2007 (6) TMI 309 - AT - Income Tax

Tribunal upholds reassessment under Income-tax Act, disallows set-off: Share trading loss classified as speculation.

The Tribunal upheld the validity of reassessment proceedings under section 147 of the Income-tax Act, 1961, finding that the Assessing Officer had a ... Losses - In speculation business, Income escaping assessment, Issues Involved:1. Validity of reassessment proceedings u/s 147 of the Income-tax Act, 1961.2. Treatment of loss incurred in the business of shares as speculation loss u/s 73 of the Income-tax Act, 1961.Summary:1. Validity of Reassessment Proceedings u/s 147:The first issue pertains to the validity of reassessment proceedings initiated u/s 147. The assessee filed its return declaring nil income, which was processed u/s 143(1)(a). The Assessing Officer (AO) later noticed a loss in share trading and initiated reassessment proceedings u/s 148, believing income had escaped assessment. The assessee challenged this before the CIT(A), citing judgments from the Hon'ble Bombay High Court, arguing that reassessment cannot be initiated on a mere change of opinion or when all facts are disclosed. The CIT(A) upheld the AO's action, stating the reassessment was based on a genuine belief of income escapement, not a change of opinion. The Tribunal agreed, noting that the notice was issued within four years, making the proviso to section 147 inapplicable. The Tribunal rejected the assessee's contention, emphasizing that the AO was not required to form an opinion under section 143(1)(a), thus the theory of change of opinion did not apply.2. Treatment of Loss in Share Trading as Speculation Loss u/s 73:The second issue concerns whether the loss of Rs. 1,12,88,130 from share trading could be set-off against other incomes. The AO treated the loss as speculation loss u/s 73 Explanation, disallowing the set-off against other incomes. The CIT(A) confirmed this view. The assessee argued that the loss was due to the valuation of closing stock, not speculation. The Tribunal, however, held that the business of trading in shares by a company is deemed to be speculation business as per the Explanation to section 73. Consequently, any loss from such business, including valuation loss, must be treated as speculation loss and cannot be set-off against other incomes. The Tribunal upheld the CIT(A)'s order, confirming that the loss incurred was speculation loss and not eligible for set-off against dividend income.Conclusion:The Tribunal dismissed the assessee's appeal, upholding the validity of reassessment proceedings u/s 147 and confirming that the loss from share trading is to be treated as speculation loss u/s 73, disallowing its set-off against other incomes.