2011 (8) TMI 395 - AT - Income Tax

Rectification of Mistake - Speculation loss or business loss - entire amount of interest paid by the assessee to his creditors as business expenditure and to treat the amount of interest received by the assessee from his debtors as his income from money lending businessthe provision contained in section 2(ac) of the Securities Contract (Regulation) Act 1956 and amendment made in section 43(5) by the Finance Act 2005 - Held that - Amendment to Sectin 43(5) is not applicable to aY 2006-06 - It has been held that transactions in derivatives constitute speculative transactions for and up to assessment year 2005-06 - However it is also a matter of fact that a decision of the Tribunal in favour of the assessee existed (2007 -TMI - 59684 - ITAT BOMBAY-J ) on the date of passing assessment order. This decision though reversed later (2009 -TMI - 59828 - ITAT CALCUTTA) cannot be ignored. Thus we are of the opinion that the earlier decision of the Tribunal does lead to an inference that legal controversy subsisted and two opinions were possible in the matter. In other words the assessment order does not suffer from a mistake apparent from record in the sense that there was no patent mistake of law. Therefore it is held that the Assessing Officer did not have jurisdiction under section 154 to correct the mistake.

Summary

Issues:
Validity of order under section 154 and charging of interest under section 234B.

Analysis:

Validity of Order under Section 154:
The case involved an assessment order under section 143(3) where a subsequent rectification under section 154 added a loss from future/option trading transactions to the income. The appellant argued that the issue of whether the loss was speculative in nature was debatable at the time of the original assessment. The appellant cited various tribunal decisions to support the argument that derivative trading is distinct from speculative transactions. The appellant contended that as there was a legal controversy and two possible interpretations at the time of assessment, the order could not be rectified under section 154. The tribunal agreed, emphasizing that a rectifiable mistake must be apparent from the record, and in this case, there was no clear mistake of law. The tribunal noted that the amendment excluding derivative transactions from speculative transactions was prospective and not applicable to the assessment year in question. Therefore, the tribunal held that the assessing officer lacked jurisdiction under section 154 to correct the alleged mistake.

Charging of Interest under Section 234B:
The appellant did not discuss the issue of charging interest under section 234B, and it was considered consequential in nature by the tribunal. The tribunal directed the assessing officer to revise the computation of interest accordingly.

Conclusion:
In conclusion, the tribunal allowed the appeal, ruling in favor of the appellant on the grounds of the validity of the order under section 154. The tribunal held that the assessing officer did not have the jurisdiction to rectify the alleged mistake as there was no clear error apparent from the record. The issue of interest under section 234B was deemed consequential, and the assessing officer was directed to revise the interest computation accordingly.