NEUTRAL CITATION
C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17849 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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BHAGYODAYA CO-OP. BANK LTD.
Versus
ASST. COMMISSIONER OF INCOME CIRCLE 1(1)(1) OR HIS SUCCESSOR
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Appearance:
MR SN DIVATIA(1378) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 22/08/2023
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Heard learned advocate Mr.S.N.Divatia for the petitioner and learned Senior Standing Page 1 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined Counsel Mr.Varun K. Patel for the respondent.
1. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Varun K. Patel waives service of notice of rule for and on behalf of the respondent.
2. By this petition, under Article 226 of the Constitution of India, the petitioner has challenged a notice dated 20th March, 2021 issued under Section 148 of the Income Tax Act, 1961 (for short 'the Act, 1961') for Assessment Year 2017-18.
3.1. The petitioner is a Co-operative Society duly registered under the Gujarat Co- operative Societies Act, 1961 having Registration No.11789 dated 29.05.1972 and is engaged in a business of banking and allied activities under the license issued by the Reserve Bank of India under the provisions of Page 2 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined Banking Regulation Act, 1949. 3.2. The petitioner filed its return of income for Assessment Year 2017-18 on 19.10.2017 declaring total income of Rs.5,01,16,080/-.
3.3. The case of the petitioner was selected for scrutiny under CASS and the assessment proceedings took place between 25th September, 2018 to 31st December, 2019. The Assessing Officer called for various details, explanations and evidence relating to the investment, purchase and sale of securities. The petitioner during the course of assessment proceedings furnished all the requisite details called for by the Assessing Officer relating to Long Term Capital Gain (LTCG) and Short Term Capital Gain (STCG) declared by the petitioner along with chart showing purchase Page 3 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined and sale of securities.
3.4. The Assessing Office after considering the reply given by the petitioner pursuant to the notice issued under Section 142(1) framed the asssessment under Section 143(3) of the Act, 1961 on 31st December, 2019 assessing the total income of Rs.5,11,03,080/-. 3.5. The respondent issued a notice under Section 148 of the Act, 1961 on 20 th March, 2021 for Assessment Year 2017-18 proposing to re-assess the total income for the said year. 3.6. In response to the impugned notice, the petitioner uploaded the return of income on 16th April, 2021 with a request to provide a copy of the actual text of reasons recorded for reopening.
3.7. The respondent provided the reasons Page 4 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined recorded on 7th May, 2021 which reads as under:
"2. Brief details of Information collected/received by the AO:
On perusal of the assessment records for the year under consideration, it is found that the assessee has credited Rs.2,11,76,500/- under the head Profit on sale of securities. Out of this, the assessee declared as short term capital gains of Rs.1,29,01,250/- and paid tax @ 30% and remaining amount of Rs.82,75,250/-taken a long-term capital gain (LTCG) and the assessee calculated LTCG considering index value of investment and offered income of Rs.24,82,750 and paid tax of Rs.2,48,275 (@ 10%), It is seen that the assesses had treated LTCG from sale Government bonds were treated as capital gain. Since these invastments were made by the bank as a part of their business activities, gains from such activities are to be treated as business income. This was also clarified by Circular No.665 of the CBDT dated 5.10.1993. This has resulted in escaped assessment of Rs.82,75,250/- under business income.
3. Analysis of information
collected/received:
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NEUTRAL CITATION
C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023
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Under Section 28 of the Income Tax Act, all profit and gains from any business or profession is to be chargeable to tax under the head Profits and gains of business or profession. Further, as per section 6 read with section 5(b) and (c) Banking Regulation Act and as per the guideline issued by the Reserve Bank of India, Investment activities is the normal banking activity and should be treated as banking Stock in trade. Hence, any gain or loss on account of investments made in accordance with banking regulations are to be treated under profits and gains of business or profession.
It is found thatthe assessee has credited Rs.2,11,76,500- /under the head Profit on sale of securities. Out of this, the assessee declared as short term capital gains of Rs.1,29,01,250/- and paid tax @ 30% and remaining amount of Rs.82,75,250/- taken as long-term capital gain (LTCG) and the assessee calculated LTCG considering index value of investment and offered income of Rs.24,82,750 and paid tax of Rs.2,48,275 (@ 10%).
It is seen that the assessee had treated LTCG from sale of Government bonds were treated as capital gain. Since these investments were made by the bank as a part of their business activities, gains from such activities are to be treated as business income.
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NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined This was also clarified by Circular No.665 of the CBDT dated 5.10.1993. This has resulted in escaped assessment of Rs.82,75,250/- under business income." 3.8. The petitioner filed objections to the aforesaid reasons on 14th July, 2021. The respondent passed an order dated 25th October, 2021 rejecting the objections raised by the petitioner. Feeling aggrieved and dis- satisfied with the impugned notice issued under Section 148 of the Act, 1961 and the order dated 25th October, 2021 rejecting the objections raised by the petitioner, the petitioner has preferred this petition. 4.1. Learned advocate Mr.S.N.Divatiya for the petitioner submitted that on bare perusal of the reasons recorded for reopening, it is apparent that there is no new fresh material available with the Assessing Officer for reopening the assessment so as to form a Page 7 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined reason to believe that the income has escaped the assessment.
4.2. It was submitted that the only reason for reopening the assessment is the Circular No.665 dated 5th October, 1993 issued by the Central Board of Direct Taxes (for short 'the CBDT') for treatment of securities of the Bank by stock-in-trade or investment. It was submitted that during the course of the regular assessment, the Assessing Officer has considered the entire issue with regard to the LTCG and STCG pertaining to the sale of investment comprising of the Government of India Bonds.
4.3. Learned advocate Mr.Divatiya invited the attention of this Court to the following paragraphs of the Circular No.665 dated 5th October, 1993 wherein, the applicability of the decision of the Hon'ble Apex Court in case Page 8 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined of Vijaya Bank Limited Versus CIT reported in (1991) 187 ITR 541 (SC) is clarified and explained which reads as under :
"3. The Board has reconsidered the treatment to be accorded to securities held by banks. In the case of Vijaya Bank Ltd. (supra), the Supreme Court considered the issue whether, in a case where the assessee purchases securities at a price determined with reference to their actual value as well as the interest accrued thereon till the date of purchase, the entire price paid for them would be in the nature of capital outlay or whether the interest portion could be claimed as a revenue expenditure. It was in this context that the Supreme Court held that whatever was the consideration which prompted the assessee to purchase securities, the price paid for them was in the nature of capital outlay and no part of it could be set off as expenditure against income accruing on those securities. The Court was not directly concerned with the issue whether the securities form part of Page 9 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined stock-in-trade or capital assets.
4. The question whether a particular item of investment in securities constitutes stock-in-trade or a Capital asset is a question of fact. In fact, the banks are generally governed by the instructions of the Reserve Bank of India from time to time with regard to the classification of assets and also the Accounting standards for investments. The Board has, therefore, decided that the Assessing Officers should determine on the facts and circumstances of each case as to whether any particular security Constitutes stock-in-trade or investment taking into account the guidelines issued by the Reserve Bank of India in this regard from time to time."
4.4. Referring to the above clarification of the CBDT, it was submitted that it was for the Assessing Officer to determine on the facts and circumstances of each case as to whether any particular security constitutes Page 10 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined stock-in-trade or investment taking into account the guide-lines issued by the Reserved Bank of India in this regard from time to time.
4.5. It was further submitted that on perusal of the balance-sheet of the petitioner, it is revealed that the petitioner has shown the Government securities as investment at book value. Learned advocate Mr.Divatiya also invited the attention of the Court to the Note No.5 of the Notes forming parts of the Accounts of the year ended on 31st March, 2017 to point out that there was no investment which was held for trading category during the year by the petitioner- Bank.
4.6. It was therefore submitted that the Assessing Officer while considering the issue of LTCG and STCG in the regular assessment Page 11 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined proceedings has considered the entire issue as to whether the address made in the Government Securities by the petitioner-Bank was investment or stock-in-trade and thereafter, the Assessing Officer has considered the LTCG and STCG as claimed by the petitioner. 4.7. Learned advocate Mr.Divatiya also submitted that the impugned notice issued under Section 148 of the Act, 1961 also refers to incorrect figures of LTCG. He invited the attention of the Court to the Return of Income filed by the petitioner which shows that there was a Short Term Capital Gain of Rs.1,29,01,250/- after adjustment of the Short Term Capital Loss of Rs.57,92,500/- and the Long Term Capital Gains was of Rs.24,82,750/-. It was therefore submitted that the respondent has wrongly stated the figure of Rs.82,75,250/- in the impugned notice issued Page 12 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined under Section 148 of the Act, 1961. 4.8. In support of his submissions, learned advocate Mr.Divatiya referred to and relied upon the decision of the Apex Court in case of the Commissioner of Income Tax versus Kelvinator of India Limited reported in (2010) 320 ITR 561 (SC) to submit that there is change of opinion by the respondent- Assessing Officer for issuance of the impugned notice under Section 148 of the Act, 1961 which cannot be per say the reason for reassessment.
5.1. On the other hand, learned Senior Standing Counsel Mr.Varun K. Patel appearing for the respondent submitted that the petitioner has an alternative efficacious remedy to challenge the assessment order which may be passed pursuant to the impugned notice issued under Section 148 of the Act, 1961 by Page 13 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined way of an Appeal before the CIT (Appeals) and the petitioner can raise all the contentions which are raised before this Court by challenging the impugned notice issued under Section 148 of the Act, 1961.
5.2. It was also submitted that this Court may not consider the case of the petitioner on merits when the case of the petitioner is sought to be reopened within the period of four years from the Assessment Year as the impugned notice dated 20th March, 2021 issued for Assessment Year 2017-18 is within the period of four years and therefore, the impugned notice issued under Section 148 of the Act, 1961 is rightly issued by the Assessing Officer.
5.3. He referred to and relied upon the averments made in the Affidavit-in-Reply filed on behalf of the respondent to submit that the Page 14 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined present petition is required to be dismissed.
6. Having heard the learned advocates for the respective parties, having considered the material available on record and on perusal of the reasons recorded for the issuance of notice under Section 148 of the Act, 1961, it is apparent that there is no new fresh material available with the respondent nor there is any live link shown by the respondent with the material on record for formation of reasonable belief to reopen the assessment within the period of four years. The respondent has relied upon the assessment record for the year under consideration. The respondent has also relied upon the Circular No.665 of CBDT dated 5th October, 1993 for the issue of considering the Long Term Capital Gains and the Short Term Capital Gains shown by the petitioner in the return of income Page 15 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023 NEUTRAL CITATION C/SCA/17849/2021 JUDGMENT DATED: 22/08/2023 undefined considering the sell of the Government of India Securities as investment instead of stock-in-trade.
7. On perusal of the record, it is apparent that the Assessing Officer during the course of regular assessment has considered the computation of LTCG and STCG which was declared by the petitioner in the Return of Income together with the audited accounts produced on record along with the return filed by the assessee.
8. After considering the material on record, the Assessing Officer has allowed the Long Term Capital Gains and Short Term Capital Gains claimed by the assessee considering the sell of the Government Securities as investment and not stock-in-trade. Therefore, the reasons recorded by the respondent is mere change of opinion in the facts of the case. Page 16 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023
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9. The Hon'ble Apex Court in such circumstances has held in the case of Kelvinator of India (Supra) that the Assessing Officer has no power to review, he has only power to re-assess and mere change of opinion cannot be the reason to reopen.
10. In view of the foregoing reasons, the petition succeeds and is accordingly allowed. Impugned notice dated 20th March, 2021 issued under Section 148 of the Act, 1961 as well as the order dated 25th October, 2021 rejecting the objections are hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No orders as to cost.
(BIREN VAISHNAV, J) (BHARGAV D. KARIA, J) PALAK Page 17 of 17 Downloaded on : Sun Sep 17 02:03:16 IST 2023