A.Vadivel, Erode v. DCIT, Erode

ITA 1573/CHNY/2007 | 2000-2001
Pronouncement Date: 16-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 157321714 RSA 2007
Assessee PAN ABEPV8744R
Bench Chennai
Appeal Number ITA 1573/CHNY/2007
Duration Of Justice 3 year(s) 1 month(s) 12 day(s)
Appellant A.Vadivel, Erode
Respondent DCIT, Erode
Appeal Type Income Tax Appeal
Pronouncement Date 16-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 16-07-2010
Assessment Year 2000-2001
Appeal Filed On 04-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH -- D CHENNAI (BEFORE SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) ITA NO.1573 /MDS/07 ITA NO.1574/MDS/07 ITA NO.1575/M DS/07 ITA NO.1576/MDS/07 (ASSESSMENT YEAR :2000-01) 1. SRI A.VADIVEL PROP: MINU TEXTILES 156 ESWARAN KOIL ST. ERODE 638001 ABEPV8744R 2. SRI A.SRINIVASAN PROP: SRINIVAS TEXTILES 84 ESWARAN KLIL ST. ERODE 638001 PAN AIXPS3019E 3. SRI A.SENGOTTUVEL PROP: ANAND TEXTILES 156 ESWARAN KOIL ST. ERODE 638001 PAN AIXPS3018F 4. SRI A.MARIAPPAN PROP: MARIAPPA FABRICS 156 ESWARAN KOIL ST. ERODE 638001 PAN ADWPM2351B (APPELLANTS) V. DY.COMMISSIONER OF INCOME-TAX SPECIAL RANGE II COIMBATORE (RESPONDENT) ASSESSEES BY : SRI S.SRIDHAR & SRI S.RAGHURAMAN RESPONDENT BY :SRI SHAJI P.JACOB ITA NOS.1573 - 1576/MDS/07 2 O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THESE APPEALS THOUGH IT RELATE TO DIFFERENT ASSES SEES ENCOMPASS SIMILAR SET OF FACTS; AND SIMILAR SET OF GROUNDS. THEREFORE THESE ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. AMONGST THE GROUNDS TAKEN BY THE ASSESSEES GROUN DS NOS. 1 AND 10 ARE GENERAL IN NATURE AND NEED NO ADJUDICATI ON. 3. VIDE GROUNDS 8 AND 9 ALL THE ASSESSEES HAVE CHAL LENGED ASSUMPTION OF JURISDICTION BY REOPENING OF THE ASSE SSMENTS. 4. THOUGH IN ALL THESE CASES AN ADDITIONAL GROUND H AS BEEN RAISED THROUGH AN AFFIDAVIT STATING THAT NOTICES U/S 148 WERE ISSUED WITHOUT THE SANCTION OF THE JOINT COMMISSIONER OF INCOME-TA X LD. COUNSEL FOR THE ASSESSEES AT THE OUTSET ITSELF SUBMITTED THAT HE WAS NOT PRESSING THIS GROUND. HENCE THE ADDITIONAL GROUND IS DISMISS ED AS NOT PRESSED. 5 COMING BACK TO THE ISSUE OF JURISDICTION IT IS NECESSARY TO DWELL ON THE FACTS APROPOS IN SHORT. ALL THESE ASSESSEE S HAD FILED THEIR ORIGINAL RETURNS OF INCOME FOR THE IMPUGNED ASSESSM ENT YEARS ALONGWITH ITS COMPUTATION STATEMENT TRADING ACCOUN T PROFIT AND LOSS ACCOUNT ONE CAPITAL ACCOUNT EACH SHOWING THEREIN TRANSACTIONS ITA NOS.1573 - 1576/MDS/07 3 RELATING TO SHARES UNITS DIVIDENDS AND AUDIT REPO RTS IN FORM NO.3CB & 3CD. THESE ASSESSEES WERE ENGAGED IN THE BUSINESS OF CLOTH TRADE. ORIGINAL ASSESSMENTS WERE COMPLETED IN THESE CASES U/S 143(3) ON 31-1-2002. IT IS STATED IN THE ORIGINAL ASSESSMENT ORDER THAT THE ASSESSEES REPRESENTATIVE HAD APPEARED ON VARIO US DATES PRODUCED THE BOOKS OF ACCOUNTS AND FILED RELEVANT D ETAILS. THE A.O HAS ALSO STATED THAT THE ASSESSMENTS WERE BEING COM PLETED AFTER SCRUTINIZING THE BOOKS OF ACCOUNT AND DETAILS FILED . ON THE INCOME ADMITTED BY THE ASSESSEES AS PER THE RETURNS CERTA IN ADDITIONS WERE MADE BY THE A.O TOWARDS TRADE DISCOUNT ETC. AND AS SESSMENTS WERE COMPLETED ON 31-1-2002. THEREAFTER REASSESSMENT PRO CEEDINGS WERE INITIATED AND THE REASON RECORDED BY A.O FOR INITIA TING REASSESSMENT PROCEEDINGS READ AS UNDER: DETAILS OF SHARES SOLD OBTAINED. IT IS SEEN THAT C APITAL GAIN ON SALE OF KOTHARI PHARMA KOTHARI INFO TECH AND GI G MUTUAL FUND ARE SHORT TERM CAPITAL GAINS AS THEY W ERE PURCHASED AND SOLD DURING THIS YEAR. THE A HAS WR ONGLY CLAIMED IT AS EXEMPT U/S 54 TREATING THEM AS LONG T ERM CAPITAL GAINS. INCOME HAS ESCAPED ASSESSMENT. NOTIC E U/S 148 ISSUE. THEREAFTER NOTICE U/S 148 WAS ISSUED TO THE ASSESSE E ON 7-6-2004 WHICH WAS WELL WITHIN FOUR YEARS PERIOD FROM THE EN D OF THE RELEVANT ASST. YEAR. ASSESSEES THEREUPON REQUIRED THE ASSESS ING OFFICER TO CONSIDER ITS EARLIER RETURNS AS ONE FILED IN RESPON SE TO SUCH NOTICE. ITA NOS.1573 - 1576/MDS/07 4 ASSESEES WERE REQUIRED TO EXPLAIN WHY THE PROFIT CL AIMED AS EXEMPT BY IT ON ACCOUNT OF TRANSFER OF VARIOUS SHARES SHOU LD NOT BE CONSIDERED FOR ASSESSMENT AS SHORT TERM CAPITAL GAI NS. EXPLANATION OF THE ASSESSEE WAS THAT ONLY THE VALUE OF SHARES H AD INCREASED AND SAME WERE INVESTED IN THE UNITS OF MUTUAL FUNDS. AS SESSEES ALSO SUBMITTED THE DETAILS OF SURPLUS ARISING ON ACCOUNT OF SALE OF UNIT IN THE VARIOUS SCHEMES OF UNITS OF MUTUAL FUND. THOUGH IT WAS CLAIMED BY ASSESSEES THAT THE PROCEEDS WERE AGAIN INVESTED IN OTHER MUTUAL FUND SCHEME AND WAS THEREFORE EXEMPT FROM TAX A.O . WAS OF THE OPINION THAT NO MATERIAL WAS FURNISHED BY ASSESSEES IN SUPPORT OF SUCH CLAIM. HE THEREFORE CONSIDERED THE SURPLUS EARNED ON SWITCH OVER OF MUTUAL FUND UNITS AS SHORT TERM CAPITAL GAI NS AND ACCORDINGLY COMPLETED THE ASSESSMENTS. 6 THOUGH IN ITS APPEAL BEFORE THE CIT(A) NO GROUNDS WERE TAKEN BY THE ASSESSEES QUESTIONING THE REOPENING SUCH GROUND HAS BEEN NOW TAKEN BEFORE US ON A PLEADING THAT THAT IT WAS A PURE QUESTION OF LAW. LD. A.R. ASSAILING THE REOPENING STATED THAT THE ASSESSEE HAD NEVER CLAIMED EXEMPTION U/S 54 OF THE ACT IN ITS COMPUTATION. ACCORDING TO HIM IN THE ORIGINAL ASSE SSMENTS THERE WAS NOT EVEN A WHISPER OF ANY SUCH CLAIM MADE BY THE AS SESSEES. FURTHER SUBMISSION WAS THAT IN THE CAPITAL ACCOUNT THAT THE ASSESSEES ITA NOS.1573 - 1576/MDS/07 5 HAD FILED ALONGWITH RETURNS THE PROFITS AND DIVIDE NDS RECEIVED ON ACCOUNT OF THE INVESTMENT IN MUTUAL FUND MADE BY TH E ASSESSEE AND ALSO LOSSES ARISING FROM SUCH TRANSACTIONS WERE COR RECTLY REFLECTED. IT WAS ONLY AFTER CONSIDERING SUCH CAPITAL ACCOUNT THA T THE AO HAD ORIGINALLY COMPLETED ASSESSMENTS. SPECIFIC REFERENC E WAS MADE TO THE ORIGINAL ASSESSMENT ORDERS WHEREIN IT WAS MENTI ONED BY THE A.O. THAT ASSESSMENTS WERE COMPLETED AFTER SCRUTINIZING THE BOOKS OF ACCOUNT PRODUCED. AS PER THE LD. A.R. THE A.O HAD C OMPLETED THE ASSESSMENTS AFTER PERUSING THE BOOKS ACCOUNTS WHERE IN ALL THE TRANSACTIONS RELATING TO MUTUAL FUNDS UNITS AND IN COME THEREFROM WERE PROPERLY REFLECTED. THEREFORE ACCORDING TO HI M REOPENING WAS RESORTED WITHOUT ANY NEW RECORD WHATSOEVER WITH THE A.O. FURTHER ACCORDING TO HIM THE A. O HAD NO POWER TO GO INTO THE SAME SET OF FACTS AGAIN WHEN THERE WAS NO FRESH MATERIAL OR IN FORMATION AVAILABLE WITH HIM. FURTHER ATTACKING THE REASON MENTIONED BY THE A.O FOR REOPENING LD. COUNSEL CONTENDED THAT SUCH REASONS WERE NOT ADEQUATE FOR RESORTING TO A REASSESSMENT PROCEEDING S WHEN THE BOOKS WERE ALREADY STARING ON THE A.O AND NO NEW FA CTS WERE AVAILABLE WITH HIM. IN THE OPINION OF THE LD. A.R EVEN THOUGH THE REOPENING WAS MADE WITHIN FOUR YEARS FROM THE END O F THE RELEVANT ASSESSMENT YEAR IN VIEW OF THE DECISION OF THE HON BLE APEX COURT IN CIT VS. KELVINATOR OF INDIA LTD. (320 ITR 561) RE ASON TO BELIEVE WAS ITA NOS.1573 - 1576/MDS/07 6 STILL REQUIRED AND NOT A MERE CHANGE OF OPINION. ACCORDING TO HIM THE A.O HAD SIMPLY CHANGED HIS OPINION ON THE SAME SET OF FACTS AND THERE WAS NOTHING BEFORE HIM TO TAKE A VIEW THAT AN Y INCOME HAS ESCAPED ASSESSMENTS. FOR THE PROPOSITION THAT DIFFE RENT OPINION ON THE SAME SET OF FACTS WITHOUT ANY NEW MATERIAL WOUL D NOT BE A GOOD ENOUGH REASON FOR REOPENING LD. A.R. RELIED ON THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE OF ASTEROIDS TRADING & INVESTMENTS P. LTD. V. DCIT (308 ITR 190) AND DEC ISIONS OF THE HONBLE DELI HIGH COURT IN THE CASES OF SATNAM OVER SEAS LTD. & ANR. V. ADIT (33 DTR 81) AND LEGATO SYSTEMS (INDIA) (P) LTD. V. DCIT ( 34 DTR 154). 7. OPPOSING THE ARGUMENTS OF THE LD. A. R. THE COUNSEL FOR THE REVENUE IN THE FIRST PLACE POINTED OUT THAT ASSESSE ES HAD MADE A WRONG AND PATENTLY ILLEGAL CLAIM IN ITS COMPUTATION STATEMENT FILED ALONGWITH THEIR RETURNS. REFERRING TO THE PAPER BO OK FILED BY THE LD. A.R A SPECIFIC WRITTEN SUBMISSION WAS MADE BY THE LD. D.R. THAT THE ASSESSEE SHOULD BE DIRECTED TO CLARIFY WHETHER THE STATEMENT OF INCOME INCLUDED THEREIN FULLY TALLIED WITH THE ONE FILED ALONG WITH THEIR RESPECTIVE RETURNS. ACCORDING TO LD. D.R ASSESSEE HAD CONSCIOUSLY KEPT OUT PAGE NO.2 OF ITS COMPUTATION STATEMENT F ROM THE PAPER BOOK FILED FOR MISLEADING THIS TRIBUNAL. READIN G FROM THE NOTE GIVEN ITA NOS.1573 - 1576/MDS/07 7 IN PAGE 2 OF THE COMPUTATION STATEMENT THE LD. D. R. SUBMITTED THAT THE ASSESSEE ITSELF HAD ADMITTED EARNING PROFIT FRO M TRANSFER OF VARIOUS SHARES BUT HAD IN THE SAME BREATH CLAIMED E NTIRE SALE PROCEEDS ALONGWITH THE PROFIT AS EXEMPT HAVING BEEN REINVESTED IN OTHER SHARES. ACCORDING TO HIM THIS PROMPTED THE A .O. TO MAKE FURTHER ENQUIRES INTO THIS ASPECT AND ONLY THEREAFT ER THE A.O CAME TO A REASONABLE BELIEF THAT INCOME HAD ESCAPED ASSESSMEN T. LD. D.R. FURTHER PROCEEDING WITH HIS SUBMISSIONS MENTIONED THAT THERE WAS NO PROVISION UNDER THE HEAD CAPITAL GAINS WHEREBY EX EMPTION COULD BE CLAIMED ON CONSIDERATION RECEIVED ON SALE OF SHARES BASED ON PURCHASE OF SHARES. HE POINTED OUT THAT SEC.54 EC OF THE ACT WAS NOT AT ALL APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR AND THEREFORE THE ASSESSEE HAD MADE A PATENTLY WRONG AND UNLAWFUL CLA IM. IN THE OPINION OF THE LD. D.R. ASSESSEES HAD WRONGLY CLAI MED THE SHORT TERM CAPITAL GAINS AS EXEMPT AND EXCLUDED SUCH AMOUNT FR OM ITS INCOME MISLEADING THE REVENUE. ACCORDING TO HIM THE A.O H AD NOT MADE ANY ENQUIRY ON THIS ASPECT AT THE TIME OF ORIGINAL ASSESSMENTS AND THERE WAS NO APPLICATION OF MIND ON THE CLAIM OF TH E ASSESSEE. LD. D.R FURTHER POINTED OUT THAT THE ASSESSEES WERE UNA BLE TO PRODUCE ANY CORRESPONDENCE WITH REGARD TO THIS ISSUE BETWEE N THEM AND THE A.O. CONSIDERABLE RELIANCE WAS PLACED ON THE DECISI ON OF THE HONBLE JURISDICTIONAL HIGH COURT IN ACIT VS. APOLLO HOSPIT AL ENTERPRISES LTD. ITA NOS.1573 - 1576/MDS/07 8 (300 ITR 167) FOR THE PROPOSITION THAT WHEN AN ILLE GAL CLAIM WAS MADE AND THERE WAS NO DISCUSSION ON SUCH CLAIM IN THE AS SESSMENT ORDER THE REASSESSMENT PROCEEDING INITIATED COULD NOT BE CONSIDERED AS DONE ON A CHANGE OF OPINION. REFERRING TO DEPARTMEN TS PAPER BOOK (PAGE NO.3) THE LD. D.R. SUBMITTED THAT A LETTER WA S ISSUED BY THE A.O TO THE ASSESSEE ON 22-8-2003 AFTER COMPLETING THE A SSESSMENT WHEREIN THE A.O HAD ENQUIRED REGARDING THE CLAIM OF THE ASSESSEE REGARDING PROFIT EARNED FROM TRANSFER OF VARIOUS SH ARES AS BEING EXEMPT AND ALSO REQUIRED THE ASSESSEE TO FURNISH FU LL DETAILS THEREOF. FURTHER REFERRING TO DEPARTMENTS PAPER BOOK P.4 L D. D.R. SUBMITTED THAT ASSESSEE HAD THEREUPON GIVEN A STATEMENT IN WHICH IT HAD CLAIMED THAT INCOME ARISING ON SALE OF VARIOUS SHAR ES WERE ALL LONG TERM CAPITAL GAINS WHICH WERE REINVESTED AND HENCE EXEMPT FROM TAX. AS PER THE LD. D.R. IT WAS BASED ON SUCH FURTH ER MATERIAL COMING IN TO THE HANDS OF THE A.O THAT HE HAD INITIATED R EOPENING PROCEEDINGS. ACCORDING TO HIM WHETHER INFORMATION HAD COME FROM EXTERNAL SOURCES OR EVEN FROM MATERIAL ALREADY ON R ECORD REOPENING COULD BE VALIDLY INITIATED AS HELD BY THE HONBLE A PEX COURT IN THE CASE OF KALYANJI NAVJI & CO. VS. CIT (102 ITR 287). RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE APEX COURT IN ESS KAY .ENGINEERING CO. P. LTD VS. CIT (247 ITR 818). ITA NOS.1573 - 1576/MDS/07 9 8. ON THE RELIANCE PLACED BY THE LD. COUNSEL FOR TH E ASSESSEE ON THE DECISION OF KELVINATOR OF INDIA LTD. (SUPRA) L D. D.R. SUBMITTED THAT HERE THERE WAS TANGIBLE MATERIAL FOR FORMATION OF A BELIEF REGARDING ESCAPEMENT OF INCOME FROM ASSESSMENT AND NOT MERELY A CHANGE OF OPINION. ACCORDING TO HIM THE DECISION IN KELVINA TOR OF INDIA LTD. (SUPRA) ONLY SUPPORTED THE CASE OF THE REVENUE. SPE CIFICALLY REFERRING TO THE CAPITAL ACCOUNTS FURNISHED BY ASSESSEES ALO NGWITH THE ORIGINAL RETURNS LD. D.R POINTED OUT THAT THE DETAILS THERE IN DID NOT IN ANY WAY TALLY WITH THE DETAILS SUBMITTED BY THE ASSESSEE IN THE STATEMENTS FILED PURSUANT TO POST ASSESSMENT ENQUIRIES MADE BY THE A.O. ADVERTING TO THE STATEMENT FILED BY THE ASSESSEES IN RESPONSE TO THE POST ASSESSMENT ENQUIRIES LD. D.R. STATED THAT THE LON G TERM CAPITAL GAIN ARISING TO THE ASSESSEES ON SALE OF MUTUAL FUND UNI TS WERE ALL SHOWN AS DIVIDEND INCOME IN THE CAPITAL ACCOUNTS EARLIER FILED AND THEREFORE ACCORDING TO HIM THE INTENTION OF THE ASSESSEES WA S TO CONCEAL THE INCOME THAT HAD ARISEN TO IT ON ACCOUNT OF SUCH TRA NSACTIONS CAMOUFLAGING IT AS DIVIDEND. IN SHORT HE SUBMITTED THAT THE ORIGINAL CLAIM OF THE ASSESSEE WAS KNOWINGLY MADE IN UTTER D ISREGARD OF LAW AND MISREPRESENTING FACT WITH THE INTENTION OF KEEP ING AWAY THE SHORT TERM CAPITAL GAINS FROM THE EYES OF THE REVENUE. TH EREFORE IT WAS STRONGLY SUBMITTED THAT REOPENING PROCEEDINGS WERE CORRECTLY INITIATED. ITA NOS.1573 - 1576/MDS/07 10 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. FIRST WE TAKE UP THE SUBMISSION OF THE LD. D.R. WHE REIN HE PLEADS THAT ASSESSEES BE DIRECTED TO CLARIFY IN WRITING W HETHER THE STATEMENT OF INCOME FILED BY IT THROUGH THE PAPER BOOK COMPLE TELY AND FULLY TALLIED WITH THOSE FILED BY THEM ALONGWITH THE RETU RNS. WE FIND THAT IN THE CASE OF ASSESSEES SRI A. SRINIVASAN AND SRI A.M ARIAPPAN THE SECOND PAGE OF THE COMPUTATION STATEMENTS WERE AVAI LABLE IN THE PAPER BOOKS. HOWEVER VIS--VIS THE OTHER TWO ASSES SEES SUCH SECOND PAGE WERE NOT AVAILABLE. IT IS IN THE SECOND PAGE OF THE COMPUTATION THAT THE ASSESSEE HAD MENTIONED EARN ING OF PROFIT FROM TRANSFER OF VARIOUS SHARES WHICH IT CLAIMED AS EXEM PT FROM TAX ON ACCOUNT OF REINVESTMENT IN OTHER SHARES. ADMITTEDLY ALL THE ASSESSEES ARE OF THE SAME GROUP. SINCE TWO OF THE A SSESSEES HAD FILED THE SECOND PAGE OF THEIR RESPECTIVE COMPUTATI ON STATEMENT IN RESPECTIVE PAPER BOOKS WHEREAS THE OTHER TWO HAD N OT FILED IT WE CANNOT SAY THAT THE LATTER TWO ASSESSEES HAD MADE A NY INTENTIONAL OMISSION. HENCE WE ARE OF THE OPINION THAT IT IS NO T NECESSARY TO GIVE ANY DIRECTION AS REQUIRED BY THE LD. D. R. IN THIS REGARD. WE DEEM SUCH OMISSION ONLY TO BE INADVERTENT. 10. NOW TO RESOLVE THE ISSUE REGARDING VALIDITY OF REOPENING IT CAN BE SEEN THAT ALL PROCEEDINGS STARTED FROM A NOTE AT THE FOOT OF PAGE 2 OF ITA NOS.1573 - 1576/MDS/07 11 THE COMPUTATION STATEMENT FILED BY THE RESPECTIVE A SSESSEES WHICH RUN AS UNDER: THE ASSESSEE HAS EARNED PROFIT FROM TRANSFER OF VA RIOUS SHARES. THE ENTIRE SALE PROCEEDS OF SHARES AL ONG WITH PROFIT THE ASSESSEE REINVESTED IN ANOTHER SHARES. THE PROF ITS ARE EXEMPTED FROM INCOME-TAX. ASSESSEES HAD ALSO FILED THEIR RESPECTIVE CAPITA L ACCOUNTS ALONG WITH THEIR REGULAR RETURNS IN WHICH RECEIPTS ON ACC OUNT OF INTEREST DIVIDEND AGRICULTURAL INCOME RENT LOSS ON SALE O F CERTAIN OTHER INVESTMENTS ARE ALL SHOWN. THEREFORE ACCORDING TO THE ASSESSEES THERE WAS A PROPER DISCLOSURE OF ALL THE FACTS RELE VANT TO THEIR ASSESSMENTS AND THE REOPENING WAS DONE ONLY ON A RE APPRECIATION OF THE RECORDS. HOWEVER WE FIND FROM THE ORIGINAL ASSESSMENT ORDERS FOR ALL THE ASSESSEES THAT THERE WAS NOT EV EN A WHISPER REGARDING THE CLAIM OF THE EXEMPTION ON ACCOUNT OF SALE OF ITS SHARES BEING REINVESTED IN OTHER SHARES. ORIGINAL ASSESSME NT ORDERS PLACED AT ASSESSEES PAPER BOOK PAGE 1 TO 3 IN OUR OPINIO N CLEARLY BRINGS OUT NON-APPLICATION OF MIND BY THE A.O ON THIS PART ICULAR ASPECT. ASSESSEES HAVE NOT BEEN ABLE TO BRING ON RECORD ANY QUESTION ASKED BY THE A.O IN THIS REGARD OR ANY ENQUIRY MADE BY THE A.O AND ANY REPLY GIVEN BY IT. NO DOUBT A.O HAS MENTIONED IN THE ASSESSMENT ORDER THAT HE WAS COMPLETING THE ASSESSM ENTS AFTER SCRUTINIZING THE BOOKS OF ACCOUNT AND DETAILS FILED BY THE ASSESSEE. ITA NOS.1573 - 1576/MDS/07 12 HOWEVER THE MAIN BUSINESS OF THE ASSESSEES WERE CL OTH TRADE AND OBVIOUSLY THE BOOKS OF ACCOUNT WHICH WERE EXAMINED WOULD HAVE BEEN PERTAINING TO SUCH TRADE. EVEN THE ADDITIONS M ADE IN THE ORIGINAL ASSESSMENTS CAME OUT OF CLAIMS RELATING T O SUCH BUSINESS. NOW IF WE LOOK AT THE LETTER DATED 22-8-03 WRITTEN BY THE ACIT TO THE ASSESSEE WHICH UNDISPUTEDLY WAS AFTER COMPLETION O F THE ORIGINAL ASSESSMENTS ON 31-1-2002 THE A.O HAD REQUIRED THE A SSESSEE TO FURNISH DETAILS OF THE SHARES SOLD AND THE SECTION UNDER WHICH IT HAD CLAIMED EXEMPTION ON THE REINVESTMENT. PURSUANT TO THAT ASSESSEES DID FURNISH DETAILS AND ALSO CLAIMED IT A S LONG TERM CAPITAL GAINS. IF WE LOOK AT SUCH DETAILS PLACED AT PAPER BOOK NO.4 FILED BY REVENUE PROFITS ARRIVED ON ACCOUNT OF SAL E OF KOTHARI INFOTECH A AND KOTHARI INFOTECH B AND SIMILAR OTHER MUTUAL FUND INVESTMENTS HAVE BEEN SHOWN IN THE CAPITAL ACCOUNT EARLIER FILED BY THE ASSESSEES ALONGWITH THEIR ORIGINAL RETURNS AS DIVIDEND. IT WAS BECAUSE OF SUCH MATERIAL WHICH CAME INTO THE POSSES SION OF A.O SUBSEQUENT TO THE ORIGINAL ASSESSMENTS THAT HE CAM E TO A BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. IF WE LOOK AT T HE REASON FOR REOPENING AS REPRODUCED BY US AT PARA 5 ABOVE FROM THIS SCENARIO IT IS CERTAINLY RELEVANT. ASSESSEE CANNOT SAY THAT SUCH REASON WAS BASED ON ANY IRRELEVANT OR VAGUE INFORMATION OR WAS NOT BONAFIDE. ASSESSEES HAD CLAIMED EXEMPTION FOR A TRANSACTION W HICH GAVE RISE ITA NOS.1573 - 1576/MDS/07 13 TO PROFIT WHICH PRIMA FACIE COULD BE CONSIDERED AS CAPITAL GAINS THAT TOO OF SHORT TERM IN NATURE AND SUCH EXEMPTIO N WAS CLAIMED WITHOUT SPECIFYING THE RELEVANT SECTION. WHEN THE O RIGINAL ASSESSMENTS WERE COMPLETED THERE WAS A CLEAR NON A PPLICATION OF MIND BY THE A.O. THERE WAS ALSO AVAILABILITY OF SUB SEQUENT MATERIAL WITH THE A.O. WHICH WENT TO SHOW THAT THERE COULD HAVE BEEN ESCAPEMENT OF INCOME BY THE ASSESSEE. NO DOUBT IT WAS HELD BY THE HONBLE MUMBAI HIGH COURT IN ASTEROIDS TRADING & INV. P.LTD. (SUPRA) THAT A DIFFERENT VIEW ON SAME SET OF FACTS WITH NO NEW MATERIAL WOULD NOT BE SUFFICIENT REASON FOR REOPENI NG. THIS VIEW WAS ALSO TAKEN BY HONBLE DELHI HIGH COURT IN THE CASES OF SATNAM OVERSEAS LTD. AND LEGATO SYSTEMS (INDIA) P. LTD. (S UPRA). BUT IN OUR OPINION THESE DECISIONS WILL NOT HELP THE ASSESSEE. IN THE FIRST PLACE HERE THERE WAS MISREPRESENTATION BY THE ASSESSEE IN ITS RETURNS FILED AND IN THE SECOND PLACE THERE WAS NO APPLICATION OF MIND BY THE A.O ON THE CLAIM MADE BY THE ASSESSEE. ON THE OTHER HAN D AS AFORESAID SUBSEQUENT MATERIAL WAS AVAILABLE WITH T HE A.O TO SHOW THAT INCOME MIGHT HAVE ESCAPED ASSESSMENT. AS HELD BY THE HONBLE APEX COURT IN THE CASE OF KALYANJI NAVJI & CO. V. CIT (SUPRA) EVEN IF THE BELIEF CAME FROM AN EXTERNAL S OURCE OR EVEN FROM MATERIAL ALREADY ON RECORD IT WOULD BE GOOD EN OUGH REASON FOR REOPENING. IN OUR OPINION DECISION OF THE HONBLE JURISDICTIONAL HIGH ITA NOS.1573 - 1576/MDS/07 14 COURT IN APOLLO HOSPITAL (SUPRA) WOULD SQUARELY AP PLY TO THE FACTS. ASSESSEE HAD MADE A CLAIM WHICH PRIMA FACIE APPEARS AS NOT ALLOWABLE AND A REOPENING DONE THEREAFTER WHEN THE RE WAS NO DISALLOWANCE OF SUCH CLAIM IN THE ORIGINAL ASSESSME NT CANNOT BE CONSIDERED A CHANGE OF OPINION. HONBLE APEX COURT IN THE CASE OF PHOOLCHAND BAJRANGDAL VS. ITO (203 ITR 486) HAS CLE ARLY HELD THAT SUFFICIENCY OF THE REASON WAS NOT JUSTICIABLE BUT R ELEVANCY ALONE COULD BE ASSAILED. IN OUR OPINION RELEVANCY OF THE REASON IS UNQUESTIONABLY SUBSTANTIATED .IN ANY CASE REOPENING WAS ADMITTEDLY DONE WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASST. YEAR AND THEREFORE PROVISO TO SEC. 147 ALSO WOULD NOT APPLY . THUS WE HAVE NO HESITATION TO HOLD THAT THE REOPENING WAS VALIDL Y INITIATED. GROUND NO.8 AND 9 OF THE ASSESSEES THEREFORE STAND DISMIS SED. 11. WE ARE LEFT WITH GROUNDS 2 TO 8 WHICH ASSAILS THE MERIT OF BRINGING TO TAX CAPITAL GAINS ARISING TO THE ASSES SEE UNDER SEC.80CCB(2) READ WITH SEC.45(6) OF THE ACT. ACCORD ING TO THE ASSESSEE SUCH CAPITAL GAINS AROSE FROM SWITCH OVER FROM ONE SCHEME OF MUTUAL FUND TO ANOTHER SCHEME OF SAME MUT UAL FUND AND THE CIT(A) FAILED TO APPRECIATE THAT PROVISIONS OF SEC. 80CCB(2) READ WITH SEC. 45(6) DID NOT APPLY. IN THE OPINION OF THE ASSESSEE THERE WAS ONLY A NOTIONAL INCREASE IN THE VALUE AND THERE WAS NO ITA NOS.1573 - 1576/MDS/07 15 REPURCHASE OR REDEMPTION BY SWITCH OVER FROM ONE SC HEME TO ANOTHER. 12. FACT APROPOS HAS ALREADY BEEN CAPTURED BY US IN THE IMMEDIATELY PRECEDING PARAGRAPHS. CLAIM OF THE ASSE SSEE WAS THAT PROFITS ON SALE OF VARIOUS MUTUAL FUND UNITS WERE A LL REINVESTED BY IT AND THEREFORE EXEMPT. IT WAS NOT ACCEPTED BY THE A .O AND HE CONSIDERED SUCH PROFITS TO BE SHORT TERM CAPITAL GA INS. THOUGH THE A.O DID NOT MENTION THE SPECIFIC SECTION UNDER WHIC H HE WAS CONSIDERING THE PROFITS AS TAXABLE CAPITAL GAINS F ROM THE REMAND REPORT DATED 8-1-2007 REPRODUCED BY THE LD. CIT(A) AT PARA 4.3 OF HIS ORDER IT IS CLEAR THAT SUCH GAINS WERE CONSIDERED AS EXIGIBLE TO TAX UNDER SEC. 80CCB(2) READ WITH SEC 45(6) OF THE ACT . 13. CONTENTION OF THE ASSESSEES BEFORE THE LD. CIT (A) WAS THAT THEY HAD ONLY SWITCHED FROM ONE SCHEME OF MUTUAL FU ND TO ANOTHER SCHEME AND RESULTING NOTIONAL INCREASE WAS NOT TAX ABLE AS CAPITAL GAINS. ACCORDING TO THE ASSESSEE CHANGE FROM ONE S CHEME TO ANOTHER SCHEME DID NOT RESULT IN ANY REDEMPTION AND SURPLUS CANNOT BE TREATED AS CAPITAL GAINS. THIS CONTENTION OF THE ASSESSEE AS MENTIONED IN THE PRECEDING PARAGRAPH WAS IN ALL FO RCE PUT BY THE CIT(A) TO THE A.O WHO NEVERTHELESS JUSTIFIED HIS ASSESSMENT STATING ITA NOS.1573 - 1576/MDS/07 16 THAT SWITCHING OVER OF AN INVESTMENT IN BETWEEN MUT UAL FUND UNITS OPERATED BY THE FUND MANAGERS WOULD BE COVERED U/ S 45(6) OF THE ACT. ACCORDING TO HIM IN VIEW OF THE SECURITIES & E XCHANGE BOARD OF INDIA (SEBI) (MUTUAL FUNDS) REGULATIONS 1996 SWIT CH OVER FROM ONE SCHEME TO ANOTHER OF A MUTUAL FUND COULD BE EQUATE D TO REDEMPTION OR REPURCHASE AND THEREFORE THE PROVISIONS OF SEC. 45(6) AND SEC 80CCB(2) WERE APPLICABLE. LD. CIT(A) GAVE HIS STAMP OF APPROVAL TO THIS. 14. NOW BEFORE US THE LD. A.R. SUBMITTED THAT THER E WAS ONLY A SWITCH OVER OF THE SCHEME AND THE ASSESSEE NEVER R EALIZED ANY SURPLUS. PER CONTRA THE LD. D.R. SUBMITTED THAT R EDEMPTION DID AMOUNT TO TRANSFER SINCE THE DEFINITION OF TRANSFE R U/S 2(47) INCLUDED AN EXCHANGE AS WELL. ACCORDING TO HIM EVEN IF TH E SWITCH OVER WAS CONSIDERED AS AN EXCHANGE THERE WAS DEFINITELY A TRANSFER AND THE SURPLUS WAS EXIGIBLE TO TAX UNDER THE HEAD INCOME FROM CAPITAL GAINS VIDE SEC.45(6) AND 80CCB (2) OF THE ACT. 15 WE HAVE PERUSED THE ORDERS AND HEAR D THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE ON THE FACT THAT T HERE WAS SWITCHING OF MUTUAL FUND UNITS. SUCH SWITCHING RESULTED IN SO ME SURPLUS TO THE ASSESSEE WHICH OF COURSE WAS NOT REALISED BY HIM DI RECTLY BUT WAS REFLECTED IN THE NET ASSET VALUE (NAV) OF THE NEW U NITS REPRESENTING THE RESULT OF SUCH SWITCH OVER. MUTUAL FUND MANAGE RS FLOAT VARIOUS ITA NOS.1573 - 1576/MDS/07 17 SCHEMES AND EACH SUCH SCHEMES THOUGH FLOATED BY THE SAME MUTUAL FUND MANAGER WILL HAVE DIFFERENT UNDERLYING INVEST MENT PATTERN FOR EARNING INCOME. THUS INVESTMENT FOR DIFFERENT SCH EMES WOULD BE DIFFERENT. UNDERLYING INVESTMENTS IN SOME OF THE UN ITS COULD BE ENTIRELY SHARES OR ENTIRELY DEBT INSTRUMENTS OR ANY COMBINATION THEREOF. NAV ALSO THEREFORE WOULD DIFFER FROM UNIT UNDER ONE SCHEME TO A UNIT UNDER ANOTHER SCHEME. THE SAME MUTUAL FUN D ADMINISTRATOR MIGHT BE RUNNING UNITS OF DIFFERENT TYPES IN DIFFER ENT SCHEMES AND THEY DO ALLOW THEIR CLIENTS TO SWITCH SUBJECT TO CONDITI ONS WHICH MIGHT VARY FROM ONE ADMINISTRATOR TO ANOTHER. WHEN SWITCH OVE R IS DONE ON CUSTOMERS REQUEST WHAT EFFECTIVELY HAPPENS IS A R EDEMPTION FROM ONE SCHEME AND ACQUISITION OF UNITS IN ANOTHER SCHE ME REPRESENTING THE NAV. IT IS NOT LIKE A SWITCHING ON AND OFF OF AN ELECTRICAL CIRCUIT. THERE IS RELINQUISHMENT OF RIGHTS IN ONE SET OF UN ITS AND ACQUISITION OF ANOTHER SET OF UNITS. THE TRANSACTIONS GO THROUGH SIMULTANEOUSLY BUT NEVERTHELESS THE TRANSACTIONS WHICH INVOLVE A REDEM PTION AND PURCHASE RESULTING OUT OF A SWITCH OVER CANNOT BE TAKEN OUT OF THE AMBIT OF TRANSFER AS DEFINED IN SEC.2(47) OF THE ACT. TRANSFER DEFINITELY INCLUDES SALE EXCHANGE RELINQUISHMENT AND EXTINGUISHMENT OF REIGHTS AS SPECIFIED IN CL.(I) AND (II) RESPECT IVELY OF SEC. 2(47). NOW IF WE LOOK AT SEC.45(6) OF THE ACT IT READS AS UND ER: ITA NOS.1573 - 1576/MDS/07 18 NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SEC.(1) THE DIFFERENCE BETWEEN THE REPURCHASE PRICE OF THE UNIT S REFERRED TO IN SUB-SEC.(2) OF SEC. 80-CCB AND THE CAPITAL VALUE OF SUCH UNITS SHALL BE DEEMED TO BE THE CAPITAL GAIN ARISIN G TO THE ASSESSEE IN THE PREVIOUS YEAR IN WHICH SUCH PURCHAS E TAKES PLACE OR THE PLAN REFERRED TO IN THAT SECTION IS TE RMINATED AND SHALL BE TAXED ACCORDINGLY. THUS THE DIFFERENCE BETWEEN THE REPURCHASE PRICE OF A UNIT AND CAPITAL VALUE OF A UNIT HAS TO BE DEEMED AS CAPITAL GAINS. JUST BECAUSE SUCH DIFFERENCE IS INVESTED IN ACQUIRING NE W UNITS CAMOUFLAGED AS A SWITCH OVER WOULD IN OUR OPINION MAKE NO DIFFERENCE. BUT NEVERTHELESS WE ALSO FIND THAT THE ABOVE SUB-SECTION EXCLUSIVELY DEALS WITH UNITS REFERRED IN SEC.80CCB (2) AND NOT EVERY TYPE OF UNIT. IT THEREFORE BRINGS US TO SUB-SEC.(2 ) OF SEC.80CCB WHICH IS REPRODUCED HEREUNDER: (2) WHERE ANY AMOUNT INVESTED BY THE ASSESSEE IN T HE UNITS ISSUED UNDER A PLAN FORMULATED UNDER THE EQUITY LIN KED SAVINGS SCHEME IN RESPECT OF WHICH A DEDUCTION HAS BEEN ALLOWED UNDER SUB-SEC.(1) IS RETURNED TO HIM IN WH OLE OR IN PART BY WAY OF REPURCHASE OF SUCH UNITS OR ON THE TERMI NATION OF THE PLAN BY THE FUND OR THE TRUST AS THE CASE MAY BE IN ANY PREVIOUS YEAR IT SHALL BE DEEMED TO BE INCOME OF T HE ASSESSEE OF THAT PREVIOUS YEAR AND CHARGEABLE TO TAX ACCORDI NGLY . AS AFORESAID FOR APPLICATION OF SEC. 45(6) OF THE ACT IT IS NECESSARY THAT THE UNITS SHOULD BE ONE REFERRED IN SUB-SEC.(2 ) OF SEC.80-CCB. WHAT HAS BEEN REFERRED IN SUB-SEC.(2) TO SEC.80CCB ARE UNITS ISSUED ITA NOS.1573 - 1576/MDS/07 19 UNDER A PLAN FORMULATED UNDER AN EQUITY LINKED SAVI NGS SCHEME IN RESPECT OF WHICH A DEDUCTION HAS BEEN ALLOWED UNDER SUB-SEC.(1) THEREOF TO THE ASSESSEE. THUS FOR APPLYING SEC.45(6 ) THE UNITS SHOULD QUALIFY TWIN CONDITIONS. FIRST IS THAT SUCH UNITS S HOULD BE THOSE ON WHICH A DEDUCTION U/S 80CCB (1) WAS ALLOWED TO THE ASSESSEE AND THE SECOND IS THAT SUCH UNITS SHOULD HAVE BEEN ISSU ED UNDER A PLAN FORMULATED UNDER AN EQUITY LINKED SAVINGS SCHEME. I F WE LOOK AT PROVISO TO SUB-SEC.(1) OF SEC.80CCB IT IS CLEAR TH EREFROM THAT NO DEDUCTION UNDER THAT SUB-SEC WAS AVAILABLE TO ANY A SSESSEE ON OR AFTER 1-4-1992. HERE THE IMPUGNED ASST. YEAR IS 200 0-01 AND THEREFORE THERE CAN BE NO DOUBT THAT ASSESSEE COUL D NOT HAVE CLAIMED NOR ALLOWED DEDUCTION ON THESE UNITS UNDER SUB-SEC.(1) OF SEC.80CCB. IN ANY CASE THERE IS NO CASE FOR THE RE VENUE THAT ASSESSEES HAD EVER MADE ANY CLAIM IN RESPECT OF THE SE UNITS UNDER SUB-SEC (1) OF SEC.80CCB OF THE ACT. THUS WE CANN OT SAY THAT THE UNITS OF THE MUTUAL FUNDS HELD BY THE ASSESSEES WER E THOSE ON WHICH ANY DEDUCTION WAS ALLOWED TO THEM UNDER SUB-SEC. (1 ) OF THE ACT. NOR IS THERE ANY FINDING BY THE A.O THAT THE UNITS REDE EMED BY THE ASSESSEES AND INVESTED WERE ORIGINALLY UNDER A PLAN FORMULATED UNDER ANY EQUITY LINKED SAVINGS SCHEME ONLY. THUS THE UNITS HERE WOULD NEVER HAVE BEEN THE TYPE OF UNITS MENTIONED I N SUB-SEC.(2) OF SEC.80CCB OF THE ACT. AS A NATURAL COROLLARY SEC. 4 5(6) WOULD NOT BE ITA NOS.1573 - 1576/MDS/07 20 APPLICABLE TO SUCH UNITS. WE ARE THEREFORE OF THE OPINION THAT THE SURPLUS THAT ARISE TO THE ASSESSEE ON ACCOUNT OF TH E SWITCH OVER OF THE UNITS COULD NOT HAVE BEEN CONSIDERED AS CAPITAL GA INS U/S 45(6) OF THE ACT. SUCH TREATMENT WAS NOT WARRANTED UNDER LAW . THEREFORE WE HAVE NO HESITATION TO DELETE THE ADDITION ON ACCOUN T OF CAPITAL GAINS MADE RELYING ON SEC. 45(6) READ WITH SEC. 80CCB(2) OF THE ACT ON SUCH SURPLUS. SUCH ADDITION STANDS QUASHED. GROUND NOS. 2 TO 7 OF THE ASSESSEE ARE ALLOWED. 16. IN THE RESULT APPEALS OF THE ASSESSEES ARE PAR TLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE CO URT ON 16.07.2010. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 16 TH JULY 2010 NBR CC: THE ASSESSEE/ASSESSING OFFICER/CIT(A)/CIT/DR/GU ARD FILE