Prudent Finance Pvt. Ltd. vs Assistant Commissioner of Income Tax

Mr. Akil Kureshi, J. (Oral)—The petitioner has challenged a notice dated 29.03.2011 issued by the respondent Assessing Officer for reopening the petitioner''s assessment for the assessment year 2004-05. The return of the petitioner for the said assessment year was scrutinised and assessment under section 153A, read with section 143(3) of the Income Tax Act, 1961 (''the Act'' for short) was framed. To reopen such assessment, the Assessing Officer issued the impugned notice, which as can be seen, was done beyond a period of four years from the end of relevant assessment year. To do so, the Assessing Officer had recorded following reasons:

"In this case, the assessment have been made under section 153A r.w.s. 143(3) of the Act of Rs.10,22,82,910/- as against the returned income of Rs.2,780/- show by the assessee on 31.12.2007. The Assessing Officer has disallowed a loss of Rs.9,36,93,513/- being loss booked in "off market transaction" and Rs.85,86,619/- disallowed under section 14A of the Act. On going through the records it is seen that a loss of Rs.8,26,92,608 incurred while dealing with another sister concerned viz Nitin Parikh & Co, Capital Market has not been disallowed. The loss of Rs.8,26,92,608/deserved to be disallowed as was done in the off market transaction with sister concern. The assessee group has not given full details regarding the self inflicted loss recorded in the books.

In view of the facts discussed above, I have reason to believe that income of Rs.8,26,92,608/- being the amount of off market transactions with the sister concerns deserved to be disallowed and chargeable to tax has escaped assessment for A.Y. 2004-05 and accordingly it is the fit case for reopening the assessment u/s 147 for AY 2004-05."

After objecting to the notice for reassessment and failing in such objections, the assessee filed the present petition. Inviting our attention to the reasons recorded and other materials on record, counsel for the petitioner raised following contentions.

I. There was no failure on the part of the assessee to disclose truly and fully all material facts. Reassessment beyond a period of four years therefore, could not have been done.

II. The Assessing Officer had examined the entire claim which is the sole basis for reopening of the assessment and therefore also, reopening of the assessment was not permissible.

III. Even on merits, the issue of allowability of business loss on share transactions which were carried out off market, was examined by this Court in case of this very assessee in the judgment reported in case of Commissioner of Income-tax, Ahmedabad-III v. Prudent Finance (P.) Ltd. reported in [2014] 43 taxmann.com 317 (Gujarat). The Court found that disallowance of such loss was not correct.

On the other hand, learned counsel Shri Nitin Mehta submitted that the assessee had not disclosed that M/s. Nitin Parikh and Co. and petitioner were sister concerns. The loss on off market transaction with this company to the tune of Rs.8.26 crores (rounded off) was required to be disallowed as it was done in case of other group concerns.

From the reasons recorded by the Assessing Officer for issuing notice for reopening, one can gather that the sole ground pressed in service by the Assessing Officer was that the Assessing Officer had during the original assessment disallowed a loss of Rs.9.36 crores (rounded off) on off market transaction with sister concern, but did not disallow similar loss of Rs.8.26 crores on the off market transactions carried out by the assessee with M/s. Nitin Parikh and Co. which was also sister concern. To bring the notice within the parameters of the proviso to section 147 of the Act, the Assessing Officer also alleged that the assessee has not provided full details regarding "the self inflicted loss recorded in the books".

In the original assessment, the issue of this off market transaction by the assessee with M/s. Nitin Parikh and Co. to the tune of Rs.9.37 crores, which resulted into loss to the assessee of Rs.8.26 crores came up for consideration. In the assessment order dated 31.12.2007 itself, the Assessing Officer had devoted substantial space and discussion to this issue. It is not necessary to reproduce the entire discussion of the Assessing Officer in such order of assessment. However, in addition to noting that on this very issue, the Assessing Officer referred to any considerable detail, the correspondence between the parties and the materials on record and after considering the same, came to the conclusion that such loss is not required to be disallowed, we may reproduce relevant portion of this discussion. In para 5 of the order of assessment, the Assessing Officer recorded as under:

"5. The assessee company is engaged in the business of trading in shares, securities and mutual funds. The group is headed by Shri Nitin Bhanukant Parikh, who is being assisted in this business by Shri Jolit Jaswantlal Shah, Smt. Heena Nitin Parikh and Smt. Amita Jolit Shah. Assessee M/s. Prudent Finance P. Ltd. is flagship concern of the group. The various concerns which are in the fold of this group are as under:

Sl. No.

Name of the concern

Status

Director/partner/proprietor

4

Nitin Parikh & Co.

Proprietary Concern

Shri Nitin Bhanukant Parikh

In para 6, he addressed the issue of "Loss in off market transactions:Rs.9,37,13,513/-" which represented the assessee''s transaction that the said M/s. Nitin Parikh and Co. The Assessing Officer thereafter recorded the assessee''s contentions in this respect and observed as under:

"6.3 In order to verify genuineness of loss claimed by the assessee, during the course of assessment proceedings, vide para No. 15 of this office letter dated 20/09/2007 assessee was asked to furnish details as to sale and purchase transactions in shares with the following concerns....

(iv) Nitin Parikh & Co...."

In para 7 of the order of the assessment, the Assessing Officer recorded the assessee''s contention regarding allowability of the off market transaction losses raised through multiple replies particularly regarding the loss of Rs.8.26 crores in the transactions with M/s. Nitin Parikh and Co. In such replies, the assessee had stated as under:

"2.1 While computing amount for proposed disallowance for A.Y.2004-2005, your yourselves has considered the loss of Rs.8,26,92,608/- pertaining to Nitin Parikh and Co. Capital Market. The aforesaid Nitin Parikh and Co. Capital Market, is Proprietary ship firm of Nitin Parikh which is the registered sub broker of Anagram Securities Limited having registration number INS231441036/2305976 and Anagram Stock Broking limited having registration number INS011237513/0108085. (Copy enclosed as annexure 1). It is stated that by aforesaid transaction, said NPC Capital market has earned only brokerage income from it and not profit through assessee as stated by your goodselves. (The copy of Profit & Loss account for relevant year is enclosed herewith as Annexure 2).

As the purchase and sale transaction carried out with aforesaid firm is the market transactions and routed through stock exchange and similar to transaction with Kotak Securities Limited, same cannot be considered as offline transaction carried out by assessee. In view of such facts, loss considered by your goodselves in proposed disallowance for A.Y. 2004-2005 is required to be reduced by Rs.8,26,92,608."

It was only after such elaborate exercise that the Assessing Officer dropped his objection to the loss of Rs.8.26 crores in the transactions between the assesses and M/s. Nitin Parikh and Co., making following observations:

"(iii) So far as loss arose on account of normal transactions carried out with Nitin Parikh and Co. Capital Market is concerned assessee''s contentions, is accepted for the reason that it is a subbroker of Anagram Securities Ltd. and the transactions with Nitin Parikh & Co. Capital Market are routed through the platform of stock exchange and therefore those are not considered as "offmarket transactions."

It can thus be seen that the Assessing Officer examined the issue at length in the original assessment order and came to the conclusion that the transactions were not off market transactions and that therefore, the loss suffered by the assessee cannot be disallowed. Whatever be the validity of such findings, surely the Assessing Officer himself cannot question the same by issuing the notice for reopening, that too without there being anything additional on record, suggesting that the assessee had not disclosed true and full facts. In the reasons recorded, the Assessing Officer does not even comment on the fact that M/s. Nitin Parikh and Co. were the sister concerns, a ground vaguely sought to be made out by the counsel for the Revenue. Assessing Officer merely hinted at lack of disclosure regarding the so called self inflicted loss. He did not even refer to the assessee''s lack of disclosure of M/s. Nitin Parikh and Co. being sister concern. In any case, in the order of assessment itself, the Assessing Officer was actually aware about the fact that M/s. Nitin Parikh and Co. was a part of the group of companies of which the assessee was also one of the members. We have reproduced the relevant portion of para 5 of the order of assessment, in which the Assessing Officer himself refers to M/s. Nitin Parikh and Co. as one of the group concerns. His consideration of the issue of allowability of the loss was therefore not tainted by any mis-declaration by the assessee. Once therefore, when the issue was thoroughly examined in the original order of assessment, it was simply not permissible for the Assessing Officer to reopen the assessment on such basis without there being any suggestion that the Assessing Officer was in possession of some external material which would show that the assessee had not show truly and fully all material facts.

In the result, impugned notice dated 29.03.2011 is quashed. Petition is allowed and disposed of.