- (1.) In the writ petition, the petitioner, a company under the Companies Act, 1956, has challenged the reassessment notice dated March 31, 2006, issued by the Assistant Commissioner of Income-tax, Circle-5, Kolkata, respondent No. 2, under section 148 of the Income-tax Act, 1961 ("the Act" for short), for the assessment year 2001-02 and all proceedings relating thereto. It appears from the facts, as stated in the petition, that during the relevant assessment year, the petitioner carried on the business, inter alia, of actual delivery based purchase and sale of shares and speculation business in shares. The petitioner suffered a loss of Rs. 11,49,39,400 in business of share dealing and a loss of Rs. 5,50,95,999 in speculation business. The petitioner earned short-term capital gain of Rs. 1,57,23,404 and long-term capital gain of Rs. 10,86,84,635 and dividend income of Rs. 9,26,000 during the previous year.
(2.) On October 22, 2001, the petitioner filed return under the Act for the said assessment year showing a total income of Rs. 94,68,640 comprising the said business loss, the said speculation loss, the said short-term capital gain and the said long-term capital gain. In the assessment proceedings, the Income-tax Officer, Ward-4(3) (Kolkata), respondent No. 3, as the Assessing Officer, proposed to apply the provisions contained in the Explanation to section 73 of the Act to the said business loss in actual share dealing business. During the said proceedings, the petitioner by letter dated November 6, 2003, submitted that as non-speculative business was much less than the income from capital gain, the provisions contained in section 73 were not applicable. However, as respondent No. 3 insisted upon applying the provisions contained in the Explanation to section 73, the petitioner by a letter dated December 18, 2003, invoked the provisions in section 144A of the Act requesting the Additional Commissioner of Income-tax, Range-4, Kolkata, to call for the assessment records and to issue appropriate direction. Thereafter, the Additional Commissioner of Income-tax directed respondent No. 3 to send the draft assessment order, which was duly sent by respondent No. 3 proposing to include the said speculation loss for the purpose of deciding the applicability of section 73 to the said business loss. Assailing the said proposal, the petitioner on February 20, 2004, made a written submission before the Additional Commissioner of Income-tax and oral hearing was granted. Thereafter, by direction dated March 23, 2004, under section 144A, the Additional Commissioner decided the issue regarding the applicability of the Explanation to section 73 and directed respondent No. 3 not to treat the share trading loss of Rs. 11,11,77,739 as deemed speculation loss within the meaning of the Explanation to section 73 of the Act and the Assessing Officer was directed to frame the assessment in the light of the direction contained in the said order. Pursuant to the order under section 144A, respondent No. 3 by assessment order dated March 31, 2004, under section 143(3)/ 144A completed the assessment by passing an assessment order. However, after completion of the assessment proceedings, the petitioner received the impugned notice dated March 31, 2006, under section 148 of the Act for the said assessment year on the ground that the said respondent had reasons to believe that the income of the petitioner chargeable to tax under the Act for the said assessment year had escaped assessment within the meaning of section 147 and, therefore, the petitioner was required to file a return. In compliance with the notice under section 148, the petitioner filed the return and requested respondent No. 2 to furnish the recorded reasons on which the impugned notice was issued.
(3.) In the recorded reasons, respondent No. 2 had observed that the interest income and incentive of investments were treated as business income along with share loss in share dealing business and, thus, the business loss of Rs. 11,49,39,400 and speculation loss of Rs. 5,50,95,999 were shown separately and not considered as business income. Moreover, capital gains and dividend income were shown separately and total income was computed at Rs. 9,48,640. Thereafter, the petitioner filed his objection to the recorded reasons on the ground that it was contrary to the Explanation to section 28 and section 43(5) and since assessment was made under the provisions of sections 143(3)/ 144A of the Act, wherein the question of applicability of the Explanation to section 73 of the Act as proposed in the recorded reasons by respondent No. 2 was disapproved by the higher authority by exercising its discretion under section 144A, the same issue could not be reopened or reexamined and could not be gone afresh or did not constitute a relevant material for formation of belief under section 147. Moreover, such reopening was violative of the directions under section 144A, which has a binding effect. After notice under section 148 was served, the petitioner by a representation dated August 21, 2006, prayed for its cancellation. Thereafter, writ petition was moved on September 19, 2006, when direction was issued for filing of affidavits and an interim order was passed restraining the respondents from reopening the assessment. Further, the Assessing Officer was directed to pass a reasoned decision on the objection filed by the petitioner to the impugned notice. Consequently, the Assessing Officer by letter dated September 22, 2006, replied.;