2016 (10) TMI 87 - AT - Income Tax

Assessee's appeal denied, loss deemed capital loss.

The tribunal dismissed the assessee's appeal, upholding that the loss incurred was a capital loss and not a short-term capital loss as claimed under ... Revision u/s 263 - holding the loss to be not a STCL - Held that:- The assessee subscribing to the share warrants or of providing for loss by writing off the amount paid, in the assessment order. Even no material was led before us during hearing to show its’ consideration during the assessment proceedings. The details in its respect called for during the assessment proceedings, which were adverted to during hearing, are towards the payment of the sum as well as the reason for not subscribing to the shares, i.e., qua the quantification and the genuineness of the loss, over which there is no dispute, and neither are the same the subject matter of this appeal, which is qua the nature of the loss arising on the nonexercise or non-trading of the right, if any, arising to the assessee during the current year. The revision stands made by alleging non-verification of the assessee’s claim of STCL by the assessing authority qua which we observe no inquiry or application of mind whatsoever by him. That lack of enquiry, where warranted, gives rise to revision is a part of well settled law The Hon’ble Apex Court in Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME Court ] has laid down a four-way test toward an order being erroneous. Succinctly put, these are: incorrect assumption of facts; incorrect application of law; without applying the principles of natural justice; and without application of mind. It is the fourth category which arises in the instant case, and with which we are therefore concerned with. - Decide against assessee Issues:Revision u/s. 263 of the Income Tax Act, 1961 regarding short term capital gain on the non-exercise of the option to subscribe to share capital.Detailed Analysis:1. Revision under Section 263:The appeal contested the revision under Section 263 of the Income Tax Act, 1961, concerning the acceptance of the assessee's claim for short term capital gain (STCG) on the non-exercise of the option to subscribe to share capital. The Commissioner of Income Tax-8, Mumbai, revised the assessment u/s. 143(3) dated 01.12.2011 for the assessment year 2009-10. The revision was based on the nature of the claim not being examined from the standpoint of being a short-term capital loss. The appellant raised both jurisdictional and legal issues.2. Nature of the Loss:The tribunal analyzed the nature of the loss claimed by the assessee. The loss was deemed not to be a short-term capital loss due to the absence of extinguishment of the right as of 31.3.2009. The right to acquire shares would only lapse on 17.7.2009, and the loss incurred was due to the decline in the value of the shares. The loss was considered a capital loss, not a short-term capital loss, as claimed by the assessee.3. Capital Asset and Extinguishment:The tribunal deliberated on the concept of a capital asset and its extinguishment. It was determined that the loss, even upon the expiry of the right, was in the nature of a capital loss. The right to subscribe to shares was a capital asset for a specific period, and its lapse did not constitute a transfer. The loss incurred was due to the non-exercise of the right within the stipulated period, making it a capital loss.4. Jurisdictional Aspect:The tribunal addressed the jurisdictional aspect raised by the appellant. It was noted that the assessment order did not consider the subscription to share warrants or the provision for loss by writing off the amount paid. The lack of inquiry or application of mind by the assessing authority warranted the revision under Section 263. The tribunal emphasized the importance of correct application of law and principles of natural justice in such cases.5. Decision:After a detailed analysis of the issues raised, the tribunal dismissed the assessee's appeal, upholding the decision that the loss incurred was a capital loss and not a short-term capital loss as claimed. The order was pronounced on August 23, 2016.This comprehensive analysis of the judgment highlights the key legal aspects and arguments presented in the case regarding the revision under Section 263 of the Income Tax Act, 1961, and the nature of the claimed loss as a capital loss rather than a short-term capital loss.