Commissioner Of Income Tax, ... vs H.B. Stock Holdings Ltd.
2009 Latest Caselaw 4649 Del

10
*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+    ITA No.65/2009

                             Date of Decision: 16th November, 2009.


     COMMISSIONER OF INCOME TAX, DELHI-IV ..... Appellant
                       Through: Mr. N.P. Sahni, Advocate.

                 Versus


     H.B. STOCK HOLDINGS LTD.                      ..... Respondent
                       Through:          Mr. Santosh K. Aggarwal,
                                         Advocate.
%    CORAM
     HON'BLE MR. JUSTICE A.K. SIKRI
     HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

     1. Whether reporters of local papers may be allowed to see the
        judgment?
     2. To be referred to the Reporter or not?
     3. Whether the judgment should be reported in the Digest?


                          JUDGMENT

A.K. SIKRI, J (ORAL)

1. The respondent assessee herein had filed return of income

for the assessment year 1995-96 on 13.11.1995. It was processed

under section 143(1) of the Income Tax Act and accepted as such. In

this return the assessee had also shown income from short term

capital gain from the sale of certain shares. As per the assessee these

shares were held as investment and the profits which accrued from

the sale of these shares was, therefore, taken as capital gain.

However, thereafter, notice was served on the assessee under Section

148 of the Act on 26.7.2000. In this notice, as would be taken note of

in detail at the appropriate stage, the main reason for re-opening of

the assessment was that the aforesaid shares were to be treated as

stock-in-trade and, therefore, income accruing from the sale thereof

should have been included as income from business and taxed as

such. On this ground, in the notice it was mentioned that the income

escaped assessment. Re-assessment order was passed thereafter

which was successfully challenged by the assessee before the CIT

(Appeal) and appeal preferred by the Revenue has been dismissed by

the Income Tax Appellate Tribunal (ITAT) vide orders dated 28.3.2008

and it is this order against which present appeal is preferred.

2. We may mention at the outset that the ITAT has quashed

the proceedings under Section 147/148 of the Act on the ground that

notice for re-assessment served upon the assessee was not on the

basis of a valid reason. In order to find out the rationale for arriving

at such a conclusion, the following intervening facts and events which

occurred between the passing of original assessment orders under

Section 143(1) and issuance of notice for re-assessment under Section

148 needs a mention.

3. It so happened that the premises of the assessee were

searched on. As a result of this search and seizure of certain

documents, notice for block assessment under Section 158 BC of the

Act was served upon the respondent. Assessment pursuant thereto

was made on 31.8.1999. In this assessment order passed under

Section 158BC of the Act, one of the items of addition was in fact on

account of sale of aforesaid shares treating the same as stock-in-trade

instead of investment. The assessee had taken that matter in appeal.

CIT (A) allowed the appeal of the assessee precisely on this aspect.

Order dated 31.3.2000 passed by the CIT(A) has been produced. A

perusal of that order would clearly demonstrate that one of the

specific grounds raised by the assessee herein was against addition of

Rs.3,81,24,167/- instead of non-allowance of exemption under Section

147(iv) of the Act. As mentioned above this addition was made on the

same ground, viz., aforesaid income from the sale of shares was to be

treated as 'business income' and not 'capital gain' as the shares were

held as stock-in-trade and not as investment. This ground raised by

the assessee was decided in favour of the assessee in the following

words.

"33. The AO has not mentioned any entry in the books of accounts or in the other documents seized from the assessee's premises which would indicate that the scripts shown as Investment were in fact not Investment but Stock in Trade. He has also not discussed as to how the claim of deduction has been found to be wrong as a consequence of the material fathered during the search in the assessee's premises. Beside, the AO has not disputed the claim of the appellant that the scripts were shown as Investment and not as Stock in Trade in the books. In fact the seized books gives separate account of Investment and Stock in Trade. In the absence of any entry in the seized books showing that the particular script were actually Stock in Trade and not Investment as shown in the balance sheet, there was no justification for withdrawing the exemption U/S 47(IV) allowed to the appellant in course of proceedings. U/s 143(1)(a)/143(3). Appellant gets relief of Rs.381,24,167/-"

4. Thus, categorical finding of fact was arrived at by the

CIT(A) that scrips were actually investment and not stock-in-trade and

there was no justification for withdrawing the exemption under

Section 47(iv). This order was upbeld by ITAT. When we keep the

aforesaid order of the CIT(A) in mind, the irrestible conclusion would

be that the original assessment could not be reopened under Section

148 of the Act on the same premise, viz., shares were kept by the

assessee herein as stock-in-trade and not investment.

5. After going through the reasons for issuance of notice

under Section 148, one finds that there is a detailed discussion about

the aforesaid block assessment and even reference to the orders

passed by the CIT(A) is made by the Assessing Officer. In fact the

aforesaid portion of the order of the CIT(A) has been extracted by the

A.O. also in his reasons recorded under Section 148 of the Act. After

recording the same the A.O. observed that CIT(A) had given a finding

that in the absence of any entries in the seized books showing that the

particular scrip was actually stock-in-trade and not investment. After

extracting the aforesaid portion, the A.O. observed that this finding

indicates that CIT(A) has not disputed the fact that shares were held

as stock-in-trade. Commenting upon this, the Income Tax Appellate

Tribunal has stated that it is the distorted reading of the order of the

CIT(A) passed in those block assessment proceedings. We agree with

this observation of the Income Tax Appellate Tribunal. Reading of the

order of the CIT(A) in block assessment proceedings clearly

demonstrates that the CIT(A) held that stocks were rightly shown by

the assessee as investment in his books of accounts which could not

be treated as stock-in-trade. We are of the opinion that in view of this

categorical finding of the CIT(A) in block assessment proceedings

which had attained finality, notice under Section 148 predicated on

the same ground was impermissible.

6. In view of the order of the CIT(A) which was even upheld

by the Tribunal it was not open to the A.O. to re-open the proceedings

under Section 148, on the ground which had been dealt with

specifically and decided in favour of the assessee.

7. It is trite law that even where two views are possible,

proceedings under Section 148 cannot initiated. In the instant case,

on the other hand, there is a categorical finding of the CIT(A) on this

very aspect which was upheld by the ITAT also . We, thus, find that

no question of law arises for determination in the present appeal and,

therefore, dismiss this appeal.

A.K. SIKRI, J.

SIDDHARTH MRIDUL, J.

NOVEMBER 16, 2009 aj