CA Prarthana Jalan
Hon’ble Delhi ITAT has in the case of ACIT V/s M/s Responsible Builders Pvt. Ltd in ITA No. 2726/Del /2011 has held that it is trite law that in order to determine whether there are reasons to believe that the income got escaped the assessment, one has to look at the reasons recorded by the Assessing Officer before the issuance of notice under Section 148 of the Act. For before invoking the re-assessment proceedings the A,O has to record the reason as to how income has escaped assessment and not conclusions.
In the case the assessee was engaged in the business of investments and finance, Regular assessment u/s 143 (3) was done than the A.O initiated re-assessment proceedings to reassess the short term capital gains as business income. The re-assessment proceedings were quashed by the Hon’ble Tribunal and while looking in the facts of the case the Hon’ble Tribunal observed that the reasons recorded for initiating re-assessment were not reasons but the conclusions as under
In the present case, we are required to adjudicate upon whether the reassessments proceedings are properly launched by the Assessing Officer or vitiated by mere change of the opinion. We find from the material available on record that the very same issue was considered by the Assessing Officer at the time of original assessment. The Assessing Officer had raised a specific query, as to why the short term capital gains should not be treated as business income.
After consideration of reply filed by the assessee, the Assessing Officer accepted the claim. Further, it is trite law that in order to determine whether there are reasons to believe that the income got escaped the assessment, one has to look at the reasons recorded by the Assessing Officer before the issuance of notice under Section 148 of the Act. In this case, the reasons recorded by the Assessing Officer are as follows:
“The assessment of M/s Responsible Builders (P) Ltd. for the A.Y. 2006-07 was completed after scrutiny in September, 2008, determining an income of Rs. 30637449, as short term capital gain. The assessee is a non banking financial company engaged in the business of investment. Thereafter it was observed that the assessee did not maintain any separate stock-in-trade account and entire sale/purchase of shares had been classified as investment. Since the only business activity of the assessee was ‘investment for earning capital gains from the market’ , the sale/purchase of shares by the assessee was actually accretion/depletion in its stock-in-trade (camouflaged by the assessee as investments) and consequently any proceeds out of sale/purchase of these shares was business income of the assessee.
Hon’ble Supreme Court had held in the case of G. Venkata Swami Naidu & Co. Vs. CIT(1959) 35 ITR 594 (SC) that in cases where the purchase has been made solely and exclusively with the intention of resale at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it the presence of such intention would raise a strong presumption that the transaction is in the nature of trade. In the instant case, the assessee is basically an investor and the purchase and sale of shares are very much allied to its usual business. The shares have been purchased in very large quantities, which eliminate the possibility of investment for personal use possession or enjoyment. Further, the share purchase/sale transactions are repetitive in nature in the case of assessee.
In view of the above facts, I have reasons to believe that income of Rs. 3,06,37,449/- has escaped assessment by virtue of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment in this year in this case and the same is to be brought to tax under Section 147/148 of the I. Tax Act.”
On perusal of above reasons, it is clear that the Assessing Officer had not referred any material which made him to believe that income got escaped assessment. We also find that what the Assessing Officer recorded is only the conclusion not the reasons, inasmuch as, the reasons recorded does not indicate as to how income got escaped assessment. Therefore, what is mentioned as reasons cannot be called the reasons, but only conclusions.