2021 (12) TMI 1032 - AT - Income Tax

Tribunal rules in favor of taxpayer in income tax dispute overturning speculative loss classification

Shri Vijay Kumar Aggarwal Versus Pr. CIT, Ghaziabad

Shri Vijay Kumar Aggarwal Versus Pr. CIT, Ghaziabad - [2022] 93 ITR (Trib) 602 (ITAT [Del]) Issues Involved:1. Jurisdiction and validity of the order passed under Section 263 of the Income-tax Act, 1961.2. Classification of loss from day trading as speculative loss versus business loss.3. Adequacy of inquiries conducted by the Assessing Officer (AO).4. Impact on taxable income and revenue interest.5. Consistency in treatment of similar transactions in previous years.Issue-wise Detailed Analysis:1. Jurisdiction and Validity of the Order under Section 263:The assessee contended that the Principal Commissioner of Income-tax (PCIT) lacked jurisdiction to pass the order under Section 263 of the Income-tax Act, 1961, arguing that the order was 'without jurisdiction, bad in law and void ab-initio.' The Tribunal examined whether the PCIT's order setting aside the assessment framed under Section 143(3) was valid. It was determined that the PCIT had issued the notice under Section 263 based on an audit objection, without independent application of mind, making the action unsustainable in law.2. Classification of Loss from Day Trading:The PCIT classified the loss of Rs. 93,23,384 from day trading as speculative loss, which the assessee argued was a business loss. The Tribunal noted that the assessee was engaged in the business of shares, including Futures & Options (F&O) and day trading, and had consistently treated such transactions as business income/loss in previous years. The Tribunal found that the AO had accepted the assessee's classification after due examination, and the PCIT's reclassification was a mere change of opinion.3. Adequacy of Inquiries Conducted by the AO:The PCIT argued that the AO had not conducted proper inquiries to determine whether the transactions were speculative. However, the Tribunal found that the AO had issued multiple notices and queries during the assessment process, to which the assessee had responded with detailed information. The AO had completed the assessment after examining the entire details, making the PCIT's claim of inadequate inquiry unfounded.4. Impact on Taxable Income and Revenue Interest:The assessee demonstrated that even if the loss of Rs. 93,23,384 was treated as speculative, the taxable income would remain the same due to the availability of brought forward losses. The Tribunal agreed, noting that there was no revenue loss either in the current year or in subsequent years. Therefore, the assessment order could not be considered prejudicial to the interest of the revenue.5. Consistency in Treatment of Similar Transactions:The Tribunal highlighted the principle of consistency, noting that similar transactions in previous years had been treated as business income/loss and accepted by the department in assessments completed under Section 143(3). Changing the classification in the current year without any new evidence was deemed inconsistent and unjustified.Conclusion:The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. It set aside the PCIT's order under Section 263 and restored the original assessment orders passed under Section 143(3). The appeals filed by the assessee were allowed, reaffirming the classification of the loss as business loss and upholding the AO's original assessment.