TaxTMI 
TaxTMI 
2003 (11) TMI 59
X X X X Extracts X X X X
X X X X Extracts X X X X
....6, and its balance-sheet as on March 31, 1996. Various schedules to the profit and loss account were also enclosed along with the return. The profit and loss account disclosed a net profit of Rs. 1,12,02,488. This profit was arrived at after inclusion of two items of income, namely, Rs. 72.50 lakhs and Rs. 45,32,852 in its income. These two items sum up to Rs. 1,17,82,852. This amount represented the premiums received by the company from the customers over and above the listed price of cars. In the computation statement in which the taxable income was arrived at in accordance with the provisions of the Act, the company arrived at a profit of Rs. 45,45,526. However, the company had a brought forward business loss of Rs. 2,21,64,479. Loss to the extent of Rs. 45,45,526 was set off against the above business profit under the provisions of section 72(1) of the Act and thus the net taxable income was declared as nil. While so, the first respondent issued notice under section 143(2) of the Act and examined the case thoroughly on four different dates. Thereafter, a regular assessment was completed and an assessment order was passed under section 143(3) of the Act on March 31, 1999. Howev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icated above. Meeting the allegations in the writ petition, counter and additional counters have been filed by the respondents justifying the reasons set out by the Assessing Officer for reopening the assessment. It is averred that the assessee had claimed speculative loss on account of falling share value and sought to set off the loss against the business income of the assessee. In the return filed by the assessee for the assessment year 1996-97, the assessee merely claimed loss on account of the fall of the value of share without giving the details or placing the material before the Assessing Officer in support of the said claim. It is averred by the respondents that the record disclosed that the assessee had in fact never sold the shares but arrived at the loss claimed by it. It was merely a speculative loss which cannot be set off against the business income as per section 72 of the Act. The information available from the record disclosed that the shares on which the claim of speculative loss was made were in fact acquired by the managing director of the company and were never treated as assets of the assessee-company. The respondents alleged that the assessee had clearly fai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany, disclosed under the current assets value at the lower of cost and market value. Counsel, therefore, contended when nothing is detected, the respondents could not have proceeded in reopening the matter beyond the stipulated period of four years. It is also stated, where a full and true disclosure of material facts was made by the assessee, the Department cannot reopen an assessment even if there is loss of revenue or even if the inference drawn by the Assessing Officer was erroneous in the first instance. Counsel also took us to the provisions under section 209(3) of the Companies Act to convince the court about the mechanism to be followed in transactions of this nature. In support of his contentions, counsel also placed reliance on the decisions of the Supreme Court in Gemini Leather Stores v. ITO [1975] 100 ITR 1; CIT v. Hemchandra Kar [1970] 77 ITR 1; CIT v. Bhanji Lavji [1971] 79 ITR 582 and in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. Counsel stated that the fact of loss arising on revaluation of shares is a non-speculative loss and it is only an ordinary business loss. This arises even when there is no actual sale of shares. It arises because of the well-recognised....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s context, it is relevant to refer to the provisions of sections 147 and 148 of the Income-tax Act, 1961. Section 147 deals with the income escaping assessment and it reads thus: "147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er shall, before issuing any notice under this section, record his reasons for doing so." The provisions of sections 147 and 148 of the Income-tax Act, 1961, fell for consideration before the Supreme Court in a catena of decisions including in Sri Krishna Pvt. Ltd. [1996] 221 ITR 538. The Supreme Court while interpreting the said provisions, set out the circumstances as to when the court may look into and examine the conclusion arrived at by the Income-tax Officer in proposing to initiate reassessment proceedings. The Supreme Court observed thus: "The Income-tax Officer can issue notice under section 148 of the Income-tax Act, 1961, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment The existence of the reason(s) to believe is intended to be a check, a limitation, upon his power to reopen the assessment Section 148(2) imposes a further check upon the said power, viz., the require....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. Sri N. Siva Swamy, counsel for the petitioner, has drawn our attention to the material particulars which were furnished to the assessing authority by the petitioner during the relevant point of time, which are filed as material papers along with this writ petition. A glimpse at page 55 of the material papers discloses that at point No.6 under the caption "Notes to accounts", the petitioner has furnished the following information to the assessing authority, viz., "The company has invested in quoted and unquoted shares amounting to Rs. 1,29,33,500. These are held in the personal name of the managing director as decided by the board. These are classified as 'short term investments' under the current assets. The company has not provided for reduction in the value of such investments as at the end of the year." At page 57 of the material papers filed along with the writ petition, under schedule 10 categorised as "sales", the petitioner has disclosed all material facts falling under sales category. Under schedule 11 under the head of "Other incomes", the petitioner has furnished all the material particulars with regard to other income. It is evident from the material papers from pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.........From this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question' (extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April 1951). While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax ....