Bhagyodaya Co-Op. Bank Ltd vs Asst. Commissioner Of Income ...
2023 Latest Caselaw 6155 Guj

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    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

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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

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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

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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

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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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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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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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