2017 (7) TMI 729 - AT - Income Tax

Appellate tribunal upholds assessment reopening for 2006-07, reviews speculative loss set off eligibility.

The appellate tribunal partially allowed the revenue's appeal, upholding the validity of reopening the assessment under section 147 for the Assessment ... Validity of reopening of assessment - Held that:- Where the return initially filed is processed under section 143(1) of the Act, and an intimation is sent to an assessee, it is not an ‖assessment‖ in the strict sense of the term for the purposes of section 147 of the Act. In such event, there is no occasion for the Assessing Officer to form an opinion after examining the documents enclosed with the return whether in the form of balance-sheet, audited accounts, tax audit report, etc. The first proviso to section 147 of the Act applies only (a) where the initial assessment is under section 143(3) of the Act and (b) where such reopening is sought to be done after the expiry of four years from the end of the relevant assessment year. In other words, the requirement in the first proviso to section 147 of the Act being a failure on the part of the assessee ―to disclose fully and truly all material facts‖, it does not apply where the initial return has been processed under section 143(1) of the Act. In view of this we reverse the finding of the Ld. CIT appeal in holding that reopening of the proceeding is invalid. In the result ground No. 1 of the appeal of the revenue is allowed. Disallowing brought forward speculative loss - Held that:- If the transactions are carried out electronically at recognised stock exchange in shares and securities then the assessee is eligible to claim that the loss incurred by it in assessment year 2005 – 06 was not speculative in nature. Hence to determine this aspect we set aside ground No. 2 of the appeal of the revenue to the file of the learned assessing officer to determine whether loss incurred by the assessee is satisfying the conditions of eligible transactions or not such as whether transactions are carried out at recognised exchange for the respective trade or not. Needless to say that it is for the assessee to establish that the transactions carried out by him on which the losses are incurred are eligible transactions by production of trading notes of exchange, and therefore Ld. Assessing officer is also directed to grant adequate opportunity of hearing and adducing evidence in support of the claim to the assessee. Appeal of the revenue is allowed with above direction. Issues Involved:1. Validity of reopening of assessment under section 147 of the Income Tax Act.2. Allowability of set off of speculative loss against business income for Assessment Year 2006-07.Issue 1: Validity of Reopening of Assessment under Section 147:The appeal filed by the revenue challenged the order of the ld CIT(A) regarding the reopening of assessment under section 147 for the Assessment Year 2006-07. The revenue contended that the ld CIT(A) erred in holding the reopening invalid. The assessing officer had reopened the case within four years of the end of the assessment year, following due procedure. The Ld. departmental representative argued that the reasons recorded for reopening were valid, as the original assessment was processed under section 143(1) of the Income Tax Act. The tribunal referred to a Delhi High Court case and held that when a return is processed under section 143(1), it does not constitute an assessment for the purposes of section 147. Therefore, the tribunal allowed the revenue's appeal on this ground.Issue 2: Allowability of Set Off of Speculative Loss:The second ground of the revenue's appeal questioned the deletion of the addition of Rs. 5484520 made by the assessing officer by disallowing the brought forward speculative loss. The assessee incurred speculative loss in the previous assessment year, which was classified as speculative income. The ld CIT(A) allowed the set off of this loss against the business income for the current year, relying on a precedent. The revenue argued that the loss claimed by the assessee was speculative in nature and not allowable for set off against business income. The tribunal agreed that the assessee could set off the loss incurred in the previous year if the transactions met the conditions of eligible transactions as defined in section 43(5)(d). Therefore, the tribunal directed the assessing officer to determine whether the transactions satisfied the criteria of eligible transactions and granted the assessee an opportunity to provide evidence. Consequently, the tribunal allowed the revenue's appeal on this ground with the above direction.In conclusion, the appellate tribunal partially allowed the revenue's appeal, upholding the validity of reopening the assessment under section 147 while directing a review of the allowability of set off of speculative loss against business income for the Assessment Year 2006-07.