Gujarat High Court
Swetaben Tejaskumar Sadhani vs Deputy Commissioner Of Income Tax - ... on 7 July, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/4754/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 4754 of 2016
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SWETABEN TEJASKUMAR SADHANI....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE - 1
(3)....Respondent(s)
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Appearance:
MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1
MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 07/07/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 30.03.2015 issued by the respondent-Assessing Officer under Section 148 of the Income Tax Act, 1961 ['the Act' for short] under which, he reopened the petitioner's assessment for the assessment year 2008-09.
2. The petitioner, as an individual, had filed the return of income for the assessment year 2008-09 declaring total income of Rs. 97.89 lacs (rounded off). Such return was later on revised by declaring the income of Rs. 48.49 lacs. Such revised return was taken in scrutiny. One of the claims of the petitioner was of Page 1 of 4 HC-NIC Page 1 of 4 Created On Sat Jul 09 01:44:48 IST 2016 C/SCA/4754/2016 ORDER short term capital gain of sale of shares. The Assessing Officer framed scrutiny assessment under Section 143(3) of the Act on 20.10.2010 accepting the income declaration made by the petitioner in the revised return. To re-open such assessment, the Assessing Officer issued the impugned notice. He had recorded following reasons for such purpose:
"It has been legally held that in case of income from investment in shares, mutual funds etc the taxability of income as to whether the same is to be assessed as an income from "income from business", depends on the volume and frequency of transactions. When there are huge number of transactions, the income has to be treated as an 'income from business' and taxed accordingly. CBDT has also issued a guideline in the regard vide Circular No. 4 of 2007 dated 16.06.2007 providing the circumstances where the share trading income has to be regarded as business income.
The assessee had filed return for A.Y. 2008-09 on 06.10.2008 returning income from share trading of rs. 48,49,030/- (Short terms Capital Gain) which was assessed u/s. 143(3) of the Act accepting the returned income. Tax was levied at special rate of 10%. From the assessment records, it is noticed that during the F.Y. Relevant to A.Y. 2008-09, there were purchase/sale transactions throughout the year and volume also was substantial. The details are as per the following table:
No. of Purchase No of sales Sale value Value of transactions Cost transactions closing stock 98 Rs. 81 Rs. Rs.
2,92,17,096 2,89,76,537/- 52,03,670/-
It can thus be seen from the above table that frequency & volume of transactions was quite substantial. The assessee Page 2 of 4 HC-NIC Page 2 of 4 Created On Sat Jul 09 01:44:48 IST 2016 C/SCA/4754/2016 ORDER has sold 82% of its total purchases (Rs. 292.17 lakh) during the year itself and the balance unsold shares were purchased before 2-3 months of the year ending. The assessee has not held any stock for more than 6 months. It is apparent from the above that the assessee has made purchase and sales transactions with a motive to earn profit and were in the nature of an adventure in trade and it was not in the nature of investment to earn dividend.
In view of the legal position mentioned above and following the instructions contained in the above Board Circular, the income is required to be assessed as "business income"
instead of "Short Term Capital Gain". The misclassification of income has resulted in short levy of tax and interest amounting to Rs. 11,87,524/-.
You are requested to make compliance to the notice issued u/s.148 on 04.02.2016."
3. The petitioner filed objection under a communication dated 02.02.2016 to the notice for reopening. Such objections were, however, rejected by impugned order dated 15.03.2015.
4. Having heard learned counsel for the parties and having perused the documents on record, it emerges that the notice for reopening was issued beyond a period of four years from the end of the relevant assessment year. The additional condition of the income escaping assessment for the reason of the failure on part of the assessee to disclose truly and fully all material facts, therefore, had to be satisfied. In this context, if we peruse the reasons recorded by the Assessing Officer there is no averment of any failure on part of the assessee to disclose truly and fully all material facts. The reasons referred to material already on Page 3 of 4 HC-NIC Page 3 of 4 Created On Sat Jul 09 01:44:48 IST 2016 C/SCA/4754/2016 ORDER record and referred to the sale and purchase transactions of shares by the assessee. On the basis of such materials, the Assessing Officer recorded that frequency and volume of transaction was quite substantial. The assessee had sold 82% of its total purchases during the year itself. The balance unsold shares were purchased before two to three months of the year ending. The assessee had not held any stock for more than six months. According to the Assessing Officer, he therefore concluded that the assessee had made purchase and sale of shares with the motive to earn profit and the activity was, therefore, in the nature of adventure in trade and not by way of investment.
5. We are not required to judge the validity of the Assessing Officer's prima facie conclusion that the petitioner was trading in shares and not investing to earn dividend. We only find that, in absence of failure on part of the petitioner-assessee to disclose truly and fully all materials facts, reopening of assessment, which was previously framed after scrutiny, could not have been done. Only on this count, the keeping petitioner's contention of change of opinion aside, impugned notice is quashed. Petition is allowed and disposed of accordingly.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) Jyoti Page 4 of 4 HC-NIC Page 4 of 4 Created On Sat Jul 09 01:44:48 IST 2016