the department had accepted that the assessee is only investing in shares and mutual funds and his profits from sale of shares or mutual fund units should be taxed under the head “capital gains”. It is admitted by the Revenue that only after the impugned order of the respondent dated 31-03-2011, the assessment order for 2005-06 and 2007-08 were reopened. In Raja Bahadur Visheshwara Singh (supra) and in New Jahangir Vakil Mills Co. Ltd. (supra), the Supreme Court no doubt held that there is no such thing as res judicata in Income Tax matters and the decision given by an Income Tax Officer for one assessment year cannot effect or bind his decision for another year and that generally, the doctrine of res judicata or estoppel by record does not apply to such decisions. But in Radhasoami Satsang (supra), the Supreme Court held at page-329 as follows:
“We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter-and, if there was no change, it was in support of the assessee – we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961″
49. In Escort Ltd. (supra), it was held by the Delhi High Court that although principle of res judiciata did not apply to the income tax proceedings, the Revenue cannot be allowed to change its view with regard to a fundamental aspect of a transaction taken in earlier assessment year unless it is able to demonstrate a change in circumstances in the subsequent assessment year. It held that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Similar view was taken by the Mumbai High Court in Darius Pandole (supra) and in Gopal Purohit(supra). The decision of the Mumbai High Court in Gopal Purohit (supra) was upheld by the Supreme Court in CIT v.Gopal Purohit [SLP (Civil) No. 32891 of 2010, dated 15-11-2010].
50. In view of the above, we hold that the respondent cannot under Sec.263 interfere on an issue which has been accepted by the Revenue for a number of years particularly when the Assessing Officer in the assessment order for the assessment year 2006-07 takes the same view by terming it erroneous as the respondent is able to demonstrate a change in circumstances in the said assessment year.
51. We are also of the opinion that the Tribunal could not have upheld the action of the respondent under Sec.263 on a ground different from what has been mentioned in the notice under Sec.263 or the order of the respondent under Sec.263. In the present case, the respondent had held that the Assessing Officer had applied his mind but has come to an erroneous conclusion at para-5.1 of his order dated 31-03-2011. The Tribunal at para-34 of its order dated 05-08-2011 held that the assessment order was passed without proper examination or inquiry or verification or objective consideration of the claim made by the assessee and hence, the Commissioner was justified in revising the order. This is clearly impermissible in view of the decisions in Jagadhri Electric Supply & Industrial Co. (supra) and in Howrah Flour Mills Ltd. (supra).
52. In Jagadhri Electric Supply & Industrial Co. (supra), the High Court of Punjab and Haryana held that in an appeal against an order under Sec.263 (1) passed by the Commissioner, if the assessee can satisfy the Tribunal that the grounds for the decision given in the order of the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. It held that the Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well; that if the Tribunal is allowed to find out the grounds available to the Commissioner to pass an order under Sec.263(1), then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner which is not warranted under the Act; that it is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the Commissioner under Sec.263(1).
53. In Howrah Flour Mills Ltd. (supra), the Calcutta High Court reiterated the view in Jagadhri Electric Supply & Industrial Co. (supra) and held that an assessee by filing an appeal from an adverse order under Sec.263, does not cause a reopening of his assessment order wholesale and in all respects; that all that the assessee does is that it challenges the order of revision passed under Sec.263, which means the assessee challenges the ground on which the Commissioner has opined the Income Tax Officer’s order to be erroneous in law.
54. We are also unable to understand how the Tribunal in the impugned order at para-34 could have held that the assessment order was passed without any application of mind on the part of the Assessing Officer. Its finding that the Assessing Officer has not bothered to examine the nature of the business carried on by the assessee is contrary to the record and is clearly erroneous.
55. In fact, it appears that the Tribunal started with a preconceived opinion about the nature of activity carried on by the assessee because in para-2 of its order, it starts by saying that the assessee Company “is carrying on business of dealing in shares and mutual fund units”, and it appears to have reverse engineered the reasons to support its conclusion.
56. The Tribunal at Para 48 of its order states that the assessee had repeatedly purchased and sold mutual fund units of the same fund throughout the year. This is factually incorrect as can be seen from the annexure to the letter dated 29.08.2008 submitted by the assessee to the Assessing Officer, which shows that the units redeemed in March, 2006 were purchased between 15.10.2003 and 14.05.2004 and not in the same year. This was also pointed out in the petition MA No.193/HYD/2011 by the assessee u/s.254 of the Act but was ignored by the Tribunal totally.
57. The Tribunal at Para 44 of its order made observations regarding the unquoted shares of M/s. Hindusthan Coca-Cola Beverage Limited and those of the subsidiary US company. The assessee in Para 17 to 20 of its written submissions dealt with the same but these submissions have been ignored totally by the Tribunal.
58. In the same paragraph, the Tribunal reproduced the dates of sale of shares of M/s. Andhra Sugars Limited. The assessee in its written submissions had stated at Para 21 that the error of the CIT (that the assessee was buying and selling shares of the said company on the same day) as he had taken data from the demat account of the assessee; that the transaction dates recorded in that account were different from the actual dates of the transaction; in the demat account, the dates of transactions will not reflect the correct date of execution of transactions; that the data would mislead the user of the statement; that as per SEBI guidelines, where T+2(trading date + 2 days) is in force, delivery will not necessarily be effected on the day of the transaction; further, if any holidays, Saturday or Sunday come in between, demat credit will be delayed accordingly; that it is clear from the statement that there were no actual transactions of purchase/ sale on the same date; the assessee entered purchase and sale transactions on the very same day of the transactions based on the contract note of the broker; that actual delivery takes any time from 2 to 5 days; in case of sale it takes 1 to 3 days which is permitted by SEBI regulations; thus the dates of transactions either purchase or sale noted in the demat account do not reflect actual date of transaction; that all shares purchased were taken delivery and all shares sold were given delivery; and that the same is the case with all other scrips where there were no transactions on the same date. The Tribunal totally ignored this submission in its order.
59. The contention of the counsel for Revenue that the assessee had not raised any submission before the respondent as to the justification for high frequency of transactions in March, 2006 on account of the provisions of the Finance Bill, 2006 is not tenable because the respondent, in his show cause notice dated 20.01.2010 or revised show cause notice dated 21.02.2011 did not indicate that he is going to focus on that period. Consequently, the assessee had no opportunity to highlight this fact in his replies to the respondent. The fact remains that this contention was not only raised in the written submissions before the Tribunal but also argued before it, but it did not deal with it. The contention of the Revenue that the Assessing Officer had not applied his mind to the material on record cannot be accepted because the respondent in his order dated 31.03.2011 specifically records a finding at Para 5.1 that there is application of mind by the Assessing Officer. The Revenue cannot raise a plea which is not contained in the order of the respondent and is contrary to it and to the record. The contention of the Revenue that there are no reasons given by the Assessing Officer about the nature of activity of the assessee cannot be accepted because a query was raised by him in the course of the assessment proceedings and was replied by the assessee. Obviously, he was satisfied with the explanation of the assessee and therefore did not think that the issue needs to be specifically mentioned. It is settled law that the Assessing Officer in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry, the respondent, merely because he entertains a different opinion in the matter, cannot invoke his powers u/s. 263 of the Act. It is therefore not correct to say that there was no proper enquiry by the Assessing Officer.
60. The decision in PVS Raju (supra) does not apply to the present case because in the said case, the assessee had accepted that it was a trader in the earlier years (this is apparent from the order of the I.T.A.T dated 15.10.2010 in I.T.A No.1101/HYD/09 impugned therein which has been placed before us by the Counsel for the assessee) but in the assessment years 2005-06 and 2006-07 (in view of the amendment to S.111-A brought into effect from 01.04.2005), the assessees sought to change their stand contending that they were investors in order to claim the benefit of S.111-A. It was also found as a fact that all the shares were held by the assessee for less than two months and some shares were sold even before the purchase indicating the mind of the assessee that they were not intending to hold the same as investment. On those facts it was rightly held that the assessee was only doing trading activity and was not an investor. Moreover it was not a case u/s.263 of the Act to which totally different parameters would apply.
61. We are of the view that the Assessing Officer had not only taken a possible view but in the circumstances the only view possible and therefore his order could not have been termed as erroneous or prejudicial to the revenue warranting exercise of revisional jurisdiction u/s.263 of the Act by the respondent. The respondent had no different or new material to take different view from the one taken by the Assessing Officer and the reasons given by him to reopen the assessment and sustain the revision are totally unacceptable. The respondent is not vested any power u/s.263 to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. The Tribunal in our view had grossly erred in agreeing with the order of the respondent and in upholding it on grounds which have not been found in the show cause notice of the respondent, that too without considering the several issues of fact and law raised by the assessee in his written submissions and grounds of appeal. Both the respondent and the Tribunal have based their orders on preconceived notions, conjunctures and surmises, manifestly misread the facts and twisted them to justify their conclusions.
62. In Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC), held at Page 295 as follows:
‘”Where the fact finding authority has acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant facts could have found, the court is entitled to interfere… “
It relied on the following passage in it’s decision in Omar Salay Mohamed Sait v. Commissioner of Income Tax.
“We are aware that the Income Tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, it’s findings, even though on questions of fact, will be liable to be set aside by this Court.”‘
63. For the above reasons, the order 31.3.2011 of the respondent and the order dated 5.8.2011 in ITTA.No.512 of 2011 are set aside and the order of the Assessing Officer dated 16.12.2008 for the A.Y.2006-07 is restored. In view of this, no orders are necessary in ITA.No.177/2012. No costs.
[Citation : 354 ITR 35]
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