2017 (9) TMI 1896 - AT - Income Tax

Validity of Reopening of assessment - reopening beyond 4 years from the end of the relevant assessment year - Disallowance of speculation loss - speculation loss cannot be set off against normal business loss - HELD THAT - AO has not mentioned as to what was the failure on the part of the assessee to disclose any material fact fully and truly which was necessary at the time of assessment on the earlier occasion u/s.143(3) - assessee has produced the details with respect to the loss at the time of original assessment. There is no contrary finding by neither the Ld.AO nor the Ld.CIT(A) that the assessee had concealed these facts at the time of original assessment - Revenue authorities has also not brought out a case that any fresh tangible material has surfaced after the original assessment made U/s.143(3) - Revenue has no jurisdiction to reopen the case of the assessee u/s.147 of the Act which is beyond the period of four years from the end of the relevant assessment year, further the assessee had fully and truly disclosed all materials at the time of original assessment U/s 143(3) - Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of speculation loss against normal business loss.
2. Validity of reopening assessment under Sections 147 and 148 of the Income Tax Act.

Issue 1: Disallowance of speculation loss against normal business loss
The appeal by the Revenue and the cross objection by the assessee arose from the order of the Ld. Commissioner of Income Tax (Appeals) concerning the disallowance of a speculation loss of ?1,05,59,900 made by the Ld. AO. The Revenue contended that the Ld. CIT(A) erred in deleting the disallowance, arguing that speculation loss cannot be set off against normal business loss. The assessee, a private limited company engaged in manufacturing and trading of bullion and jewelry, had filed its return for the assessment year 2009-10, declaring a total income of ?59,75,709. The assessment was reopened under Section 147, and the Ld. AO disallowed the setting off of the loss incurred towards commodity trading, holding it as speculation loss not eligible to be set off against normal business income.

Issue 2: Validity of reopening assessment under Sections 147 and 148
The assessee challenged the reopening under Sections 147 and 148, arguing that all necessary conditions, such as disclosing fully and truly all material facts, were met during the original assessment. The Ld. AO upheld the reopening, citing precedents and the requirement of tangible material to establish the escapement of income. The Ld. CIT(A) also supported the Ld. AO's decision. However, the assessee contended that all relevant documents were produced during the original scrutiny assessment, and the reassessment was beyond the four-year period, thus lacking jurisdiction. The Tribunal found that no failure to disclose material facts was evident, and no fresh tangible material had surfaced post the original assessment under Section 143(3). Citing relevant case laws, the Tribunal concluded that the Revenue had no jurisdiction to reopen the assessment under Section 147 beyond the four-year period and quashed the Ld. AO's order. Consequently, the cross objection of the assessee was allowed, and the Revenue's appeal was dismissed.

This judgment provides a detailed analysis of the issues surrounding the disallowance of speculation loss against normal business loss and the validity of reopening the assessment under Sections 147 and 148 of the Income Tax Act. The Tribunal's decision highlights the importance of meeting the conditions for reopening assessments and the necessity of tangible material to establish the escapement of income.