T.N. Chopra, A.M.
1. These are cross-appeals, filed by the Revenue and the assessee against the order of the CJT(A), dt. 18th March, 1994, for asst. yr. 1989-90.
2. First we take up the assessee’s appeal ITA No. 3032/Ahd/1994.
3. The first ground of appeal assails the finding of the learned CIT(A) upholding the validity of proceedings initiated under Section 147 of the IT Act, 1961. The facts in brief are that return of income was originally filed on 26th Dec., 1989, declaring total income of Rs. 2,58,730. The AO processed the return under Section. 143(1)(a) and communicated the intimation to the assessee dt. 28th June, 1990. Subsequently search operations were conducted by the IT Department under Section
132 at the premises of the assessee-company at Relief Road, Ahmedabad, on 8th Aug., 1990. During the course of search statement of Shri J.K. Doshi, director of the assessee-company was recorded under Section 132(4) wherein he admitted that he had floated the assessee-company as an investment company along with 5 other investment companies with a view to invest its unaccounted income in the names of various Benami shareholders.
4. Insofar as asst. yr. 1989-90 is concerned the AO noticed that the assessee has claimed the deduction of short-term capital loss amounting to Rs. 3,87,225 on the sale transactions of share as under :
Name of the company
2 Reliance Inds. Lid.
The brokers accounts for the above transactions filed with the return were also gone through by the AO. The transactions have been shown through the brokerage of R.J. Financial Consultancy Services which is a firm in which Shri. J.K. Doshi, director of the assessee-company, is a partner in his capacity as Karta of his HUF. Another partner of the said broker firm is Smt. J.D. Shah who is the wife of the aforementioned Shri J.K. Doshi. Smt. J.D. Shah is also a director of the assessee-company along with her husband. The AO took note of the fact that the span of purchase and sale of shares as per the aforementioned transactions is only 15 days. Both these scrips, namely, TISCO and Reliance are Group A scrips and no evidence was available on record that the delivery of the scrips had been taken by the assessee before the sale thereof. The AO on the basis of the information on record held the belief that the loss of Rs. 3,87,225 represented speculation loss which could be set off under Section 73(1) only against speculation profit. Proceeding on this basis the AO, therefore, initiate proceedings under Section 148 vide notice dt. 27th March, 1991, which was served on the assessee on the same date. From the above facts it would be seen that the proceedings have been initiated by the AO within four years from the end of the relevant asst. yr. 1989-90.
5. The AO proceeded to make the assessment disallowing the deduction of loss of Rs. 3,87,225 treating the same as speculation transactions. The assessee carried the matter in appeal before the learned CIT(A) The learned CIT(A) has discussed the issue vide para 3 of his order. The reasons recorded by the AO prior to the initiation of proceedings under Section 147 have been reproduced by the learned CIT(A) in para 3.2 of his order. The learned CIT(A) upheld the proceedings under Section 147 on the ground that the requisite conditions contained under the amended Section 147 are satisfied.
6. Shri S.N. Soparkar, the learned counsel for the assessee, assailing the legality of action under Section 147 which has obviously been taken within four years from the end of the relevant, assessment year argued, that there rs no information or material with the AO for the information of belief that income has escaped assessment. The learned counsel read…….. (sic) by the AO while initiating the
proceedings under Section 147 and argued that there is no valid ground or material for the belief of the AO regarding escapement of income. The learned counsel placed reliance on the Supreme Court decision in Sheo Nath Singh v. AAC (1971) 82 ITR 147 (SC). Further reliance is placed on the decisions of Gujarat High Court in Navinchandia Mohan Lal Parikh v. WTO (1980) 124 ITR 68 (Guj) and Garden Silk Mills (P) Ltd v. Dy. CIT (1999) 237 ITR 668 (Guj).
7. Shri Jaspal Singh, the learned senior Departmental Representative supporting the order of the learned CIT(A) on the issue argued that the impugned proceedings have been initiated under the new procedure contained under the amended Section 147 which confers wider powers on the AO to initiate proceedings under Section 147 for escapement of income. The learned Departmental Representative pointed out that for the purpose of initiating proceedings under Section 147 within four years, all that the section requires is that the AO has a bona fide belief regarding escapement of income. Under the old procedure the section envisaged that the AO should have information in his possession leading to the reason for the belief regarding escapement of income. There is no such requirement under the new procedure that the belief should be based on information in possession of the AO. The learned Departmental Representative referred to various facts and circumstances brought out by the AO in the office letter dt. 18th March, 1993, immediately after filing of the return on 1st March, 1993. In this letter, the grounds for initiating action under Section 147 have been communicated to the assessee. The learned Departmental Representative referred to para 5 of the assessment order which indicate the salient points mentioned by the AO for taking action under Section 147 and communicated to the assessee during the impugned proceedings under Section 147. The learned Departmental Representative further added that the share transactions involving purchase of shares through the broker firm which is a sister concern of the assessee have been squared off within a span of 15 days without taking delivery of shares and the transactions are, therefore, clearly speculation transaction, as per the definition contained under Section 43(5).
8. In the rejoinder the learned counsel for the assessee heavily relied upon the decision of Gujarat High Court in the case of Garden Silk Mills (P) Ltd. (supra) and invited our attention to the observations at p 673 and argued that their Lordships have explained the principles laid down in their earlier decision in Praful Chunilal Patel v. Asstt. CIT (1998) 236 ITR 832 (Guj) and held that Section 147 does not confer jurisdiction on change of opinion on the part of the AO. The learned counsel argued that in the facts of the instant case the ratio of Garden Silk Mills would be applicable and the proceedings under Section 147 are liable to be quashed.
9. We have considered the rival submissions and also gone through the orders of the tax authorities below. There is no dispute between the two parties that action under Section 147 has been taken under the new procedure within four years by the AO. The power to initiate action under Section 147 within four years of the end of the relevant assessment year would be attracted in a case where the AO has reason to believe that any income chargeable to tax has escaped assessment. The words “reason to believe” cannot mean that the AO should
have finally ascertained the facts by legal evidence. If the AO has a cause to believe that income has escaped assessment, he can be said to have a reason to believe that the income had escaped assessment. Obviously, the belief should be a bona fide belief held by the assessee. The new procedure for bringing the escaped income in the tax net has been introduced by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, whereby Section 147 has been redrafted conferring wider powers on the AO for taking action to bring to tax the escaped income. The amended Section 147, which is relevant for our purposes does not envisage that the reason to believe should be as a consequence of “information” in possession of the AO. The expression “information” has been excluded in the amended section insofar as action under Section 147 is taken within four years. The Hon’ble Gujarat High Court has construed the expression “reason to believe” in its recent decision in the case of Praful C. Patel v. M.J. Mackwana, Asstt. CIT (supra). At p 841 their Lordships observed:
“The function of the AO is to administer the Act with solicitude for public treasury and with fairness to the taxpayers. He is necessarily armed with great powers. Up to four years an assessment is open to his unreserved consideration to his formation of the requisite belief. If he has such reason, he has the power, and we may add that it is his duty to reopen the door and demand the amount legally owing. His formation of belief is not a judicial decision, but an administrative decision. It does not determine anything at this initial stage, but the AO has a duty to proceed so as to obtain what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a Court by the standard of what the ideal man would think. He is the actual man trusted by the legislature and charged with the duty of forming of a belief, for the mere purpose of determining whether he should proceed to collect what is strictly due by law, and no other authority can substitute its standard of sufficient reason in the circumstances, or his opinion or belief for him. Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden.”
Applying the aforesaid principles in the backdrop of facts and circumstances of the case in hand we are of the considered view that the requisite condition for initiating action under Section 147 are clearly satisfied and the proceedings have been validly initiated by the AO. On the facts and material on record we find ample justification for the belief of the AO that the share transactions are speculative transactions. Apart from the fact that search operations have been conducted by the IT Department on the premises of the assessee-company and statement of the director has been recorded, referred to above, a bare perusal of the return filed by the assessee for asst. yr. 1989-90 indicates that the transactions for purchase and sale of shares of TISCO and Reliance Industries have been carried out within a period of 15 days. The learned counsel observed that the settlement period for the settlement of the transaction in the stock exchange is 15 days to 21 days during the relevant year. In the instant case
shares of TISCO have been shown as purchased on 13th Dec., 1988, and sold on 21st Dec., 1988, i.e., within a period of 8 days only. Further shares of Reliance Industries have been purchased on 21st Dec., 1988, and sold on 5th Jan., 1989, i.e., within a period of about 15 days time. The very time span of the transaction indicates that the delivery of shares has not taken and the transactions have been concluded without taking delivery. Furthermore, the share broker through whom transactions have been entered into is the firm M/s. R.J. Financial Consultancy Services which is a sister concern in which the director Shri J.K. Doshi and his wife Smt. J.C. Shah are partners. Both these persons are directors of the assessee-company also. The cumulative effect of the aforesaid facts and circumstances of the case in our opinion provide ample justification to the AO for coming to a bona fide belief that income has escaped assessment. In our opinion proceedings under Section 147 have been validly initiated.
10. Regarding the reliance placed by the learned counsel on the decision of Gujarat High Court in Garden Silk Mills (P) Ltd. (supra) we find that the said decision rendered in the context of the facts and circumstances of the said case renders no assistance to the assessee. Their Lordships in the said decision held that action under Section 147 would not be justified on the basis of change of opinion earlier adopted by the AO. In the instant case, the AO has earlier processed the return under Section 143(1) and there was no occasion for application of mind on the part of the AO to the point in issue whether the loss in the share transaction is a speculation loss or not, Section 143(1) does not envisage consideration of any point and formation of any opinion by the AO for assessment purposes. In the instant case it cannot be said that there is any change of opinion on the part of the AO with regard to the loss of Rs. 3,87,225 as speculation loss. While processing the return earlier under Section 143(1)(a) there was no occasion for the AO to adjudicate the issue. In our opinion the facts in the instant case are, therefore, entirely distinguishable from that of Garden Silk Mills (P) Ltd. (supra). The decision, therefore, does not help the assessee.
11. For the aforesaid reasons we uphold the action under Section 147 and dismiss ground No. 1.
12. Ground No. 2 reads as under :
“The learned CIT(A) erred in law and on facts of the case in not deciding ground Nos. 3 and 4 of the grounds of appeal preferred before him.”
These grounds pertain to disallowance of loss of Rs. 3,87,225 on sale of shares. The learned CIT(A) has dismissed the ground vide para 4 of his order pointing out that the ground was not pressed. The learned counsel, however, argued that the observations of the learned CIT(A) are not correct and the grievance of the assessee against the disallowance of loss was never given up during the hearing before the learned CIT(A). Looking to the facts of the case we would remit the issue regarding the claim of deduction of loss of Rs. 3,87,225 and decide (sic-restore) ground Nos. 3 and 4 as per grounds of appeal in the appeal memo before the CIT(A) to the file of the CIT(A) for fresh adjudication.
13. Ground No. 3 reads as under :
“The learned CIT(A) erred in law and on facts of the case in not allowing set off of loss occasioned in a speculative transaction against business income.”
This ground is also connected with the issue regarding treating the loss in sale of shares as speculation loss. This ground has not been argued before us. Since we have restored the issue regarding deduction of loss on sale of shares to the file of the AO, while dealing with ground No. 2 above, this ground is also restored for fresh consideration by the learned CIT(A).
14. Ground No. 4 needs no comments. The appeal of the assessee is thus partly allowed as above.
15. Now we take up Revenue’s appeal ITA No. 2300/94. The only ground raised in the Revenue’s appeal is that the learned CIT(A) erred in holding that interest under Section 234B is not chargeable in a fresh assessment if such interest has not been charged at the time of processing the return under Section 143(1)(a) of the IT Act, 1961. We have already indicated above that the AO processed the original return filed on 26th Dec., 1989, under Section 143(1)(a) and sent intimation dt. 29th June, 1990. In this intimation no interest under Section 234B was charged. However while making the assessment under Section 147 the AO charged interest under Section 234B. The, CIT(A) held that since interest has not been charged while proceeding the return no interest can be charged while passing the order under Section 147.
16. Section 234B(1) provides for charging of interest where the advance tax paid by the assessee is less than 90 per cent of the assessed tax and the period for which the interest is to be charged commences from first day of April “to the date of determination of total income under Sub-section (1) of Section 143 and where a regular assessment is made to the date of such regular assessment”. Expln. 2 provides that where an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of the section. The question which arises for determination before us is whether the assessment made by the AO under Section 147 vide order dt. 24th March, 1993, can be treated as a regular assessment by applying the provisions enacted in Expln. 2 below Section 234B. The AO processed the return under Section 143(1)(a) on 29th June, 1990. For the purpose of determining the question whether the impugned assessment under Section 147 can be treated as regular assessment it would be necessary to consider whether the intimation sent by the AO under Section 143(1)(a) can be created as an assessment. The entire procedure of assessment contained under the provisions of Section 143(1)(a) has undergone a sea change w.e.f. 1st April, 1989, with the enactment of Taxation Law (Amendment) Act, 1987. Prior to 1st April, 1989, the provisions contained under Section 143(1)(a) envisaged making an assessment of the total income without requiring the presence of the assessee whereas Section 143(3) envisaged making of an assessment after issue of statutory notices and allowing an opportunity to the assessee under Section 143(2)/142(1). With effect from 1st April, 1989, the provisions relating to assessment, as envisaged under Section 143(1) without requiring the presence of the assessee was substituted with a new provision which provided for sending an intimation to the assessee specifying the tax or interest payable on the basis of the return. The word “assessment” used in the earlier provisions has been consciously deleted by the legislature and substituted by an intimation. The intimation issued under the amended provisions of Section 143(1)(a) cannot be construed as an order of assessment. The amended section in fact provides that
the intimation specifying the amount payable shall be deemed to be a notice of demand issued under Section 156 meaning thereby that no demand notice would be issued under Section 156 along with the initiation. Explanation appended below Section 143, inserted by the Finance (No. 2) Act, 1991, specifically provided that an intimation sent under Section 143(1)(a) shall be deemed to be an order for the purposes of Sections 246 and 264. Thus, prior to 1st Oct., 1991, the intimation sent under Section 143(1)(a) was not treated as an order even for the purposes of Sections 246 and 264. The true impact of the expression “intimation” used under Section 143(1)(a) is thus amply brought out by the phraseology used under Section 143(1)(a) as well as Section 234B. The termination date for the period for which interest is charged are specified in the section as (1) date of determination of total income under Section 143(1) and (2), where a regular assessment is made date of such regular assessment. Thus, the legislative intention that intimation under Section 143(1)(a) does not have the trappings of an assessment are amply brought out by the above-mentioned provisions. In out opinion sending of an intimation does not amount to an assessment. Therefore, the assessment made in the instant case under Section 147 is the first assessment and by virtue of Expln. 2 to Section 234B this assessment is a regular assessment. Therefore, interest under Section 234B is clearly chargeable while making the impugned assessment under Section 147.
17. For the aforesaid reasons we are inclined to reverse the finding of the learned CIT(A) and hold that interest under Section 234B has been rightly charged by the AO. The appeal of the Revenue is, therefore, allowed.
18. In the result the appeal of the assessee is partly allowed and that of the Revenue is allowed.