2017 (12) TMI 1349

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....ment in the case of the assessee for the year under consideration was examined by the ld. Principal CIT and on such examination, he found the order of assessment passed by the Assessing Officer under section 143(3) as erroneous as well as prejudicial to the interest of the revenue. He accordingly issued a show-cause notice under section 263 to the assessee-company pointing out the said error as under:- "It was observed that the assessee derived ifs main income from Trading in shares. Other sources of income were Interest Brokerage. Dividend etc. Assessee, inter alia, declared Rs. 1,45,405/- as Speculation profit under other income. In profit & Loss account the assessee debited Rs. 1,75,12,686/- (included in schedule-13/14) under the head "Derivative Loss". To determine income from business, the assessee treated this loss "other than speculation" and the same was accepted in assessment. Hence actual loss from speculation business was Rs. 1,73,67,281/- (1,75,12,686 - 1,45,405). As per the decision of the Honorable Delhi High Court in CIT vs. DLF Commercial (2013) 35 taxman 280]. loss in equity derivative is to be treated as speculative loss. Hence to determine income from bu....

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....ontract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in ore cognized stock exchange, shall nor he deemed to be a speculative transaction. [Explanation. -For the purposes of this clause, the expressions- (i) "eligible transaction" means any transaction.- (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation Act, 1956 (42 of 1956) or the Securities and Exchange Board of India....

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....pal CIT and he proceeded to revise the order of assessment passed by the Assessing Officer under section 143(3) by exercising his powers under section 263 for the following reasons given in paragraphs no. 4 and 5 of his impugned order:- "4. The power of revision by the CIT u/s 263 of the Act is very wide and it is in the nature of supervisory jurisdiction. The power u/s 263 can be exercised even in cases where the issue is debatable and such power is not comparable with the power of rectification of mistake u/s 154 or the Income Tax Act. It is well settled that incorrect assumption of facts or application of law satisfies the requirement of law i.e. order being erroneous & prejudicial to the interest of revenue. The order passed by the AO without application of mind or order showing apparent error of reasoning or the order where the A.O. simply accepts where the assessee stated in his return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr. CIT. It is a trite law that the disclosure of facts by the assessee in the return of income and for in the course ....

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....claim of the assessee for derivative loss on merit as mentioned in the notice issued under section 263, he finally revised the order of the Assessing Officer on the ground of alleged lack of enquiry by the Assessing Officer. He contended that the assessee-company in the written reply filed in response to the notice under section 263 had made a detailed submission to show that the claim of the assessee for derivative loss was rightly allowed by the Assessing Officer by treating the same as non-speculation loss on merit, but no finding or conclusion was given by the ld. Principal CIT on the submission made by the assessee so as to show how the order of assessment passed by the Assessing Officer was erroneous on this issue on merit. He contended that he simply set aside the order of the Assessing Officer on this issue on the ground of lack of enquiry without even pointing out as to what was the enquiry or verification the Assessing Officer must have done which he failed to do. He contended that it is not permissible under section 263 for the ld. Principal CIT to direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed by him under section....

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....al CIT. He contended that there is nothing on record to show that any query was specifically raised by the Assessing Officer on this issue and it was thus a case of lack of enquiry on the part of Assessing Officer which made the order passed by him under section 143(3) erroneous as well as prejudicial to the interest of the revenue. 9. We have considered the rival submissions and also perused the relevant material available on record. It is observed that in the assessment completed under section 143(3), the claim of the assessee of derivative loss being non-speculation loss was accepted by the Assessing Officer. The records of the said assessment was subsequently examined by the ld. Principal CIT and on such examination, he held that the said derivative loss was liable to be treated as speculative loss by relying on the decision of the Hon'ble Delhi High Court in the case of CIT -vs.- DLF Commercial [(2013) 35 taxmann 280]. Accordingly he treated the order of assessment made by the Assessing Officer as erroneous on this issue on merit as is clearly evident from the notice issued by him under section 263, the contents of which are extracted hereinabove in paragraph no. 3. In repl....

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....case, the contention raised on behalf of the assessee was that the ld. Principal CIT, before holding an order to be erroneous should have conducted necessary enquiries or verification in order to show that the finding given by the ld. CIT is erroneous and the view taken by the Assessing Officer is unsustainable in law and this contention of the assessee was found to be duly supported by law interpreted by the various Hon'ble High Courts including Hon'ble Delhi High Court. Reliance in this regard was placed on behalf of the Revenue on Explanation 2 to section 263 inserted by the Finance Act, 2015 w.e.f. 1st April, 2015. The Tribunal, however, did not find merit in the same by holding that the said Explanation can be said to have overridden the law interpreted by the Hon'ble Delhi High Court. It is observed by the Tribunal that if the revenue's contention is accepted, the ld. CIT can find a fault with each and every assessment order without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. It was also observed that the ld. CIT then can force the Assessing Officer to conduct the enquiry in the manne....