TaxTMI 
TaxTMI 
2022 (11) TMI 1056
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....rcumstances of the case. 2.1 The brief facts of the case are that assessee, a partnership firm in mining business, returned it's income for the relevant year on 29/11/2014 at Rs. 552.85 lacs, comprising wholly of business income. Assessment was made u/s. 143(3) on 05/12/2016 at Rs. 838.29 lacs, again, as business income (assessment order on record/DPB pgs. 29-37). The same was subsequently enhanced to Rs. 2225.42 lacs by making an addition for Rs. 1387.13 lacs by, as stated, disallowing expenditure claimed on loss on shares in three Kolkata based companies (specified by name) vide order u/s. 154 dated 14/6/2017. Notice u/s. 133(6), as stated in the sec.154 order, seeking information on the listing status of these three companies on Calcutta Stock Exchange (CSE), had been sent on 16/11/2016, though no reply had been received up to the date of assessment. Subsequent reply thereto confirmed that none of these three companies was listed on CSE (DPB pgs. 1,2). The loss on shares claimed, which is from three (3) unlisted companies, is in the nature of a speculation loss, inadmissible for setoff against business income. In rectification proceedings, the assessee, vide it's reply dated ....
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.... whereby registration certificates of the broker companies were stated as furnished. The AO, however, disallowed the claim of loss, regarding it as suffered on trading in unlisted shares on CSE, as a speculative loss. 2.2 In appeal against the said order, it was explained before the first appellate authority that the matter had received due consideration by the Assessing Officer (AO) in the assessment proceedings. The assessee reiterated it's submissions, which found acceptance by the ld. CIT(A), who held as under: (pgs. 23-25) "(vi) In the case of the assessee, it has entered into foreign currency trading because it is an exporter of iron ore. Hence in view of ratio laid down by the Hon'ble Supreme Court the AO was not justified in holding in rectification order that for foreign currency exchange trading loss of Rs.5,99,53,188/- is a speculation loss. Whereas it is business loss and its setoff is allowable against the business income. (vii) For the above reason and also for the reason that this issue is a debatable issue, I am of the considered opinion that the AO erred in holding that foreign currency trading loss of Rs. 5,99,53,188/- is a speculation los....
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....f speculation loss against business income.' Assessee: 1. On the facts and in the circumstances of the case, the ld. CIT(A) should have held that the initiation of proceeding under section 154 is bad in law. 2. On the facts and in the circumstances of the case, the ld. CIT(A) should have held that the rectification order dated 13/6/2017 (*) is bad in law. [(*) correct date is '14/6/2017'] 3. We have heard the parties, and perused the material on record. 3.1 Section 154, in its relevant part, reads as under: Rectification of mistake. '154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,- (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub-section (1) of section 143; (c) amend any intimation under sub-section (1) of section 200A. (1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything con....
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....or rectification of assessment u/s. 35 of the 1992 Act (corresponding to s.154 of the Act) is, as explained in S. Sankappa & Ors. v. ITO [1968] 68 ITR 760 (SC), a proceeding for assessment. That 'record', for the purposes of sec. 154, would mean the record of assessment, i.e., all the material available in the proceedings of assessment, represents trite law (Maharana Mills (P.) Ltd. v. ITO [1959] 36 ITR 350 (SC); Mahendra Mills Ltd. v. AAC [1975] 99 ITR 135 (SC); CIT v. K.N.Oil Industries [1983] 142 ITR 13 (MP)). Section 43(5), again, in its relevant part, reads as under: Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires - (1) to (4) ..... (5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) to (d) xxxxxxxxx (e) an eligible transaction in respect o....
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....d position, as well as the materials furnished along with, being, as we shall presently see, the date-wise detail of loss and the ledger accounts of brokers, as also the letter dated 16/11/2016 to CSE, which would constitute the 'record' inasmuch as it is only with reference to this that the AO regards the order of assessment as 'mistaken'. The said reply, in its relevant part, reads as under: '6.3 (3) The assessee firm suffered a trading loss of Rs. 13,87,12,982/- during the year under consideration and the same is debited in the profit and loss account of the assessee firm. Out of the total loss, the loss suffered under the foreign exchange currency trading of Rs. 5,99,53,188/- and under the commodity trading of Rs. 7,87,59,794/-. Thus the total loss suffered by the assessee firm amounting to Rs. 13,87,12,982/-. The assessee firm made a trading of foreign exchange currency through the company of registered broker GEOMETRY VANIJYA PRIVATE LIMITED, having its registered Office at 11, Clive Row, Kolkata - 700 001. The complanince Off. Gautam Mukherjee and Email id is [email protected]. The Permanent Account Number (PAN) of the company is AACCG6000B. All transactio....
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....he copy of ledger accounts as appearing in the books of account of the assessee firm are also enclosed here with for your kind consideration. The copy of ledger account of broker Kathrene Agency Pvt. Ltd. and Rajgharana Trading Commodities Pvt. Ltd. in their books account and the copies of ledger account in the books of (sentence not complete)' (emphasis, ours) 3.3 There is, clearly, no whisper therein of the expenditure/loss under reference being on trading in shares. All the assessee's reply states is of the relevant transactions being duly supported, through an Exchange and per registered brokers; in short, genuine. There is also no reference to the transactions, stated to be in (a) foreign currency trading, and (b) trading in commodities, being non-speculative u/s. s.43(5) or, for that matter, being carried out through a recognised association or even a recognized stock exchange, even as the ingredients of the contract note specified for both the category of transactions are with reference to that specified in sub-clause (B) of Explanation 2 to s. 43(5), which defines an 'eligible transaction' u/s. 43(5)(e) per cl. (ii) thereof. We say 'stated', as there is nothing on record....
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....O's stance. 3.4 We are, in view of the assessee's reply dated 29/8/2016, the assessment order dated 05/12/2016, followed by notice u/s. 154 dated 14/12/2016, in principle, in agreement with the assessee's reply filed on 09/01/2017, furnished during the rectification proceedings. That is, firstly, review is excluded in rectification proceedings and, two, the two reasons that prevailed with the AO in moving rectification proceedings for denial of set off of the impugned loss, are as under: i) that the shares on the trading in which the loss claimed stands incurred, are not listed on CSE, a recognized stock exchange. ii) the impugned transactions are speculative, and the loss thereon, thus, speculative in nature. The words 'Besides this', at the beginning of the second sentence of the reasons, which, in the view of the AO, for the mistake inflicting the assessment dated 05/12/2016, signify the same as the second, without prejudice, reason. It may be noted that the AO, while referring to this reason, speaks of loss rs. 1387.13 lacs, even as the assessee does per it's reply dated 29/8/2016 before her in assessment. Why, even the assessee has also considered the s....
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.... foreign currency and commodities, the same, in the absence of any claim of the transactions being excepted u/s. 43(5)(e), much less shown to be so, was regarded by her as per se speculative, i.e., on the basis of the material on record, being the assessee's reply dated 29/8/2016 and, inferably, the material produced before her. 3.5 This then form the backgrounds facts leading to the issue of notice u/s. 154 on 14/12/2016, listing the particulars of the mistake (reproduced hereinbefore at para 3.3), requiring the assessee to show as to why, under the given facts and circumstances (and the law in the matter), the loss on trading in shares be not set off against business income of the assessee-firm. We shall take both the reasons stated therein in seriatim for examining their validity. (A) There can surely be no trading in a share unless it is listed, so that the inference of the claim being not genuine in view of it being not listed, cannot be per se faulted with. This itself is sufficient to impugn the genuineness of the impugned loss, i.e., where in respect of share loss, with the assessee having not furnished the relevant bills/contract notes, perhaps on account of the same....
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...., and the assessee's CO (Gd. 2), i.e., as argued before us. We may in this respect clarify that the AO having not questioned the assessee further in assessment, i.e., subsequent to it's submissions dated 29/8/2016, only the facts brought forth by the assessee or borne out by the material on record, are to be adopted. Applying the law thereto, if therefore the transactions resulting in the impugned loss are speculative, i.e., with reference to sec. 43(5), the parameters of which are well-defined, an adjustment would arise, else not. This, it shall be noted, is in respect of the merits of the adjustment in rectification. Due opportunity of hearing is to be by law provided where the same would have the effect of enhancing an assessment, being even otherwise a postulate of fair hearing, itself an article of natural justice. The objection by the assessee could though be toward both, i.e., the rectification in principle, as well as the proposed adjustment. We may, to begin with, set-out the relevant provisions of the Act, i.e., other than sec. 43(5) reproduced hereinbefore, as under, as, surely, it is only where a mistake obtains, after considering the assessee's explanation/s, per its r....
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.... income falling under a particular head of income is liable to be set off against income from another source under the same head of income. Further, where carried on in a manner so as to constitute a business, the loss of such speculative business, would be deemed to be separate and distinct from any other business (Explanation 2 to s. 28). The aspect of business, though apparent, is again not in dispute; the assessee though claiming it to be a non-speculative business in view of the satisfaction of the conditions of s. 43(5)(e). Assessment in the instant case stands made oblivious of the law on speculative transactions, i.e., in disregard of the statutory mandate, so that a rectification is per se warranted. We are conscious that the assessee, in rectification proceedings, explained the foreign currency trading transactions not as commodity derivative trading, but on actual purchase/sale of foreign currency/exchange to protect it's iron ore export receipts in foreign exchange from rate fluctuations therein vis-à-vis Indian rupee, i.e., as being in respect of it's mining business (refer para 2.1). The same, thus, has the effect of objecting to the rectification in principle ....
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....vative trading. A clear mistake of fact. And, even as it states the loss to be speculative, it does so without reference to and de hors the defining provision (s. 43(5)), and without reference to, much less meeting, the assessee's claims in the rectification proceedings of the same being excluded under clause (e) of s. 43(5), which thus remains unaddressed. The rectification order thus does not meet the requirement of law as to a judicial order, and cannot have our approval, even as we, for the reasons afore-stated, agree with it in principle. 3.7 We may, before proceeding further, clarify the basis for our stating in the preceding para of the foreign currency trading as being only trading in commodity derivative, and it being stated in rectification proceedings as being in relation to the assessee's mining business is admittedly incorrect. The bills of Geometry Vanijya Pvt. Ltd. clearly reflect buying and selling transactions being effected. There is nothing therein toward a claim for actual purchase of currency as a trading stock, which is bought, only to be sold again, i.e., of the capital invested in the said stock. There is even no claim of margin money. That is, nothing to....
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....mmodity, so that a trade in foreign currency is a trade in commodity derivative, deemed non-speculative u/s. 43(5)(e), i.e., as the commodity derivative trading per M/s. Rajgharana Trading Commodities Pvt. Ltd. and M/s. Kathrene Agency Pvt. Ltd., the other two brokers. That is to say, the misstatement in rectification proceedings in its respect, it was argued by him, would not, in view of the correct facts, undermine the assessee's case. Its effect on the assessee's case aside, the misstatement, being misleading, is in itself unfortunate. The fact that thus obtains is that the entire loss is in respect of commodity derivative trading. Even otherwise, as clarified hereinbefore, unless proved incorrect with reference to the material on record, or otherwise ineligible in terms of clear law, the assessee's claims qua facts made in assessment would, in view of non-verification by the AO, be adopted as correct. 3.8 We have at this stage two options, either to issue appropriate findings, wherein that per the rectification order would merge, or to restore the matter back to the file of the AO for the purpose. Though this question, the rules being well laid out, does not normally arise, ....
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....rmed, as by the ld. CIT(A), whose order therefore cannot be upheld. The prime reason for remittance is the absence of clear findings in the rectification order. There is nothing therein to show consideration of the assessee's explanations vide it's letter dated 09/01/2017. The assessee has also not helped matters. It did not furnish the bills/CNs, the principal documents it relies upon in appellate proceedings, even in the rectification proceedings, explaining the mistake in accounts; relied on an incomplete provision; preferring to even not appear before the AO. The restoration shall thus allow the assessee another opportunity to present it's case, addressing each of the conditions of s. 43(5)(e), and the AO to meet the stated deficiencies, and bring the assessment in conformity with law, the avowed object of the rectification proceedings. The assessee may, toward this, apart from the law, rely on the documents produced in assessment (viz. bills/CNs), being only toward substantiating it's claims in assessment. The restriction qua the material on record, it may be noted, is toward the inference of a mistake, and not toward if it indeed is, and which is what the right to show that n....
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....hich may include, but is not limited to, ignoring a provision of law or a statutory requirement, is a mistake rectifiable under 154. The ld. CIT(A), however, finds nothing wrong with the assessment which does not even whisper about the impugned transactions being speculative. That the transactions are in commodity derivative trading is admitted. All that therefore was required to be done was to see if s. 43(5)(e) is indeed applicable to the transactions under reference as borne out by the record, as in fact contended in rectification proceedings. This is precisely what the ld. CIT(A) ought to have done, or caused to, in appellate proceedings. On the contrary, he even fails to notice the said omission in the assessment proceedings, as indeed in the rectification proceedings, even as he finds the former as in order, and the latter not so. And this, despite the entire bills/CNs having been furnished before him, the absence of which before the AO was also not noticed by him. He even does not adopt the correct provision of s.43(5)(e), where-under he confirms the transactions to be covered. Why, he even fails to observe that the assessee had, and which, coupled with the fact of it relyin....
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...., despite the assessee's clear claim of the same being qua commodity trading undertaken through brokers registered with commodity exchanges, toward which it, besides producing the copies of the Bills/CNs issued by them, also furnished details and copies of their ledger accounts. The AO, as is the admitted position, even otherwise apparent from the record, did not make any further enquiry with the assessee in the matter, and completed the assessment allowing the set off of the said loss against the assessee's mining business income wherein the said loss was debited as 'share loss'. The assessee claims, that it's claims, on facts, to the extent made in assessment, were to be therefore accepted as such; no misstatement or falsity having been shown therein. We could not agree more, with estoppel operating against the assessee as well. There was, however, no whisper by the assessee - who had in fact claimed the same as an expense/s, during assessment about the satisfaction of any of the exclusion clauses of s. 43(5), defining the speculative transaction under the Act, or even a claim of the impugned loss being non-speculative and, thus, eligible for setoff against business income (u/s. ....