2014 (1) TMI 229 - AT - Income Tax

Tribunal upholds assessee's appeal on share trading expenditure, stresses importance of objections.

The Tribunal dismissed the Revenue's appeal regarding the reduction of estimated disallowance of expenditure related to share trading, emphasizing the ... Disallowance of Expenditure – Share trading expenses taken as 50% of total expenses in place of 96.11% - Expenses calculated without any actual calculation basis - Reopening of Assessment u/s 147 of the Act - Held that:- Following ACIT Mumbai and Ors. Vs ICICI Securities Primary Dealership Ltd. [2012 (8) TMI 754 - SUPREME COURT] - the assessee has furnished a copy of the order which directly goes to the root of the question raised by the Revenue whether for determining the income on the basis of the share trading could the loss be disallowed on finding the speculation loss which could be allowed in accordance with the provision of section 73 whether would be for re-assessment of finding of income having escaped or disallowance of expenditure claimed for earning such income - The assessee being a limited company was holding shares as investment and also for trading, therefore cannot be subject itself to determine the speculation loss, if any, was not to be tinkered with under the provision of section 147/148 of the Act. The appeal of the Revenue does not have legs to stand on and has to be dismissed - However, on the issue raised by the assessee-appellant as Cross Objection regarding the validity of reopening Relying upon SC’s decision brought on record as of now was to be considered, in so far as, the ld. CIT(A) did not distinguish another Apex Court’s decision in the case of CIT vs Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - which was brought to the notice of the CIT(A) by the assessee that the law is settled that the change of opinion cannot be the basis for a reason to believe and review of the order u/s 147 of the Act - the CIT(A) has erred in not holding the assessment u/s 147 of the Act – Decided against Revenue and in favour of Assessee. Issues:1. Reduction of estimated disallowance of expenditure attributable to share trading.2. Validity of initiation and completion of re-assessment proceedings under Section 147/148 of the Income Tax Act.Issue 1: Reduction of estimated disallowance of expenditure attributable to share trading:The Revenue appealed against the CIT(A)'s reduction of the estimated disallowance of expenditure related to share trading (speculation business) to 50% from 96.11% calculated by the AO. The CIT(A) reduced the disallowance stating that the initial estimate lacked an actual calculation basis. The AO had treated a specific amount as speculation loss under Section 73 of the Income Tax Act, allocating 96.11% of certain expenses to this speculation income. The CIT(A) considered that the speculation loss claimed by the assessee could not be increased or decreased by the AO, as it was not the assessee's intention to allocate these expenses for disallowance. The Tribunal referred to a decision by the Bombay High Court and the Supreme Court, emphasizing that the objection for reopening assessments must be considered, especially in cases where the entire income was already taxed. The Tribunal concluded that the Revenue's appeal lacked merit and dismissed it.Issue 2: Validity of initiation and completion of re-assessment proceedings under Section 147/148 of the Income Tax Act:The assessee raised a Cross Objection regarding the validity of the initiation and completion of re-assessment proceedings under Section 147/148 of the Income Tax Act. The CIT(A) had upheld the initiation and completion of these proceedings, rejecting the assessee's claim that they were illegal or void. The Tribunal considered the assessee's argument that the re-assessment should not have been based on a change of opinion by the AO, citing a Supreme Court decision that change of opinion cannot be the basis for reopening assessments. The Tribunal found that the CIT(A) failed to distinguish another Supreme Court decision brought to their attention by the assessee. The Tribunal agreed with the assessee that the CIT(A) did not address the issue of deleting the disallowance of speculation loss, which could have correspondingly increased the business income. Consequently, the Tribunal allowed the assessee's Cross Objection, finding the CIT(A) erred in not holding the assessment under Section 147 of the Act against settled legal principles established by the Supreme Court.In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the Cross Objection of the assessee, emphasizing the importance of adhering to legal principles and established precedents in re-assessment proceedings and determination of disallowances related to speculation income.