2018 (9) TMI 107 - HC - Income Tax

Court affirms trading loss as business loss

The High Court affirmed the Tribunal's decision in favor of the assessee, holding that the loss from trading in derivatives could be treated as a business ... Revision u/s 263 - records did not reveal any inquiry being conducted by the Assessing Officer - Held that:- n the revisional authority’s order, there is no specific discussion on the question as to whether the assessee comes within the ambit of Section 70 of the 1961 Act or not and the revisional authority appears to have proceeded on the basis of that the assessee’s case is covered by Section 73 of the Act. The main reasoning of the Commissioner exercising his jurisdiction under Section 263 of the Act for remanding the matter to the Assessing Officer was that the records did not reveal any inquiry being conducted by the Assessing Officer. The Tribunal, however, found on fact that such inquiry was made and this appears from the above quoted passages of the decision of the Tribunal. In course of hearing Mr. Mitra contended that the fact that such inquiry was made did not appear from the assessment order and hence, there was no error in the decision of the Commissioner. But that is not the specific factor which had persuaded the Commissioner to remand the matter. As we have already observed, the Commissioner’s view was that no inquiry was made. The Tribunal found otherwise. In the event such inquiry was made, we do not think it was necessary that the nature and scope of such inquiry ought to have been clearly spelt out in the assessment order. Tribunal has come to a finding that the Assessing Officer did make sufficient inquiry and on law also, the Tribunal has given its finding. We do not find the decision of the Tribunal to be erroneous. Issues:1. Whether the loss suffered by the assessee on account of trading in derivatives can be treated as business loss.2. Whether the Assessing Officer conducted proper inquiries before allowing the set off of the loss against the assessee's business profits.3. Whether the revisional authority's decision to remand the matter to the Assessing Officer under Section 263 of the Income Tax Act, 1961 was justified.4. Whether the Tribunal's decision in favor of the assessee was correct based on the inquiries made by the Assessing Officer.Issue 1:The High Court dealt with the question of whether the loss suffered by the assessee from trading in derivatives could be treated as a business loss. The Commissioner, in exercising revisional jurisdiction under Section 263 of the Income Tax Act, opined that the Assessing Officer did not conduct proper inquiries to determine the nature of the transactions giving rise to the loss. The revisional authority held that the assessment order was erroneous as the relevant facts were not considered before allowing the claim of the assessee.Issue 2:The Tribunal found that the Assessing Officer did conduct proper inquiries during the assessment proceedings by requesting details of the loss from derivative trading and examining the submissions and documents provided by the assessee. The Tribunal concluded that the inquiries made by the Assessing Officer were adequate and proper, and the loss from derivatives was a normal business loss falling within the ambit of the exception to section 43(5) of the Act.Issue 3:The revisional authority remanded the matter to the Assessing Officer based on the lack of inquiry being conducted. However, the Tribunal found that sufficient inquiry was indeed made by the Assessing Officer, contrary to the revisional authority's view. The High Court observed that the Tribunal's decision was not erroneous, as it found that the Assessing Officer had conducted adequate inquiries and gave a proper finding on the law.Issue 4:The High Court dismissed the appeal against the Tribunal's decision, upholding that the Assessing Officer had conducted sufficient inquiries and the Tribunal's findings were correct. The Court found that the Commissioner's view that no inquiry was made was not supported by the facts, as the Tribunal had found evidence of proper inquiry by the Assessing Officer. The Court concluded that the Tribunal's decision was not erroneous and upheld the decision in favor of the assessee.In conclusion, the High Court affirmed the Tribunal's decision in favor of the assessee, holding that the loss from trading in derivatives could be treated as a business loss and that the Assessing Officer had conducted proper inquiries, contrary to the revisional authority's opinion.